Equities
The S&P 500 returned +2.4% as markets focused on strong corporate earnings results and looked past the disappointing economic data from the previous week. Markets looked past several data points which may ordinarily have given it pause: a weak ISM Services print, rising yields due to weak auction demand for 10-year and 30-year treasuries, and various tariff-related headlines. Information technology (+4.3%) and consumer discretionary (+3.8%) were the best-performing sectors in the S&P 500, while energy (-1.0%) and healthcare (-0.8%) were the laggards. EAFE markets returned +2.9% with strong gains across major geographies, while EM markets returned +2.3% led by Brazil (+4.4%) and Korea (+4.1%).
From a valuation perspective, the S&P 500, the NASDAQ, and EM trade at or above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +2.1, the NASDAQ at +1.3, and EM at +1.2. For the next 12 months, EPS growth for the S&P 500 is expected to be 7.7% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 12.6% (vs. 10.7% annualized over the last 20 years). Equities across markets caps in the U.S., and in non-U.S. developed and emerging markets, trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment-grade-fixed-income sectors had mixed returns as yields rose across the curve, offsetting spread compression. Municipals returned +0.3%, US AGG returned -0.2% and US IG returned -0.1%. HY bonds returned +0.4% as spreads compressed 18bps while bank loans returned +0.1%. EM debt returned +0.7% even while the US dollar fell 1.0% even as spreads compressed 16bps.
Rates
Rates rose across the curve amid rising consumer inflation expectations and weak treasury auctions for 10-year and 30-year bonds. The recession-watch 3M-10Y spread widened 11bps and has flipped back to positive at +4. The 2Y-10Y spread compressed 1bp to +52. Rates rose in other developed markets as well, other than Japan; the BTP-Bund spread is at 0.79%. 5-year breakeven inflation expectations rose 5bps to 2.47% (vs. low of 1.88% on Sept 10); 10-year breakeven inflation expectations rose 6bps to 2.40% (vs. recent low of 2.03% on Sept 10); the 10Y real yield was flat at 1.89%. The market now expects between two and three cuts in 2025 vs. the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.75% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index fell 1.0%. The commodities complex fell 1.2% as energy prices fell 3.7% for the week. Brent prices fell 4.4% to $67/bbl amid hopes of an end to the war in Ukraine. US natural gas prices fell 3.0% while European gas fell 3.7%.
Market monitors
Volatility fell for equities and bonds (VIX = 15, MOVE = 79); the 10-year average for each is VIX=19, MOVE = 80. Market sentiment (at midweek) fell from 7 to -8.
Weekly Commentary
Investment Commentary – August 11, 2025
Stuart Katz
Equities
The S&P 500 returned +2.4% as markets focused on strong corporate earnings results and looked past the disappointing economic data from the previous week. Markets looked past several data points which may ordinarily have given it pause: a weak ISM Services print, rising yields due to weak auction demand for 10-year and 30-year treasuries, and various tariff-related headlines. Information technology (+4.3%) and consumer discretionary (+3.8%) were the best-performing sectors in the S&P 500, while energy (-1.0%) and healthcare (-0.8%) were the laggards. EAFE markets returned +2.9% with strong gains across major geographies, while EM markets returned +2.3% led by Brazil (+4.4%) and Korea (+4.1%).
From a valuation perspective, the S&P 500, the NASDAQ, and EM trade at or above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +2.1, the NASDAQ at +1.3, and EM at +1.2. For the next 12 months, EPS growth for the S&P 500 is expected to be 7.7% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 12.6% (vs. 10.7% annualized over the last 20 years). Equities across markets caps in the U.S., and in non-U.S. developed and emerging markets, trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment-grade-fixed-income sectors had mixed returns as yields rose across the curve, offsetting spread compression. Municipals returned +0.3%, US AGG returned -0.2% and US IG returned -0.1%. HY bonds returned +0.4% as spreads compressed 18bps while bank loans returned +0.1%. EM debt returned +0.7% even while the US dollar fell 1.0% even as spreads compressed 16bps.
Rates
Rates rose across the curve amid rising consumer inflation expectations and weak treasury auctions for 10-year and 30-year bonds. The recession-watch 3M-10Y spread widened 11bps and has flipped back to positive at +4. The 2Y-10Y spread compressed 1bp to +52. Rates rose in other developed markets as well, other than Japan; the BTP-Bund spread is at 0.79%. 5-year breakeven inflation expectations rose 5bps to 2.47% (vs. low of 1.88% on Sept 10); 10-year breakeven inflation expectations rose 6bps to 2.40% (vs. recent low of 2.03% on Sept 10); the 10Y real yield was flat at 1.89%. The market now expects between two and three cuts in 2025 vs. the Fed’s guidance of two cuts. At year-end 2025, the market expects the Fed Funds rate to be 3.75% vs. the Fed’s guidance of 3.75%-4.00%.
Currencies/Commodities
The dollar index fell 1.0%. The commodities complex fell 1.2% as energy prices fell 3.7% for the week. Brent prices fell 4.4% to $67/bbl amid hopes of an end to the war in Ukraine. US natural gas prices fell 3.0% while European gas fell 3.7%.
Market monitors
Volatility fell for equities and bonds (VIX = 15, MOVE = 79); the 10-year average for each is VIX=19, MOVE = 80. Market sentiment (at midweek) fell from 7 to -8.
Disclosure and Source
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