More broken glass in the china shop

Market Perspective

August 1, 2025

What happened

Markets are under modest pressure as tariff tensions escalate. Overnight, President Trump signed an executive order reinstating “reciprocal” tariffs on dozens of countries, with updated duties ranging from 10% to 41%. The August 1 deadline marked the end of a temporary suspension, with many trading partners now facing higher tariffs.

Headlines around renewed trade friction are injecting fresh uncertainty into the macro backdrop. On top of that, today’s monthly payrolls report shows a softening in the job market. Consequently, the market is now pricing in a ~67% chance of a September Federal Reserve rate cut, up from 33% yesterday.

Our take

As we noted previously, we’ve been expecting to seemore broken glass in the shop” in the second half, and recent tariff headlines are delivering just that.

Perspective is key. The market had rallied approximately 28% from its April lows, pricing in a continuation of good news—resilient growth, disinflation, and strong earnings. That left it vulnerable to negative headlines.

For example, Polymarket odds for a 2025 recession were over 60% at the April lows but had dropped to just 12% recently. That shift in sentiment reflects how much optimism had been baked in.

Additionally, market performance has been tightly correlated with the U.S. Trade Policy Uncertainty Index. As tariff headlines reintroduce uncertainty, equities are pulling back. Valuations are also rich, with the S&P 500 trading near cycle highs.

This bout of tariff and softening employment news is arriving just as we enter the seasonally weaker period of August and September and move past the earnings catalyst window.

Historically, markets average three 5%+ pullbacks per year, and we haven’t had one since April. A pullback or consolidation of gains here would be normal, not unusual.

Technically, the S&P 500 remains in an uptrend. We see initial support around the 6100–6150 zone (recent breakout and 50-day moving average), with stronger support in the 5800–5900 range (prior support and 200-day moving average).

The April tariff-driven pullback serves as a reminder to avoid overreacting. The dominant bull market theme–artificial intelligence and technology–remains intact, with earnings in those sectors still strong. 

Positioning

The weight of the evidence remains balanced, not overly bullish or bearish, suggesting investors should stay aligned with their longer-term equity target allocations.

We continue to favor U.S. large caps and the growth style, where earnings momentum remains strongest. In contrast, small caps and the equal-weighted S&P 500 continue to underperform, with relative prices hovering near multi-decade lows.

We maintain a neutral stance on international developed markets. Within fixed income, we remain focused on high-quality bonds and are staying patient for a more attractive entry point in credit. We also continue to see value in gold as a portfolio diversifier.

Bottom line

The underlying equity uptrend still deserves the benefit of the doubt. However, markets have come a long way in a short time and were due for a breather. This is a classic “two steps forward, one step back” setup. We expect continued choppiness through the seasonal soft patch. On pullbacks, we remain focused on U.S. large caps and tech, where fundamentals remain strongest.

Our full report is reserved for clients only. Let’s work together.

A caring advisor can help you uncover opportunities and take on challenges—and provide greater confidence, clarity, simplicity, and direction.

The latest research & insights

    {0}
    {6}
    {7}
    {8}
    {9}
    {12}
    {10}
    {11}

    {3}

    {1}
    {2}
    {7}
    {8}
    {9}
    {10}
    {11}
    {14}
    {12}
    {13}