Weekly Commentary (8/18/2025) - The Inflation Conundrum

Last week investors remained positive as the stock market hit record highs buoyed by the improving outlook for interest rate cuts.
The S&P 500 booked a gain of 1.0% for the week, the Dow Jones leaped 1.8%, and the Nasdaq Composite rose 1.0%.  Healthcare was the top performing sector rebounding 4.6%, primarily the result of a strong rebound in UNH (it was disclosed that Warren Buffet’s Berkshire Hathaway added to their position in the managed care company). Small companies, as measured by the Russell 2000, surged 3.1%. Foreign markets were also strong with developed (MSCI EAFE Index) and emerging markets (MSCI EM Index) climbing 2.4% and 1.6%, respectively. The price of oil fell 1.2%, with U.S. crude trading at around $63.13 per barrel, and gold fell 1.6% to $3,335 an ounce.  
On the economic front, the Consumer Price Index (CPI) for July came in at 2.7% YOY in line with expectations. The Producer Price Index, which is looked at closely for tariff effects, was 3.3%, exceeding economists’ forecasts. U.S. retail sales rose 0.5% in July from June, meeting analysts’ expectations and indicating the consumer is continuing to spend. The question is whether inflation data will encourage the Federal Reserve to lower rates at its September 13th meeting which the bond markets appear to be expecting. The 10-year U.S. Treasury ended the week flat with a yield of 4.3%. 
Despite the market soaring to price to earnings multiples nearing 30Xs, the threat of high tariffs and their inflationary effects, and the uncertainty over the Fed’s accommodating stance, the economy and financial markets are very resilient.  We encourage investors to assess the market risk, maintain their long-term allocations, and remain patient.
This week the attention will be on Fed Chair Jerome Powell who will give his speech at the central bank’s annual symposium on Friday. Housing starts and building permits and the Purchasing Managers’ Index (PMI) will be reported.
“It is the glistening autumnal side of summer. I feel a cool vein in the breeze, which braces my thought, and I pass with pleasure over sheltered and sunny portions of the sand where the summer’s heat is undiminished, and I realize what a friend I am losing.”  - Henry David Thoreau