Week In Review 

08.08.25 

U.S. equities posted solid weekly gains despite a backdrop of heightened trade tensions and mixed economic data. The S&P 500 and Nasdaq hovered near record highs, supported by robust Q2 earnings and optimism around AI-driven growth, even as tariff uncertainty and labor market softness tempered enthusiasm. Investor focus remained squarely on the interplay between policy developments, inflation expectations, and the Federal Reserve’s next move.

The implementation of President Trump’s sweeping global tariffs marked a pivotal moment for markets. The new measures pushed the effective tariff rate to its highest level in nearly a century, with broad implications for supply chains and pricing. Semiconductor imports were hit with a 100% tariff, though carve-outs for firms committing to U.S. production—such as Apple, TSMC, and Samsung—helped cushion the blow. Apple secured a high-profile exemption after pledging an additional $100 billion in U.S. manufacturing investment, including a major expansion with Corning in Kentucky.

Elsewhere, India faced an additional 25% levy, bringing total tariffs on its exports to 50%, as tensions over Russian energy purchases escalated. While the U.S. and China are expected to extend their tariff truce by 90 days beyond the August 12 deadline, uncertainty around enforcement and potential secondary sanctions remains a key overhang for global trade.

Monetary policy developments added another layer of intrigue this week. Federal Reserve Governor Adriana Kugler announced her resignation last week (effective this Friday), creating an unexpected vacancy on the Board. In response, President Trump nominated Stephen Miran to serve as a temporary replacement through January 2026. Miran is considered a close ally of the Trump Administration as he has been a vocal advocate for tariffs and has also argued for lower interest rates to stimulate growth.

Meanwhile, Governor Christopher Waller has emerged as the leading contender to succeed Jerome Powell as Fed Chair when his term ends in 2026. Waller’s willingness to adjust policy based on forward-looking forecasts—rather than waiting for lagging data—has resonated with Trump’s advisers, who favor a more proactive stance on rate cuts. Former officials Kevin Warsh and Kevin Hassett remain in the mix, but recent reports suggest their momentum has faded as Waller consolidates support among key decision-makers.

The macro picture was mixed. July’s ISM Services PMI slipped to 50.1, barely in expansion territory and below expectations, as new orders softened and employment contracted for a second consecutive month. Respondents cited rising input costs and project delays tied to tariff uncertainty. In contrast, the S&P Global Services PMI surged to 55.7—its highest level this year—on stronger domestic demand. Both surveys flagged intensifying price pressures, reinforcing expectations for a near-term uptick in CPI.

Trade data offered a modest bright spot: the U.S. trade deficit narrowed sharply to $60.2 billion in June, its smallest since 2023, reversing the Q1 run-up driven by pre-tariff stockpiling. Imports fell 3.7%, led by pharmaceuticals and autos, while exports declined modestly. Meanwhile, Q2 productivity rebounded 2.4% annualized, the strongest in three quarters, while unit labor costs rose a contained 1.6%, suggesting inflationary pressures remain manageable. Initial jobless claims ticked up to 226,000, and continuing claims climbed to their highest level since 2021, as these two measures continue to indicate a “low hiring / low firing” environment.

Corporate earnings continued to deliver upside surprises. With over 90% of S&P 500 companies reporting, Q2 EPS growth stands at 11.2% year-over-year, well above the 4.9% pace expected at the start of the quarter. Revenue growth of 6.3% also exceeded forecasts, with 79% of companies beating EPS estimates. Growth outperformed Value among Large Caps, but Value outperformed down the remainder of the market cap spectrum. Sector leadership came from Technology, Communication Services, and Consumer Discretionary. Health Care, Energy, and Real Estate lagged and were the only sectors to finish in the red for the week. Notable standouts included Apple, which paired its tariff exemption with strong guidance, as well as other Tech and AI-related names like Arista Networks, Micron, Tesla, and Alphabet. Conversely, some consumer-facing brands such as Under Armour and Crocs warned of margin compression and softer outlooks tied to evolving trade policy and shifting consumer behavior.

While the equity market’s bias remains upward, the combination of trade policy uncertainty, sticky inflation risks, and a cooling labor market creates a complex backdrop. Strong earnings and improving productivity provide a cushion, but rising cost pressures and policy ambiguity warrant vigilance as we move deeper into the third quarter. Investors now turn to next week’s inflation data, with July CPI (Tuesday) and PPI (Thursday) expected to shed light on the tariff impact. Consensus calls for headline CPI to rise 0.2% month-over-month and 2.8% year-over-year, with core CPI at 3.0%. Retail sales and University of Michigan sentiment will round out a busy calendar. On the policy front, markets are pricing in a 90% probability of a 25-basis-point Fed cut in September, as recent commentary suggests the central bank’s focus is shifting more towards labor market trends rather than tariff-driven price shocks. Other highlights for next week’s economic calendar include (FactSet estimates in parentheses unless otherwise noted):

US NFIB Small Business Optimism (prev 98.6), US CPI (m/m: 0.24% | y/y: 2.8%), US Core CPI (m/m: 0.3% | y/y: 3.0%), EUZ Industrial Production (m/m: -0.45% | y/y: 2.7%), US PPI (m/m: 0.15% | y/y: 2.4%), US Core PPI (m/m: 0.2% | y/y: 2.9%), US Initial Jobless Claims (221k), US Continuing Jobless Claims (prev 1,974k), US Retail Sales (m/m: 0.6%), US Industrial Production (m/m: 0.05%), US Export Price Index (m/m: 0.2%), US Import Price Index (m/m: 0.3%), US University of Michigan Sentiment (62.2)

Past performance does not guarantee future results, which may vary.
Source: FactSet, MidWestOne Private Wealth.
All returns presented are total returns, which include the reinvestment of income and dividends.
For style performance, Large, Mid, and Small for US Equity refer to the Russell 1000, Russell Midcap, and Russell 2000 indices, respectively. Value refers to companies with lower price-to-book ratios and lower expected growth values, and Growth refers to higher price-to-book ratios and higher forecasted growth values. Real Estate refers to the DJ Equity REIT Total Return Index. Commodities refer to the Bloomberg Commodity Index. US Dollar refers to the value of the United States dollar relative to a broad basket of trade-weighted foreign currencies. Developed: MSCI EAFE; Morgan Stanley Capital International Index that is designed to measure the performance of the developed stock markets of Europe, Australasia, and the Far East. Emerging: MSCI Emerging Markets; Morgan Stanley Capital International Index designed to measure the performance of the emerging stock index of China, Brazil, India, and other emerging market countries.
Diversification does not protect an investor from market risk and does not ensure profit.
This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities. Views and opinions expressed are current as of the date of this publication and may be subject to change, they should not be construed as investment advice.