Market Monitor | August Update
Headlines and Highlights
- Court voids most tariffs pending appeal: A federal appeals court in Washington ruled that most of President Trump’s tariffs were issued illegally under an emergency law, deepening the uncertainty surrounding the global levies. The U.S. Court of Appeals for the Federal Circuit upheld a May decision by the Court of Trade but left the tariffs intact through October 14th, allowing time for a Supreme Court challenge. Trillions of dollars in global trade, and the signature economic policy of Trump’s second administration, remain at issue five months after the tariffs were first unveiled on “Liberation Day” on April 2nd.
- Trump moves to oust Federal Reserve governor, reshape Fed: President Trump said he was removing Lisa Cook from the Federal Reserve’s Board of Governors, a move Cook refused to accept and immediately challenged in court as “unprecedented and illegal.” Trump said the firing was justified by allegations that Cook may have falsified a mortgage application in order to obtain favorable terms. Cook has not been charged with wrongdoing or convicted of a crime, adding to questions about the legality of Trump’s action and leaving her status in limbo. If she is dismissed, Trump could soon gain a Fed majority of members he has appointed.
- Markets post August gains: The S&P 500 had a fourth straight winning month since its April setback from tariffs, lifted to new highs by strong corporate earnings and the likelihood of a Fed rate cut in September. Those prospects also catapulted small caps (+7.2%). The S&P 500’s 2.1% August increase lifted its year-to-date return to double digits (+10.8%). International developed stocks had their best month (+4.5%) since January, benefiting from the dollar’s latest drop against foreign currencies, and continue to far outpace their U.S. peers in 2025 with a 23.1%
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Our Views
- The appeals court ruling rejecting President Trump’s tariffs was a setback for the White House but is not the demise of the new levies. A Supreme Court ruling may still validate the tariffs, as the Trump administration believes. Regardless how the court rules, we believe the administration has legal alternatives that will keep tariffs roughly at their current levels.
- President Trump’s push to oust Lisa Cook as Fed governor is clearly more about his desire to lower interest rates than the specifics involving Cook. A successful ouster under these circumstances would endanger the Fed’s independence. As we have written many times, it is important that the central bank remain free of political considerations.
- The benchmark interest rate, currently 4.25%, should soon fall below 4% for the first time in three years with a quarter-point rate cut at the Fed’s next meeting on September 17th and another by year-end. We view those two likely cuts as an appropriate amount for current economic conditions and believe they would support markets without undue risk to inflation.
- The U.S. economy continues to thrive despite tariffs and other challenges in 2025 – the latest evidence being record corporate profits and limited layoffs in a cooling but still-healthy labor market. Rising inflation and persistent tariff uncertainty are likely to pose headwinds in the months ahead. But we expect the economy to remain resilient into 2026 and to soon get an extra boost from spending enabled by the recently passed U.S. tax bill.
- Bouts of market volatility are likely this fall as investors react to higher inflation, the Fed’s rate deliberations, legal challenges to tariffs and a Fed governor, and the potential for a government shutdown as the end of the fiscal year approaches. We believe stocks ultimately will achieve further gains by year-end thanks to the economy’s strength and robust corporate earnings and spending.
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