Economic and Market Review August 2025
$Dow Jones(.DJI)$ $S&P 500(.SPX)$ $NASDAQ(.IXIC)$
Overview
Despite a rocky start to the month, August saw Morningstar’s US Market index up on the month 2.1%, with the S&P500 up 1.9%. The Fed’s Jackson Hole meeting initially caused a broad de-risking that ended up boosting returns as investors now fully expect the Fed to cut during the September meeting.
Inflation came in at expectations, with CPI posting 2.7% month over month annualized. The long-term trend is a continuous move down toward the Fed’s 2.0% target, though progress once again appears to be stalling.
However, the story has now become one of balancing jobs with the price level. Job growth since June has been the worst since the pandemic, and the worst since the 2008 financial crisis. Yet, unemployment remains at 4.2%, near the Fed’s target of 4.0%. Powell even implied in his speech that it may be time to “balance” options, and that preserving full employment may become more important than returning the price level to the 2.0% target. Looking at other potential metrics, like wage growth, shows that inflation may be closer to its target than it appears based on headline data.
Reuters
As discussed last month, job gains were heavily revised down to just 35,000 created over the trailing 3 months causing Trump to fire the head of the BLS. Based on the JOLTS survey of hires and fires, companies continue to cut back on hiring, but layoffs have remained concentrated to technology and more tariff sensitive industries.
The hawkish argument is that lowering rates prematurely and causing an inflation spike would decrease the credibility of the Fed. If the Fed is noncredible then, inflation expectations and long-term rates could become unanchored, making borrowing costs even more burdensome. This would directly translate to increased costs and decreased economic activity, ironically making the jobs problem worse. The dovish argument is that if the Fed waits to act, it may need to do steeper cuts that accelerate inflation faster than it would be capable of moderating by other means. The needle the Fed must thread grows ever smaller, though most investors are now fully pricing in a rate cut.
Morningstar
Gold Demand Stays Steady
Concerns over Fed independence and broad expectations for a rate cut before inflation is fully tamed sent gold to near its highs in late August. Gold ETFs saw a further spike in inflows after a relative lull compared to the activity in early 2025.
Gold demand increased by 3% during the first half of 2025, roughly matching total supply increases. Jewelry demand fell to pandemic levels, though recycling activity also declined despite high prices. According to the World Gold Council, Indian consumers who makes up much of gold recycling activity have elected to exchange old jewelry or pledged it as collateral against loans. However, the overall decline in jewelry buying activity was offset by strong investment inflows and technology demand with the buildout of AI datacenters.
Central banks continued their streak of net purchases, with Chinese central bank announcing its 9th consecutive month of gold purchases, increasing gold to 7% of Chinese foreign reserves.
Though to the end of June 2025, the largest importer of gold was Poland, buying a net 67 tons.
Consumer Sentiment and Delinquencies Paint a Hard Picture
Transitions to delinquency are elevated across high-interest categories like auto and credit cards. Credit cards are at their highest delinquency level in 14 years. On 30+ day delinquency data, the most glaring spike is student loan transitions, with the end of a Biden-era policy that suspended payments as a form of COVID relief.
By age, it appears a ‘return to form’ for the youngest cohort. However, the 30-59 bracket appears to be creeping several percentage points above the pre-COVID trend.
This drastically contrasts mortgage accounts, which despite a brief rise in early 2025, have continued to stay below pre-COVID levels are trending downward once again.
Overall, bankruptcies and foreclosures remained below pre-COVID levels, with overall HELOC utilization remaining below the long-term average of 47.8% at 41.1%. It is likely then in our view that most of the economic pain is currently being felt by those who have little to gain by declaring bankruptcy or have few assets to seize in the event of one.
While the income gap is always obvious in the consumer sentiment index, it is notable that middle income and lower income consumers have far worse current sentiment than the 2008 financial crisis, and the lowest levels since the survey began in 1979.
With most COVID-era relief now rolled off, the lowest third of consumers overall rate themselves far worse off than the same time in 2020.
Corporate Insider Activity at All-Time High
Starting around the time Donald Trump was elected, insider sales have continued to accelerate.
Data As of November 2024
According to the VP of research at VerityData speaking to the Financial Times, insider volume was below average in the leadup to the election with most playing a ‘wait and see’ game. Historically, insiders are ahead of the market by 2-3 quarters, buying just before recoveries begin and selling just before all-time highs.
While stock-based compensation and other automated distributions have certainly increased the sheer volume of insider activity, the market-wide drop in purchases usually signals weak confidence in the ability for the market to support current stock prices.
It is strange then, that July 2025 had a record high repurchase authorizations, far exceeding the volume of offsetting insider activity.
The SEC’s own research indicates that firms with an outsized number of insider sales underperform by more than 8 percentage points in the 90 days following a buyback announcement. The current hesitation to buy and willingness to sell into market strength and their own buyback programs is a caution flag in our view.
Solar Takes off in Africa
According to research firm Ember Energy, Africa has grown its solar imports more than 60% in the trailing twelve months ending June 2025. The importers are incredibly diverse and span the continent with 25 countries importing more than 100MW, of those 16 are set to add at least 5% to their grid capacity utilizing solar.
With new restrictions going into effect on Chinese solar within the United States, it appears that China may be seeking to enter new markets to offload its excess capacity. Still, Africa as a continent remains under connected to the grid. A solution that appears to be gaining traction is micro-grids, which are dominated by solar. The Telegraph estimates that more than 400 million Africans now receive electricity from these solar micro-grids, which could be key in raising the quality of life for tens of millions.
Much of the continent’s grids are still utilizing fossil fuels, trailing behind the US and Europe. Thanks to the continent’s burgeoning natural gas industry, it has largely phased out coal ahead of China.
With rising commodity prices and volatility, the Global Solar Council estimates that the African continent will add 23 gigawatts between 2025 and 2028, far exceeding the 2.4 gigawatts estimated to have been installed in 2024.
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