By John Lau, CPA, CFP®
August 1, 2025 – Since the market bottomed on April 8, stocks have been on a near uninterrupted climb, with the S&P 500 hitting new all-time highs. What’s driving this rally? A potent cocktail of improved trade clarity, stable economic data, a drama-free Washington (relatively speaking), a solid start to Q2 earnings season, and those ever-tempting expectations for Fed rate cuts. Together, they’ve sparked bullish investor sentiment and helped push markets to record territory.
But before we toast to the market’s good fortune, let’s remember: every cocktail has a hangover risk. So in the spirit of humility—and healthy paranoia—I’d like to highlight four possible candidates that could interrupt this bullish narrative. Some of them are already knocking on the door.
Candidate #1: AI Earnings—Not As Magical As Hoped
Let’s be honest: AI has been the superstar of this rally. Investors have pinned high hopes—and higher valuations—on the promise of machine-driven everything. And yes, some of the big tech names like Microsoft and Meta have delivered. But beyond that? It’s been a mixed bag.
Semiconductor stocks and semi-cap equipment makers—the plumbing behind the AI boom—aren’t living up to the hype. Earnings have been “good” but not “galactic,” and in this kind of market, merely good may not cut it. Since tech makes up such a hefty slice of the S&P 500 pie, underwhelming results here could cause the rally to pause, if not take a breather on the couch.
Candidate #2: Economic Growth Trips Over Its Own Feet
One key reason the market’s been able to stomach rising valuations is the sense that the economy is still stronger than the bears would have you believe. But cracks are forming.
The August 1 jobs report came in light: just 73,000 new jobs versus expectations of 100,000. Worse, the numbers for May and June were revised down dramatically. According to the U.S. Bureau of Labor Statics, May’s revised count dropped from 139,000 to a paltry 19,000. June? Slashed from 147,000 to just 14,000. That’s not a typo.
On top of that, the ISM Manufacturing PMI dipped to 48.0 versus an expected 49.5—a level that signals contraction. If economic data continues to falter, the market may have to reckon with the uncomfortable possibility that the growth backdrop just isn’t strong enough to support current valuations.
Candidate #3: The Fed Blinks (and Not in the Way We Want)
Markets have been pricing in two rate cuts this year, and that has served as a reliable tailwind for stocks since April. But Fed Chair Powell’s latest press conference threw a bit of cold water on that party.
Yes, he said the usual “no decision yet” on a September rate cut—but when pressed, he leaned heavily on continued inflation concerns and downplayed any major risks to the labor market. Translation: a September cut isn’t off the table, but it’s not in the gift bag either. If the market starts to doubt the Fed’s willingness to cut, we could see a sharp repricing.
Candidate #4: Surprise! Tariffs Could Bite Harder Than Expected
Markets have assumed that new tariffs—averaging 15–20%—are manageable. And until recently, that seemed like a fair bet. But Thursday night (July 31), the Trump administration dropped a bit of a tariff bombshell: new duties ranging from 10% to 41% on nearly 70 countries, set to take effect August 7. The press release declared this the dawn of a “new system of trade,” which doesn’t sound very reassuring. If these tariffs stick—or escalate—and there’s no quick fix, it could put pressure on global supply chains, consumer prices, and yes, the Fed’s willingness to cut. Worst case? TACO gets eaten for lunch.
Bottom Line: Optimistic, But Eyes Wide Open
The rally has legs—trade clarity, resilient growth, solid earnings, and the promise of rate cuts have all contributed to a bullish rotation into cyclicals, consumers, and YTD laggards like the Russell 2000. But let’s not get too cozy.
Much of this rally is based on the logic that “if it hasn’t gone wrong yet, it probably won’t.” That’s comforting, but not exactly a strategy. So, while we’re enjoying the ride, we’ll also stay vigilant, because the only thing worse than market volatility… is being surprised by it.
What Could Possibly Go Wrong? (Four Candidates for Market Mayhem)
By John Lau, CPA, CFP®
August 1, 2025 – Since the market bottomed on April 8, stocks have been on a near uninterrupted climb, with the S&P 500 hitting new all-time highs. What’s driving this rally? A potent cocktail of improved trade clarity, stable economic data, a drama-free Washington (relatively speaking), a solid start to Q2 earnings season, and those ever-tempting expectations for Fed rate cuts. Together, they’ve sparked bullish investor sentiment and helped push markets to record territory.
But before we toast to the market’s good fortune, let’s remember: every cocktail has a hangover risk. So in the spirit of humility—and healthy paranoia—I’d like to highlight four possible candidates that could interrupt this bullish narrative. Some of them are already knocking on the door.
Candidate #1: AI Earnings—Not As Magical As Hoped
Let’s be honest: AI has been the superstar of this rally. Investors have pinned high hopes—and higher valuations—on the promise of machine-driven everything. And yes, some of the big tech names like Microsoft and Meta have delivered. But beyond that? It’s been a mixed bag.
Semiconductor stocks and semi-cap equipment makers—the plumbing behind the AI boom—aren’t living up to the hype. Earnings have been “good” but not “galactic,” and in this kind of market, merely good may not cut it. Since tech makes up such a hefty slice of the S&P 500 pie, underwhelming results here could cause the rally to pause, if not take a breather on the couch.
Candidate #2: Economic Growth Trips Over Its Own Feet
One key reason the market’s been able to stomach rising valuations is the sense that the economy is still stronger than the bears would have you believe. But cracks are forming.
The August 1 jobs report came in light: just 73,000 new jobs versus expectations of 100,000. Worse, the numbers for May and June were revised down dramatically. According to the U.S. Bureau of Labor Statics, May’s revised count dropped from 139,000 to a paltry 19,000. June? Slashed from 147,000 to just 14,000. That’s not a typo.
On top of that, the ISM Manufacturing PMI dipped to 48.0 versus an expected 49.5—a level that signals contraction. If economic data continues to falter, the market may have to reckon with the uncomfortable possibility that the growth backdrop just isn’t strong enough to support current valuations.
Candidate #3: The Fed Blinks (and Not in the Way We Want)
Markets have been pricing in two rate cuts this year, and that has served as a reliable tailwind for stocks since April. But Fed Chair Powell’s latest press conference threw a bit of cold water on that party.
Yes, he said the usual “no decision yet” on a September rate cut—but when pressed, he leaned heavily on continued inflation concerns and downplayed any major risks to the labor market. Translation: a September cut isn’t off the table, but it’s not in the gift bag either. If the market starts to doubt the Fed’s willingness to cut, we could see a sharp repricing.
Candidate #4: Surprise! Tariffs Could Bite Harder Than Expected
Markets have assumed that new tariffs—averaging 15–20%—are manageable. And until recently, that seemed like a fair bet. But Thursday night (July 31), the Trump administration dropped a bit of a tariff bombshell: new duties ranging from 10% to 41% on nearly 70 countries, set to take effect August 7. The press release declared this the dawn of a “new system of trade,” which doesn’t sound very reassuring. If these tariffs stick—or escalate—and there’s no quick fix, it could put pressure on global supply chains, consumer prices, and yes, the Fed’s willingness to cut. Worst case? TACO gets eaten for lunch.
Bottom Line: Optimistic, But Eyes Wide Open
The rally has legs—trade clarity, resilient growth, solid earnings, and the promise of rate cuts have all contributed to a bullish rotation into cyclicals, consumers, and YTD laggards like the Russell 2000. But let’s not get too cozy.
Much of this rally is based on the logic that “if it hasn’t gone wrong yet, it probably won’t.” That’s comforting, but not exactly a strategy. So, while we’re enjoying the ride, we’ll also stay vigilant, because the only thing worse than market volatility… is being surprised by it.
Disclosure and Source
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any investment decisions. The information contained herein was compiled from sources believed to be reliable, but Robertson Stephens does not guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Performance may be compared to several indices. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. A complete list of Robertson Stephens Investment Office recommendations over the previous 12 months is available upon request. Past performance does not guarantee future results. Forward-looking performance objectives, targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are speculative and involve substantial risks including significant loss of principal, high illiquidity, long time horizons, uneven growth rates, high fees, onerous tax consequences, limited transparency and limited regulation. Alternative investments are not suitable for all investors and are only available to qualified investors. Please refer to the private placement memorandum for a complete listing and description of terms and risks. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.
Securities offered through Fortune Financial Services, Inc. Member FINRA/SIPC. Robertson Stephens Wealth Management, LLC and Fortune Financial Services, Inc. are separate entities and are not affiliated.
For information about Robertson Stephens, go to www.rscapital.com.
Talk To Us