Avantax Market Update - August 2025

In this month’s market update video from August 2025, Austin Schaul, CFA®, Head of Research at Avantax, recaps returns for July and then shifts to an update on the economy, earnings, AI spending and our outlook going forward.

Market Performance – July Recap

• U.S. Stocks: Strong performance;
  • S&P 500 rose over 2%, hitting new all-time highs
  • Russell 2000 (small caps) gained 1.75%
• International Markets:
  • Developed markets declined 1.4%
  • Emerging markets rose over 2%, boosted by China
• Year-to-Date:
  • International indices (EAFE & EM) up ~18%
  • S&P 500 up ~9%

Bonds & Interest Rates

• Interest rates edged higher due to a hawkish Fed
• Bond returns: Slightly negative in July
  • Taxable bonds: +4% YTD
  • Municipal bonds: -0.5% YTD
• Municipal bonds seen as an attractive entry point due to current yields (~4%) and expected normalization in supply/demand

Economic Update

• Q2 GDP: Grew at 3% annualized, rebounding from Q1’s negative growth
  • Boosted by a decrease in net imports
  • Consumer spending contributed only 1%, showing signs of slowing
• Inflation:
  • Core PCE (Fed’s preferred measure) came in at 2.8% YoY, higher than expected
• Fed Outlook:
  • Despite inflation, the Fed has paused rate hikes
  • 2–3 rate cuts expected by year-end, possibly starting September 17

Corporate Earnings & AI Investment

• Earnings Season:
  • Over half of S&P 500 companies reported
  • Earnings growth tracking at ~8%, beating expectations
  • Tech & Communications sectors are leading
• AI Spending:
  • Major U.S. hyperscalers are increasing capex on AI
  • AI adoption is still early but growing across sectors
  • Corporate commentary suggests continued investment, supporting high market valuations

Outlook

• The market reflects a resilient but complex environment
• Expect higher volatility ahead due to:
  • Persistent inflation
  • Trade policy shifts
  • Elevated valuations
  • Slowing economic growth
• Long-term opportunities remain for disciplined investors

Watch the August 2025 Market Update on YouTube.