August Market Report

Waiting for….?

Waiting! It seems we are all waiting for something and waiting for it all the time! Stop lights. Check-out lines. Tax refunds. Investment returns. Wait, wait, wait, like Vladimir and Estragon, the two main characters in the play Waiting for Godot, who spend the whole time on stage opining on a variety of subjects as they wait for Godot. Unfortunately for them, Godot never shows up. I am not a fan of the play, but the play has become synonymous with idea of waiting for something (or someone). In the fast-paced world of economics and investing, one would think that we never have to wait for anything, yet it seems like we are waiting for everything. Really, it is not that we are waiting for something, but that we are too impatient. The faster data is produced, and the faster it is disseminated, the faster we want it. Speculation runs rampant, and the result is that investors begin to gamble on the potential for what the data might say instead of waiting and investing appropriately to what the data portends. While we used to wait upon earnings reports, the problem now is that the amount and type of data that investors wait on has greatly expanded and includes tariffs, trade deals, regulations, interest rates, unemployment, and inflation (just to name a few).  So, in the interest of not dragging things out, let us jump into the data and not keep Vladimir and Estragon, or you, waiting any longer.

Financial Markets

This year could be described as fast changing and volatile, which does not seem to fit with our theme this month. But, when digging a bit deeper, it is the perfect environment to wait, to be patient, and to not get caught up in the frenzy. After all, waiting and being patient can be considered negative in the world of investing, but these are often the best attributes an investor can have. Boring can be a good thing, and to some extent, July was just that, at least compared to most months this year. Stocks did well but did not blow the doors off, bonds gave up ground slightly, and international stocks fell back a bit, much like they have for most of the past decade or so. The Dow gained 0.16% in July, while the S&P 500, 400, and 600 added 2.24%, 1.62%, and 0.93% respectively during the month. The NASDAQ added 3.72%, while the Bloomberg US Aggregate Bond index shed 0.26%. A good month, but more ho hum than what we have experienced this year. Investors were kept waiting by the Fed, by President Trump over tariffs and trade deals, and by companies over earnings. Seems like a recurring storyline in 2025 and one that has, and can, cause investors who lack patience to drive themselves silly over what to do with their investments, while patient long-term investors have been able to ride out the volatility and have been rewarded for their patience.  For additional market and economic data, please see the end of this commentary.

The Economy

One thing we never seem to have to wait for is news on the economy. There seems to be a plethora of economic news every day, although much of it is mundane and generally ignored by average investors. On the other hand, there are a number of items like inflation data, unemployment reports, housing numbers, etc., that cause headaches for those that are less than patient. The economy is slowing, as reflected in GDP, employment data, manufacturing data, and the like, but all of this has been expected, and should not come as a shock to anyone. Prices are expected to move higher although not be as sticky as coming out of COVID, unemployment is expected to push towards 5%, but it too will turn around and head lower, tax rates are headed, or at least staying, lower, and deregulation is coming.  A mixed bag to be sure, but should the economy falter, the Fed has some room to cut rates, and that should help any negative results be short lived. The markets may overreact to negative news, in large part because of valuations, but relatively strong earnings reports should help keep stocks from floundering too badly.

Some days it feels like we are all waiting for the recession to hit just so that we can get it over with. Not a great thing to think about, but at least for now, it seems like it may be next year before anything official is reported. Slow growth beats no growth!

GDP (Gross Domestic Product) – Economic activity, as measured by GDP, contracted in the first quarter by 0.5% according to the third estimate. The contraction was mainly due to the spike in imports during the quarter due to fear over tariffs. Second quarter activity reversed course, as imports fell dramatically during the quarter, allowing GDP to show a 3.0% rate of growth according to the initial advance estimate. GDPNow had forecasted a growth rate of 2.6% (as of July 3^rd) for the second quarter, and many economists estimated the number would be around 3.0% or so. Third quarter GDP is expected to be lower, although GDPNow is forecasting a 2.5% rate for the third quarter as of August 5th. Full-year estimates continue to show a slowing economy and vary between 1.5% and 2.5%. Longer term, it is expected that GDP will settle in at a steady, if unspectacular, rate in the 2.0% range, similar to pre-COVID levels. While this data is important, it does not seem to light a fire under as many investors as it does economists. Waiting on the data is therefore not as critical in many circles as other economic data is. Perhaps this is because the economy grew at a steady 2.0%ish rate for much of the 2010s, and yet the markets continued to surprise to the upside. Whether that holds true in the future, only time will tell.

Inflation – Talk about waiting on a number! Economists and investors are not patient when it comes to the inflation reports each month. And then, once the numbers come out, they cannot wait to prognosticate as to what the numbers mean and then place trades based on that interpretation. Perhaps no other data point over the past several years has held sway over investors and economists the way inflation has. Some economists feel the inflation rate could ramp up closer to 4% by the end of the year before dropping back down. They are basing this on their perception of the cost of the tariffs on consumers. The good news is that they do not expect it to be much more than a blip, however. The latest CPI report did not help, as it ticked higher to an annualized rate of 2.7% in June, causing many to claim that inflation was back and, of course, it was all due to tariffs and was a sign of things to come. So, stocks sold off, albeit briefly. Looking deeper into the data, however, comparing the CPI reading to the latest Truflation data (1.65% as of August 4^th), perhaps those that are overly sensitive to the inflation data may have jumped the gun and overreacted. Be patient – wait on Godot – or at least in this case, take a closer and more current look at the data, instead of just one reading that covers the last twelve months, and it might be easier to sleep at night.

Unemployment – Like the inflation data and watching the Fed, the anticipation builds each month as the day approaches as to when the government releases the employment report. Like everything else, the report ends up being politicized by both parties, and sometimes what may be viewed as good news is deemed bad news by the opposition and vice versa. The data is important, as it also helps get a glimpse into the health of the economy, so waiting on the data can be a worthwhile exercise. In July, 73,000 new jobs were created, which was well below expectations, and the unemployment rate rose to 4.2%. While that certainly was not the best news, the worst part of the report was the revision of past data. For example, May’s numbers were revised downward by 125,000 from 144,000 new jobs to just 19,000. June’s data was similarly revised downward by 133,000 new jobs from 147,000 to just 14,000. The current results and the revisions were deemed by many to be significant signs that the economy is slowing and headed towards a recession. It is interesting to note, however, that the number of individuals just entering the workforce (unemployed individuals seeking their first job) increased substantially during July, and only time will tell how well the economy is able to absorb these new participants. In any event, the data may show a slowing economy, but not one that is in a recessionary state at this time.

Wisconsin (3.2%) and Madison (2.7%) bucked the trend, as preliminary June numbers showed an improvement in their respective unemployment rates.

The Fed Watch

Someone should write a play called Waiting for the Fed, as there seems to be no greater source of angst among some investors and economists than waiting for the Fed to adjust interest rates.  Of course, there is not always consensus as to what they should do. Right now, many are calling for the Fed to cut rates, while others are okay with the Fed waiting to raise rates until the inflation fight is over. President Trump is firmly in the camp of wanting the Fed to cut rates and, like virtually every president before him, has called on the Fed to act. While there is some room for a couple of rate cuts due to the relative tightness of the money supply, there is certainly no reason for the Fed to dramatically cut rates. The Fed will likely cut rates in September and possibly once more before year end. At the last Fed meeting there was some dissent, as two members voted for a rate cut, and so the likelihood of a cut in September is greater than it might have already been. But you guessed it, we will have to wait to find out what the Fed will do.

Tariffs

With the end of the 90-day pause in the implementation of higher tariffs by the Trump administration, it was hoped that the need to wait on trade deals and the end to tariffs might be coming to an end. Nope. Yes, some new trade deals have been worked out – think Japan and the European Union – some increased tariffs have gone into effect, and some have seen the pause extended. The amount of tariff related revenue continues to surge, but we must wait to see what the ultimate impact is versus the potential costs of inflation, etc. This is a category that is causing consternation among investors and economists as there doesn’t seem to be any certainty to anything and so even if you are patient and wait for deadlines to be reached, the result is that the deadline may get moved and the answers you seek remain elusive.  The only constant with tariffs is uncertainty.

Outlook/Summary

While our two characters from Waiting for Godot, Vladimir and Estragon, wait and wait and wait, they never do meet up with Godot. In the end their efforts seem futile. With investors, however, waiting, as reflected by the passage of time, works. Over time the markets go up, and so if you have the patience and the time, you usually get rewarded. That is different from those that seek to make their fortune overnight, which is usually more consistent with gambling than investing. The process of being patient, diversifying, not timing the market, seeking some downside protection, and using high quality investments pays off in time and is consistent with our approach. We continue to stay abreast of economic activity and will adjust accordingly, but will not time the markets. Should you like to discuss your portfolio or strategy or establish a new relationship, please call the Wealth Management division of Lake Ridge Bank at (608)826-3570. We look forward to speaking with you.

Market/Economic Data

As of July 31st, 2025…. Unemployment data is through July for national, June for Madison and Wisconsin (both preliminary); inflation data is through June:

Thank you for your business – we look forward to speaking with you soon. (Note – this commentary used various articles from JP Morgan, Morningstar, the Wall Street Journal, Investor’s Business Daily, Northern Trust, CNNMoney.com, msn.com, Kiplingers.com, nytimes.com, Fidelity Investments, American Funds, LPL Financial and other tools as sources of information.

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