By Vivien Lou Chen
`Every dip has its day and the market always finds a way to rise above the noise,’ Eric Diton, president and managing director of The Wealth Alliance, says of U.S. stocks
Tariff threats from President Donald Trump and fresh signs of a weakening jobs market rattled Wall Street investors on Friday – just as the market enters a historically rocky stretch from August to October. But some investors say this isn’t a moment to panic. The stock market, they note, has repeatedly shaken off trade fears in recent months and powered higher.
Is this time different? Read: August is historically a bad month for Big Tech stocks. What to expect this year.
Despite registering steep losses on Friday-the biggest one-day declines in more than three months-the S&P 500 SPX remains up 25% from its April 8th low, while the Nasdaq Composite COMP has jumped 35% from its “liberation day” nadir.
Trump’s latest move – a Thursday deadline for new trade agreements – threatens higher tariffs on more than a dozen countries, including Switzerland. See also: Trump hits dozens more countries with higher tariffs that start Aug. 7″Every dip has its day,” said Eric Diton, president and managing director of The Wealth Alliance in Melville, N.Y., an investment advisory firm that oversees $2.1 billion. He sees the market’s resilience continuing unless earnings weaken, inflation picks up, or the unemployment rate rises substantially.Trade tension are resurfacing at the same time the U.S. labor market is showing cracks. Friday’s nonfarm payrolls report for July included a weaker-than-expected job gain of 73,000 and big reductions to previous months data. On top of that, the unemployment rate came in at 4.2%, as expected, but up from 4.1% previously. The weak jobs report has strengthened expectations for a September interest-rate cut. On Friday, two Federal Reserve governors – Michelle Bowman and Christopher Waller – voiced renewed concerns about the labor market, reinforcing their dissent earlier this week when they broke from the majority and backed a cut to benchmark rates. Other recent data painted a mixed picture: GDP rebounded in Q2, but the surge was skewed by front-loaded imports tied to tariff fears. Meanwhile, inflation saw its biggest monthly increase since February, though markets largely shrugged that report off.
The U.S. economy has so far skirted a recession, even after more than 500 basis points – or 5 percentage points – of Fed rate hikes in 2022 and 2023.
CIBC’s Gary Pzegeo said the economy was better positioned this cycle, with businesses refinancing and consumers buoyed by post-COVID stimulus and hiring. “We are able to absorb more than we could in other cycles,” said the co-chief investment officer at CIBC Private Wealth in Boston, which looks after more than $100 billion in assets.
What CIBC Private Wealth is watching from here is whether companies beyond the technology sector can make further commitments to capital spending, Pzegeo told MarketWatch.
Large tech companies such as Microsoft Corp. (MSFT) and Meta Platforms Inc. (META) reported earnings results late in July and sent their shares soaring, lending further support to the idea that the recent stock-market rally might have more room to rise, despite Friday’s swoon. See also: Microsoft’s stock surges after earnings and Meta’s growth strikes Wall Street as incomprehensibly strong, and the stock rockets
What’s ahead?
Some of the biggest names set to release reports in the week ahead are Walt Disney Co. (DIS) and McDonald’s Corp. (MCD). Later in the month, attention is likely to turn to the Fed’s annual symposium in Jackson Hole, Wyo., between Aug. 21-23, where Chair Jerome Powell is expected to speak – offering another potential trading catalyst.Continued tariff anxieties and a labor market weaker than previously thought could produce a rocky stretch of trading that investors shouldn’t dismiss. That said, relatively easier Fed policy and Trump’s tactical approach to tariffs could also mean that stock-market investors might still be inclined to buy risky assets and shrug off their worries.
For bonds, the outlook may be a bit more nuanced.
There may come a time when bond-market participants might demand higher yields if the U.S. hasn’t made any progress in lowering the government’s debt and deficit, “but we are not there yet,” said Diton of The Wealth Alliance said via phone.
“What matters most in the end is that we constructively make trading deals around the world,” he said.
The dog days
History shows that August often brings turbulence for U.S. stocks. The Nasdaq Composite, for example, has averaged a gain of just 0.3% during the month, while September tends to be worse. The Dow Jones Industrial Average DJIA and S&P 500 have both posted average losses of 1.1% for that month, while the Nasdaq has lost 0.9% and the small-cap Russell 2000 RUT has lost 0.6%, according to Dow Jones Market Data.
October has a slightly better record, though small-cap stocks tend to lose an average of 0.6%.
Until Thursday, when Trump announced steeper tariffs on more than a dozen countries, investors appeared to have already moved past their worst stagflation fears – by sending the S&P 500 and Nasdaq to record closing highs on July 28, and keeping long-dated Treasury yields mostly rangebound.
But Friday’s opened old wounds – reminders that tariffs and labor market unease still have the power to disrupt.
Some investors remain optimistic that the current volatility could ease if trade rhetoric cools and economic data holds up. An easier Fed policy path, paired with Trump’s tendency to use tariff threats as bargaining chips, could still support stock gains.
The bond-market outlook, as noted earlier, is complicated. Tariffs could stir short-term inflation while dragging on long-term growth. At the same time, they may boost government revenue – a possible offset to the concern of rising deficits tied to Trump’s tax and spending plan.
“The worst-case scenarios that everyone imagined back in April have turned into something not so bad, but also not so great so we have to be careful about how much optimism gets priced into the market,” said CIBC’s Pzegeo. Tariffs “have to be absorbed somewhere. And right now they are being partially borne by exporters, partially absorbed by domestic sellers and partially absorbed by consumers.”
Friday’s jobs data also delivered a jolt, with surprise downward revisions for May and June. “You can get pretty rapid shifts in payrolls from month to month” and Friday’s revisions were “a little startling,” said Pzegeo. Still, “labor markets are roughly in balance” and pointing to a “non-recession” scenario.
“The market is swinging back into the camp of expecting a rate cut in September” he said. “And rightfully so. The bond market will look through the inflation risk and price in an easier Fed – which should help risky assets, including equities, later in the year.”
-Vivien Lou Chen
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08-03-25 1645ET
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