End of Summer is Still Hot for the Markets

Stock Market Still Hot This Summer

July was another good month for investors.  Our different allocations all participated and enjoyed the strong rally.  But as we move into August there are some headwinds we must navigate.  Continuing tariff/inflation uncertainty, seasonal volatility, the wait-and-see Fed, and a degree of economic slowing are all pointing to a challenging time for stocks. 

Looking beyond the next couple of months, we have some encouraging themes to bolster our confidence.  First, we expect a couple of fed funds rate cuts before year end to help support economic growth.  We will also continue to get support from resilient consumers. With these two big items on the upside, we remain constructive on the equity markets over the medium term and counsel patience during this stressful time for investors. 

Despite the upbeat 3% preliminary reading for 2^nd Quarter Gross Demotic Product, it appears the economy has lost some momentum.  Although it is very early to project 3^rd Quarter results, the Atlanta Fed GDPNow projection at 2.1% would put the first three quarters of 2025 at an average of 1.5%.  This compares, not so favorably, to a 2.8% annualized growth rate over the last three quarters of 2024.

While the recent GDP numbers dictate noticeable slowing, they also signify the economic soft landing that we’ve been touting for almost two years.  The odds of a recession are not zero, but mainly due to the strength of the consumer (which represents about 70% of the economy), we continue to stand with the soft-landing crowd. 

Another potential positive for stocks later this year: Provided inflation remains well-behaved, the Fed will feel increasing pressure to support the labor market and economy by easing monetary

policy.  The Fed has described it current stance as somewhat “restrictive.”  We expect them to loosen their grip slightly and execute their first interest rate cut since last December at their next policy meeting in mid-September.  The easing of interest rates by the Fed is beneficial for equities.

Despite the headwinds that we discuss above, we recommend all subscribers maintain your current asset allocations based on your risk tolerance.  It is a good time to enjoy your year-to-date gains and show patience as the market finds a way to break above all-time highs.  We may have a bit of a bumpy ride over the next 30-60 days, but we expect the markets to be higher by year end. 

Maintain your allocation.  Historically the markets have “climbed a wall of worry.”  We recommend clients continue to invest regularly and according to their plan. Volatile markets present opportunities to buy low.  Stay the course.  If you have any questions or concerns, please reach out to us.