Financial Market Roundup
Produced by Fifth Third's Investment Management Group
In the following piece, Fifth Third's Investment Management Group recaps the market and how it reacted to various events in the month of August 2025.
GLOBAL
TRENDS
On April 2, President Donald Trump announced reciprocal tariffs on imported goods on a country-by-country basis which were more severe than market participants expected.
On April 9, the administration lowered tariff rates with most trading partners to 10% to allow for trade negotiations to commence, with further reductions announced on May 12. Over the past month, some clarity on trade emerged with preliminary agreements reached with Europe, Japan, Vietnam, Indonesia and the Philippines. In response to tariff-related uncertainty, investors have noticed a considerable drop in business sentiment, lower consumer sentiment and elevated market volatility. Market and economic fundamentals that Fifth Third’s Investment Management Group favor – labor market strength, moderating inflation, easing monetary policy, strong corporate earnings – remain resilient; however, we suspect these fundamentals will deteriorate until a clear path forward for global trade is agreed upon by policymakers and businesses alike.
After restrictive monetary policies helped to curtail persistent inflation, most global economies have begun to lower interest rates to help foster growth and support global labor markets. Short-term interest rates from most of the world’s largest central banks are still elevated relative to the last decade, which adds pressure to global financial systems. Offsetting these easier global financial conditions is a sharp increase in global trade policy uncertainty.
Geopolitical tensions remain elevated due to recent conflicts between Iran and Israel, along with the ongoing war in Ukraine. Aside from the human tragedy that is always associated with war, these conflicts have also contributed to increased risks and volatility in financial markets.
Taken together, recent global and economic actions have kept investors on edge. Despite these concerns, global economic growth remains resilient, driven by consumer spending in most developed nations. We expect this to continue in 2025, although likely at a slower rate than historical norms.
CENTRAL BANK
POLICIES
The Federal Open Market Committee last met on July 30 and held interest rates steady, keeping their target range for the federal funds rate at 4.25%-4.50%.
Importantly, the decision to hold interest rates steady was not unanimous, with two Federal Reserve governors voting for a 25-basis-point cut. In addressing recent trade uncertainty within the context of its dual mandate – stable inflation and full employment – the formal press release stated: “Uncertainty about the economic outlook has diminished but remains elevated. The committee is attentive to the risks to both sides of its dual mandate.” The committee meets next on Sept. 17 and federal funds futures imply about a 40% chance of a 25-basis-point cut being announced at that meeting, with one or two 25-basis-point cuts for the rest of 2025.
The European Central Bank last met on July 24 and held their target interest rates steady. In a prepared statement, the ECB noted that future decisions “will be based on its assessment of the inflation outlook and the risks surrounding it, in light of the incoming economic and financial data, as well as the dynamics of underlying inflation and the strength of monetary policy transmission.” As of the end of July, market participants expect about a 50% chance of one further 25-basis-point cut from the ECB in 2025.
EQUITY
PERFORMANCE
Domestic stocks increased in July, with the S&P 500 gaining 2.2% and hitting all-time highs 10 times during the month.
The blue-chip Dow Jones Industrial Average increased 0.2%, while the tech-heavy Nasdaq composite advanced 3.7%. International stocks were mixed. The MSCI Emerging Markets Index posted a 2.0% gain, while the MSCI EAFE Index of developed international equities retreated 1.4%. The MSCI All Country World Index of developing and developed market stocks advanced 1.4% during the month.
Second-quarter earnings season is well underway, with over 280 S&P 500 companies having reported financial results. So far, results have been strong, with actual earnings growth exceeding 9%. From a sector lens, six sectors have posted earnings growth, while five are showing contractions. Looking ahead, over 175 S&P 500 companies are expected to report financial updates in August.
INTEREST RATES
AND GROWTH
On July 30, U.S. GDP for the second quarter of 2025 showed a strong rebound in economic activity, with growth of 3.0%, outpacing market expectations.
The report highlighted a resilient U.S. consumer, as private consumption – which accounts for about 68% of GDP – increased compared to the first quarter.
At the June FOMC meeting, the Fed released their latest summary of economic projections, which details the central bank’s outlook on a variety of prospective economic measures. Specifically, investors digested lower expected GDP growth, higher unemployment and higher core inflation forecasts for 2025.
During July, the U.S. Treasury yield curve moved higher across all term points. Specifically, the two-year Treasury yield rose 24 basis points, ending the month at 3.96%. The 10-year yield rose 15 basis points to 4.37%. In addition to higher Treasury yields, credit spreads, or the premium investors require for credit exposures, moved lower for both investment-grade and high-yield credit bonds over the last month.
Mortgage rates moved lower in July, with Freddie Mac’s Primary Mortgage Market Survey showing the average 30-year fixed rate falling to 6.74% on July 24 – down three basis points from June 26.
POLITICAL AND
REGULATORY TRENDS
Earlier this year, Trump announced reciprocal tariffs on imported goods on a country-by-country basis which were more severe than we or market participants expected.
These tariffs seek to decrease the trade deficit, promote domestic manufacturing and protect American workers. The net effect of these policy changes resulted in the largest increase in the effective tariff rate on imported goods since the 1920s, which has put downward pressure on business sentiment and upward pressure on inflation expectations from U.S. consumers.
Over the past month, progress on trade agreements and a de-escalation of trade tensions with China have helped reduce some of the current economic uncertainty. Preliminary deals were reached with the European Union, Japan, Vietnam and the Philippines during July. Additionally, on July 31, Trump assigned new tariff rates for countries that did not engage in negotiations. Most of the new tariff rates range between 15% and 20%.
INVESTMENT
TRENDS
Domestic equities began seeing upward changes to future earnings expectations in June, and that trend continued over the last month with positive revisions for the S&P 500.
The current earnings season also points to another strong quarter of actual earnings growth for large-cap equities.
Headline inflation moved higher over the last month but remains below 3.0%, with June’s consumer price index at 2.7%. Core CPI, which excludes food and energy, also rose, reaching 2.9%. The second-quarter U.S. GDP report detailed economic growth of 3.0%, with a still-resilient U.S. consumer. While the Fed made no policy changes in July, it has begun signaling potential interest rate cuts in the second half of 2025.
It is our belief that peak trade uncertainty is now behind us; however, geopolitical tensions continue to weigh on investor sentiment. Despite this, key domestic economic fundamentals – including labor market strength, moderating inflation and strong corporate earnings – remain resilient. On balance, the headwinds and tailwinds currently at play suggest there is a potential path for global economic growth, albeit at a slower pace than initially expected.
Equal Housing Lender.