The stock market continued to climb in August, reaching new highs, and bonds also chipped in with positive returns. That’s encouraging, especially given the constant drumbeat of headlines about tariffs, interest rates, and technology stocks.
Markets did wobble mid-month on fears that the Federal Reserve might keep interest rates higher for longer to fight inflation. But confidence returned as corporate earnings came in stronger than expected, giving investors reassurance that the economy remains on steady footing.
| |
MTD% |
YTD% |
| NASDAQ |
+1.58% |
+11.11% |
| S&P 500 |
+2.03% |
+10.79% |
| Russell 2000 |
+7.14% |
+7.06% |
| MSCI World ex-USA*** |
+3.54% |
+22.19% |
| MSCI Emerging Markets |
+1.47% |
+19.63% |
| Bloomberg U.S. Agg Bond |
+1.20% |
+4.99% |
Source: The Wall Street Journal, Dimensional Returns
MTD returns: July 31, 2025–August 31, 2025
YTD returns: December 31, 2024–August 31, 2025
**in US dollars
A Mixed Economic Picture
The economy did send some conflicting signals. GDP growth was revised up to a solid 3.3% for the second quarter—quite a rebound from the weak start to the year. At the same time, job reports showed fewer new payrolls than expected, raising concerns about the strength of the labor market.
Despite those crosscurrents, volatility remains historically low. August’s performance is a good reminder that staying balanced across stocks and bonds helps investors weather uncertainty without losing sight of long-term goals.
Corporate Earnings Drive Markets
The real story this month came from earnings. Roughly 8 out of 10 companies in the S&P 500 beat expectations—the best showing in nearly a year. Even with tariffs and higher costs, companies are finding ways to adapt and grow.
A lot of attention continues to center on the so-called “Magnificent 7”—a handful of mega-cap tech names that now make up more than a third of the S&P 500. Their results were mixed, but enough of them exceeded expectations to help fuel a late-August rally.
The Fed’s Next Move
Looking ahead, all eyes are on the Fed. Fed Chair Jerome Powell recently signaled that rate cuts are back on the table. If the job market continues to soften, the Fed may start trimming rates as early as September.
Lower rates can be a tailwind for both stocks and bonds:
- For businesses, borrowing costs fall, supporting growth and investment.
- For bond investors, existing holdings gain value as rates move lower, while today’s yields remain attractive compared to historical averages.
Currently, high-quality bonds are offering 4–5% yields, with riskier bonds paying even more. For balanced portfolios, that’s a meaningful source of income alongside long-term growth potential from stocks.
Tariffs, Fed decisions, and political wrangling in Washington will continue to grab headlines. But it’s not the daily noise that determines your success—it’s having a disciplined plan that balances risk, provides steady income, and supports your long-term goals.
As we’ve seen again this month, markets can adjust quickly. Staying patient, diversified, and focused on the big picture is the best way to ensure your wealth supports the retirement you’ve worked so hard for.
