Where did the summer go?
By Joe Smalley
Summer Winds Down, Fall Approaches
As summer begins to fade, many of us are shifting gears — kids are heading back to school, college football is almost here, and cooler evenings remind us that fall is around the corner. The transition feels familiar: we trade vacations and summer barbecues for tighter schedules and new routines. In many ways, the markets this quarter have gone through a similar shift — moving from the optimism of spring into a more complex and uncertain late summer landscape.
Earnings Still Resilient
Corporate America continues to impress. Earnings for the second quarter grew nearly 10% year-over-year, well above the ~5% expected back in June. Revenue growth has also been strong, especially in technology and financials, helping to push markets back toward record highs after April’s tariff-driven volatility. GDP growth came in at 3%, outpacing consensus forecasts and highlighting the resilience of the U.S. economy despite headwinds.
Tariffs Aren’t Going Away
Even with recent trade agreements with Japan, South Korea, and the European Union, tariffs remain elevated — around 15% — compared with historical norms. Negotiations are still unfolding with key partners like India, Brazil, Mexico, Canada, and Taiwan, leaving uncertainty in global supply chains. While permanent rates are likely to settle lower than April’s sharp tariff announcements, we don’t expect tariffs to vanish entirely. For consumers and business leaders, they remain a tangible cost, one that continues to shape sentiment and decision-making. And the effects are yet to be seen.
Jobs Data Flashes Caution
The July jobs report was sobering. The economy added just 73,000 jobs, far below expectations, and revisions stripped away another 258,000 positions from May and June. That brings average monthly job growth during that stretch down to just 35,000 — a sharp slowdown compared with earlier in the year. After months of strength in hiring, this marked the first real sign of cracks in the labor market, raising concerns about future consumer spending.
The Fed at a Crossroads
The Federal Reserve left rates unchanged at its July meeting, but two governors dissented, signaling growing pressure for rate cuts. The market is now pricing in a 90%+ chance of two cuts before year-end. Chairman Powell has remained clear: the Fed will respond to the data — inflation readings, jobs reports, and broader growth trends — not market expectations. His upcoming remarks at Jackson Hole in late August may provide critical guidance for September’s meeting.
The Fed now faces a delicate balance: slowing jobs growth argues for cuts, while still-elevated inflation argues for caution. Which side it leans toward will drive market direction into the fall. There is a political aspect to the Fed, as well, as one of the governors recently announced an early retirement. That could provide additional pressure on a rate cut.
Positioning for What’s Ahead
Despite the headlines, the backdrop for investors remains relatively unchanged:
Earnings strength supports equities.
Valuations are higher, suggesting selectivity and diversification matter more now.
Volatility is likely to stay elevated as trade negotiations, jobs data, and Fed policy all push and pull on sentiment.
Final Thoughts — Strategy Going Forward
Just as the school year brings new challenges and opportunities for families, the months ahead bring a fresh set of dynamics for markets. With the Fed’s next moves uncertain, we believe the best course is a measured, disciplined approach:
Rebalance portfolios after the recent rally to keep risk aligned with long-term objectives.
Lock in today’s yields while interest rates remain elevated, ensuring income streams are secured ahead of any Fed cuts.
Hedge portfolios where appropriate, using diversification across equity styles, geographies, and defensive strategies to help manage risk.
As we trade beach chairs for bleachers this fall, rest assured we’re watching the Fed, trade policy, and market signals closely — and adjusting strategies to keep your financial plan on track. As always, if you have any questions or would like to catch up, please reach out to our team — we are eager to hear from you. Enjoy these last days of summer!