Market Performance Overview (August 4, 2025)
- S&P 500: Rose 1.47% to 6,329, recovering most of Friday’s losses.
- Nasdaq: Surged 1.95%, climbing back above 21,000.
- Dow Jones: Gained 1.34%.
- US 10-Year Treasury Yield: Fell 2.6bp, with the 2-year yield also dropping 2.7bp, as investors increasingly bet on Fed rate cuts.
- Oil (WTI): Down 1.62%, after an OPEC+ decision to reduce production cuts was larger than expected.
- Dollar Index: Remained stable.
Key Market Drivers & News
1. A Re-evaluation of the Jobs Report:
- “Bad News is Good News” Revival: The market’s sharp rebound was a classic case of “bad news is good news.” Last week’s disappointing July jobs report—with only 73,000 new jobs and significant downward revisions for May and June (258,000 jobs “evaporated”)—initially triggered a sell-off. However, investors have now re-interpreted the data as a strong signal that the Fed will be forced to cut interest rates, rather than as a harbinger of a deep recession.
- Stable Unemployment Rate: The unemployment rate of 4.2% is still historically low, suggesting the labor market is not collapsing but merely slowing down. This has given investors confidence that the economy can handle a rate cut without immediately falling into a recession.
- Fed Rate Cut Expectations Soar: The likelihood of a September rate cut, as priced by the CME FedWatch Tool, jumped to 95% today, up from 37% before the jobs report and 80% on Friday. This heightened expectation is a primary driver of the market rally.
- Divergent Analyst Views:
- Goldman Sachs: Maintains its prediction of three 25bp rate cuts this year (September, October, December). However, it suggests a 50bp cut in September is possible if the August jobs report shows a further increase in the unemployment rate.
- Bank of America: Holds to its view that the Fed will not cut rates this year due to persistent inflation and the risk of tariff-related price shocks. However, it recently added a new “alternative scenario” of significant rate cuts if the labor market deteriorates further.
- Political Influence: Trump’s announcement that he will appoint a successor to departing Fed Governor Adriana Kugler and a new head of the Bureau of Labor Statistics was widely seen as a positive for investors, as it increases the likelihood of a more dovish Fed and more favorable economic data.
2. Trade Tensions and Corporate Resilience:
- Conflicting Trade Signals:
- China: The New York Times reported that Commerce Secretary Wilbur Ross is recruiting a delegation of CEOs to accompany President Trump on a potential visit to China. This, coupled with the approval for Nvidia to sell its H2 chips to China, has raised hopes for a de-escalation of trade tensions.
- Europe: The EU has suspended its retaliatory tariffs on the US for six months, while Switzerland, shocked by a 39% tariff, is reportedly preparing a new offer.
- India & Russia: Tensions are escalating. Trump accused India of financially supporting Russia by re-selling large quantities of Russian oil. Russia, in turn, announced it is no longer bound by the Intermediate-Range Nuclear Forces Treaty (INF) and can deploy missiles as it sees fit.
- Corporate Earnings Defy Expectations: The Q2 earnings season continues to be encouraging. Over 80% of companies have beaten EPS estimates, and overall profit growth is now expected to be over 10%, more than double the initial 5% forecast.
- Palantir: After market close, Palantir reported strong Q2 earnings, with revenue and profit exceeding estimates. The company’s annual revenue guidance was raised to $4.14-$4.15 billion, sending its stock price soaring.
- Tesla: Gained significantly today after a special shareholder meeting affirmed Elon Musk’s stock bonus, valued at approximately $30 billion.
- Tax Cuts Offset Tariffs: Corporate giants like AT&T are projecting billions in tax savings from the Trump tax cuts, which are helping to offset the costs of tariffs. Goldman Sachs’s David Kostin noted that corporate executives are confident in their ability to mitigate the negative impacts of tariffs.
3. Market Sentiment and Outlook:
- Fundstrat’s Tom Lee: Argues that the economy is “strong but weak enough” for the Fed to implement “insurance cuts,” creating an ideal environment for a market rally. He believes inflation fears are overblown and that Friday’s sell-off was a prime buying opportunity.
- Morgan Stanley’s Mike Wilson: Suggests a “short-term correction of up to 10%” is possible in the third quarter due to seasonal weakness, delayed effects of tariffs, and inflation concerns. However, he remains bullish on the long-term outlook for the next 12 months, citing positive earnings leverage and AI adoption. He also believes the market’s bottom has been established and any dips should be bought.
- Bearish Views: Evercore’s Julian Emanuel warns that the recent rally, which pushed the P/E ratio to 25x, was overextended. With disappointing news finally surfacing, investors are running out of places to hide, and he predicts a 7-15% correction between September and October.
Q&A Highlights
- Question on Jobs Report Manipulation: Answering a concern about the potential manipulation of jobs data by a new Trump-appointed BLS director, the response suggests that while political pressure is real, overt manipulation is unlikely given the advanced nature and transparency of US statistical agencies. The risk of a major backlash would be too high.
- Question on India’s Resistance to Tariffs: The response highlights that India, with its large population and strategic position as a historical non-aligned power, is not an easy target for US pressure. Its massive domestic market and leverage with other nations (such as Russia) mean it won’t easily buckle. The current pressure is likely a negotiating tactic to bring India into a closer alliance with the US, rather than to alienate it entirely.
- Question on Retail vs. Institutional Investors: The response notes that the current rally is largely driven by individual investors (“retail”), who have been successfully “buying the dip,” while institutional investors (“short sellers”) have largely been caught off guard. The current rally suggests this trend is continuing. The speaker believes that a major market downturn is unlikely as long as the “buy the dip” mentality persists and economic fundamentals, like corporate earnings, remain solid.
Important Notice:
This content is for informational purposes only and does not constitute financial advice. Stock market investing carries significant risks. Past performance is not indicative of future results. Conduct your own research and consult a qualified advisor.