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Week in Review
Equity Markets:
The S&P 500 sold off on Friday with its worst daily return since May and finished the week down 2.34%. A recent style rotation has pushed the Russell 1000 Growth to a year-to-date return of 7.97%, outpacing its value peer’s return of 5.24%1. Despite the recent rally in growth stocks, Utilities are the top-performing sector year-to-date, with a return of 15%, while the consumer discretionary sector is the biggest laggard, with a return of -4.9%.
Earnings season is over halfway complete, with 66% of S&P 500 companies having already reported2. Once again, companies have proven their resilience and are outpacing analysts’ expectations by a large margin. Thus far, 82% of S&P 500 companies have exceeded earnings estimates, and 79% have beaten analysts’ revenue expectations2. The blended earnings growth rate, which includes estimates and already reported numbers, currently stands at 10.3%. This is a significant improvement from the 5.8% growth rate that was expected on July 13.
Fixed Income Markets:
The Federal Reserve met last week and decided to keep rates unchanged for the fifth straight month. The decision was not unanimous, which is often the outcome, with two members dissenting and voting for a 0.25% rate cut.
Despite the actions from the Fed, the bond markets rallied last week and yields fell following the disappointing labor market reports. The 10-year Treasury yield fell 17 basis points while the short end of the yield curve saw more movement with the 2-year Treasury yield ending the week at 3.69%, down 0.22% for the week.
Economic:
The non-farm payrolls report on Friday caused a significant selloff. In July, the economy only created 73,000 jobs, but the real surprise was the large downward revisions. The reports for April and May saw a downward revision of 258,000, which brought jobs created in April down to 19,000 and a mere 14,000 in May. Second quarter GDP surprised to the upside and showed the US economy expanded at an annual rate of 3%. This is a big swing from the slightly negative growth in the first quarter. Inflation remains stubborn. The Fed’s preferred inflation gauge, the Personal Consumption Expenditures Index, rose at an annual rate of 2.8% and remains well above policymakers 2% target.
Looking Ahead
Equity Markets:
The S&P 500 is trading at 22.5x forward four-quarter earnings and remains in what we consider overvalued territory. The market has rallied nearly 30% from the early April low of 4,835. Despite positive earnings results, the majority of this rally can be attributed to multiple expansion. We believe that valuations will normalize and move closer to their historical level of below 20. This does not necessitate a market drop, but we could see a sideways move as earnings catch up to the price movement.
We acknowledge that valuations can remain stretched for an extended period, so we believe investors should be diligent and keep their portfolios in line with their strategic asset allocations. This is not an environment where we recommend taking excessive risks. Economic reports continue to come in mixed, and when valuations are extended, we believe the market is prone for volatility and short-term disruptions.
Fixed Income Market
The Fed remains data-dependent, and following reports from last week, it is likely still in a challenging position. Despite the weaker-than-expected labor market reports, inflation ticked slightly up and remains an issue. The Federal Reserve has a dual mandate: price stability and maximum employment. It will be a challenging balancing act going forward. The Fed Fund’s Futures Market has priced in a 94% probability of a rate cut at the September meeting, significantly higher than the 63% probability before the job’s report was released4.
Economic:
Following a busy week for economic reports this week’s calendar will be much lighter. Reports to note are the ISM services Index, consumer credit, and wholesale inventories. A report that will be closely watched this week, after the soft labor market reports last week, will be the weekly unemployment claims released on Thursday.
Sources:
1)JP Morgan
2)FactSet Research, Inc.
3)LSEG I/B/E/S.
https://lipperalpha.refinitiv.com/wp-content/uploads/2025/08/TRPR_82221_811.pdf
4)CME Group
Important Disclosures:
Investment Advisory Services offered through Krilogy®, an SEC Registered Investment Advisor. Please review all prospectuses and Krilogy’s Form ADV 2A carefully prior to investing. This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein. An offering is made only by a prospectus to individuals who meet minimum suitability requirements.
All expressions of opinion are subject to change. This information is distributed for educational purposes only, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.
Diversification does not eliminate the risk of market loss. Investments involve risk and unless otherwise stated, are not guaranteed. Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. Investment risks include loss of principal and fluctuating value. There is no guarantee an investing strategy will be successful. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.
Services and products offered through Krilogy® are not insured and may lose value. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.
