WP Weekly Insight (8/11 - 8/15)

Market Recap & Snapshot[1]

August 11 – August 15

• The stock market was in Fed-watching mode through the middle of the week. Benign inflation numbers, in the form of the consumer price index (CPI), had the market climbing on Tuesday in anticipation of future interest rate cuts. All the major US averages climbed over 1% following the CPI data release, with both the S&P 500 and Nasdaq Composite hitting record highs at the close on both Tuesday and Wednesday, and the S&P notching a third consecutive record on Thursday.
• The summer market lull hit its stride on Wednesday, with the Cboe Volatility Index (the VIX) and ICE BofAML Move Index, which measures bond market volatility, both hitting lows for 2025.
• The small-cap Russell 2000 index leaped over 3% on the week as the market started to price in Fed rate cuts with a higher degree of certainty. Smaller companies tend to rely more on bank loans and floating rate debt versus issuing bonds, and, so the thinking goes, may hence realize a larger benefit from falling interest rates as their cost of capital declines at a faster rate.
• Internationally, stock indexes in Japan’s Nikkei 225 and Australia’s S&P/ASX 200 indices both hit fresh all-time highs during the week.

The Fog of [Trade] War

The Sino-American Situation

• One day before the prior ceasefire was set to expire, President Trump extended a trade truce with China until November 9. Imported Chinese goods will still face a 30% levy as negotiations continue, but that’s a lot better than the 140% rate that was in effect as recently as the spring.
• While the primary bargaining chips are America’s semiconductor technology and China’s rare earth elements, President Trump took to social media to request that China quadruple its purchases of soybeans from American farmers. China already gets about 20% of its soybeans from the US, far more than from any other country.[2]
• In an unusual (and legally questionable) arrangement, Nvidia and AMD entered a revenue-sharing agreement with the US government to retain access to the chip-hungry Chinese market. The tech giants will remit 15% of Chinese sales of their respective H20 and MI308 chips, both of which are designed to not exceed government performance specs in adherence with national security concerns.[3] There’s no such thing as a free lunch with Trump manning the kitchen.
• For its part, China’s government urged local firms to avoid buying Nvidia’s H20 processors, particularly for government-related work, in favor of local alternatives. The fear is that American chips contain “back door” that may allow the US government to spy on Chinese corporations and/or The Party itself.

Tariff News

• The US collected close to $30 billion in tariff-related revenue in July, according to the US Department of the Treasury.[4] Annualize this figure, and it wipes out roughly 20% of the forecasted budget deficits for FY 2025 and 2026. President Trump has maintained that companies and foreign governments, rather than consumers, are paying for the cost of tariffs. If companies are indeed absorbing these costs, it may presage narrower profit margins and lower earnings growth moving forward, which could reduce the demand for labor and ultimately affect the consumer in the form of lower wage growth and/or higher unemployment. A more likely scenario, from WP’s perspective, is that the cost of tariffs may increasingly result in higher consumer prices.
• On that note, Goldman Sachs strategists calculated that US consumers had absorbed just 22% of tariff costs through June but forecast that that share will rise to 67% the longer that tariffs remain in effect. Trump called on Goldman CEO David Solomon to fire his chief economist, Jan Hatzius, on account of this unacceptable blaspheme.[5]
• Last but not least, while en route to Russia, President Trump reiterated to reporters that he plans to set semiconductor tariffs at “200%, 300%” in the coming weeks.

The Fog of Hot War

• President Trump rolled out the red carpet for a meeting with Russian President Vladimir Putin in Alaska to address the war in Ukraine. Putin was treated as an equal, as well as to a military flyover and a ride in the US presidential limousine (“The Beast”). As the instigator of and aggressor in the largest European land war since World War II, many viewed a meeting on American soil as a win for Putin, regardless of the outcome.
• Ahead of the meeting, President Trump both warned of “very severe consequences” if Putin didn’t agree to a ceasefire while also downplaying the event as a “feel-out” meeting. European leaders, fellow NATO members, and Ukraine’s President Volodymyr Zelenskyy were all left out in the cold and collectively feared that Trump might unilaterally concede too much to obtain a much-coveted ceasefire.
• The stakes appeared to be high for all concerned. Russia has been gaining momentum on the battlefield, but its domestic economy is struggling as the impact of years-long sanctions continue to compound. Its budget deficit has widened to the largest degree since the Yeltsin era in the early 1990s, oil revenue is down, and inflation and interest rates have both soared. In addition to territorial concessions, Russia also wants to demilitarize Ukraine and to eliminate any chance of its future admittance to NATO.
• Zelenskyy has said that ceding territory to Russia is not an option. Putin has demanded the Donbas territories of Donetsk and Luhansk before even considering a ceasefire and perhaps a larger peace deal.
• In the end, the results of the much-hyped bilateral summit were underwhelming, at least from what was made public. No battlefield concessions, no new sanctions on Russia, not even a temporary ceasefire. “There’s no deal until there’s a deal,” Trump told reporters at a post-meeting news conference at which he took no questions.[6] Following the meeting, President Trump said that he would host Zelenskyy for talks at the White House and indicated openness to providing security guarantees for Ukraine in the event of a future peace deal.

Central Bank Watch

• After firing the former commissioner of the Bureau of Labor Statistics (BLS) following the staggeringly weak July jobs report, President Trump nominated the Heritage Foundation’s chief economist EJ Antoni to fill the role. Antoni is known as a frequent critic of the BLS and has proposed halting the monthly jobs report. Half of the Fed’s job is to promote maximum employment, and BLS monthly jobs report is the key statistic for tracking the health of the labor market. Striving to improve the collection, processing, and dissemination of data is a noble pursuit, but obfuscating data would be a step in the wrong direction and risks rendering the Fed’s task at hand even more arduous.
• Treasury Secretary Scott Bessent joined his boss in backseat driving for Federal Reserve policymakers by calling for a “jumbo” 50-basis point cut in the federal funds rate at the FOMC’s upcoming September meeting. The futures market has been pricing in very high odds of a 25-basis point cut.[7]
• Secretary Bessent didn’t reserve all of his central banking criticism for the Fed. The Bank of Japan (BOJ) caught a stray when Bessent opined on Bloomberg TV that it is “behind the curve” in raising interest rates to curb inflation. Cast aside the faux pas of commenting on another nation’s monetary policy maneuvers and it’s becoming clearer that one focal point of the Trump administration’s strategy to close the global trade gap is to devalue the US dollar versus other currencies. The ICE US Dollar Index is down just under 10% YTD but has only depreciated roughly 7% versus the Japanese yen.[8] All else held equal, higher interest rates in Japan should lead to further appreciation in the yen, and a stronger yen should serve to favor US exporters from a balance of trade perspective. America’s trade deficit with Japan in 2024 was $62 billion—the seventh largest.[9]

Economic Data

Inflation

• The BLS released its latest reading of the consumer price index (CPI) on Tuesday. Both headline (2.7% vs. 2.8% expected) and core (3.1% vs. 3.0% expected) CPI came in roughly in line with expectations on a year-over-year basis. The core number, which strips out volatile food and energy prices, picked up steam from June’s 2.9% pace and exceeded 3.0% for the first time since February.[10]
• While inflation is not getting any nearer to the Fed’s target of 2%, it’s not flying off the handle either. The caveat here is that WP believes the effect of tariffs has yet to be fully realized and could exacerbate the Fed’s stubborn inflation issue. Core goods prices in July rose just 0.2% month over month and 1.2% from a year ago—pretty tame, but still notable considering prints were negative as recently as March, just prior to Liberation Day. As for this report, though, the Fed will most likely concern itself with the flip side of its dual mandate coin—ensuring maximum employment—following the soft July jobs report from a couple of weeks ago. The odds of a September rate cut stood at 93% after the CPI data release based on Fed Funds futures prices.[11]
• Wholesale inflation, as measured by the producer price index (PPI), jumped 0.9% in July on month over month basis, the most in three years. Annually, PPI rose 3.3% in July, up from 2.3% in June and at the fastest pace since January. PPI is viewed as a leading indicator for CPI and could portend higher consumer prices in the coming months due to tariffs. Businesses may only be able to withstand margin compression for so long before passing along higher costs to the end consumer.
• Both CPI and PPI feed into the Fed’s preferred inflation gauge—the core personal consumption expenditures index—which will be released at the end of the month.

Growth

• Consumer sentiment may be downcast, but that hasn’t yet translated into the hard data. Retail sales in the US grew 0.5% in July, in line with expectations, as the juggernaut American consumer kept spending. Household consumption accounts for ~68% of the economy.
• Japan’s economy grew by an annualized 1% in the second quarter and revised up its Q1 number to 0.6% from an initial negative reading. Secretary Bessent may get his BOJ rate hike sooner rather than later.

Housing Market

• The average rate on the 30-year fixed-rate mortgage fell to 6.58%, according to Freddie Mac, the lowest level since October 2024. Treasury Secretary Scott Bessent vowed to prioritize the housing affordability crisis in the coming months.[12]

Corporate Earnings & Stocks in the News

• Paramount Skydance struck a seven-year, $7.7 billion deal with TKO Group Holdings to obtain exclusive media rights to all UFC events in the US starting next year. The Paramount+ streaming platform will broadcast the UFC’s full slate of 13 marquee events and 30 “Fight Nights,” with select events simulcast on sister network CBS on Saturday nights. UFC previously distributed its mixed martial arts events through a pay-per-view model.[13]
• Disney’s ESPN launched its $30/month streaming app. The flagship service will be an all-in-one app that includes live sports and programming from all of ESPN’s television networks. The app will also feature fantasy products, sports betting tie-ins, studio programming, and documentaries.[14]
• Amazon announced that it will be expanding same-day grocery deliveries with the objective of serving more than 2,300 locations nationwide by the end of the year. The Whole Foods owner would like to take market share from rivals such as Walmart, Kroger, Albertsons, and Publix.

Q2 Earnings Season[15]

• As of August 8, 90% of S&P 500 companies had reported Q2 earnings. Corporate performance has remained strong, with the index projected to achieve earnings growth of 11.8% for the quarter versus June 30 analyst expectations of less than 5%. This would mark the third consecutive quarter of double-digit growth, which WP believes is playing a significant role in sustaining the current higher-than-average forward P/E ratio of ~22.
• Any loss in momentum risks precipitating a bout of multiple contraction, i.e., falling stock prices. Analysts are forecasting earnings growth in the 7% range for both Q3 and Q4, which translates to 10%-plus earnings growth for CY 2025—a highly impressive could-be result given the concurrent global trade upheaval and the Fed’s restrictive policy stance. Corporate America has a knack for finding a way to deliver. Please stay invested.

In Other News…

• President Trump invoked the Home Rule Act to place Washington DC’s Metropolitan Police Department under federal control and deployed National Guard troops “to help reestablish law, order, and public safety” to the capitol. A similar experiment was conducted in Los Angeles following protests against ICE raids earlier this year. Perhaps the President feels like he will have greater control with a more localized implementation. Just before Trump’s inauguration in January, the DOJ reported that violent crime in DC had hit a 30-year low.[16]
• Taylor Swift announced a new upcoming album, “The Life of a Showgirl.”
• Boston Basketball Partners officially sold the Celtics to private equity exec Bill Chisholm for $6.1 billion.

 The Week Ahead

• Retailers will close out Q2 earnings season. Walmart, Target, Home Depot, and Lowe’s will offer anecdotal data on the health of the US consumer.
• Federal Reserve Chair Jerome Powell will deliver a speech to cap off the week at the Kansas City Fed’s central banking symposium in Jackson Hole. Markets will be paying close attention for potential hints of coming interest rate cuts as the labor market appears to be exhibiting cracks. Given that the unemployment rate remains historically low and Q2 GDP came in strong, WP isn’t so sure that the Fed Chair will deviate much from the prevailing data-dependent neutral policy stance.

[1] Data obtained from YCharts unless otherwise noted

[2] Samuels, Brett. “Trump pushes China to quadruple soybean orders ahead of truce tariff expiration.” The Hill, 11 August 2025, https://thehill.com/business/5445836-trump-china-trade-deficit/.
[3] Ramkumar and Whelan. “Nvidia, AMD to Give U.S. 15% Cut on AI Chip Sales to China.” The Wall Street Journal, 10 August 2025, https://www.wsj.com/tech/nvidia-amd-chip-sales-us-government-f9e34b5f?mod=djem10point.

[4] Macias, Amanda. “US collects $29B in tariff revenues in July, setting new monthly record.” Fox Business, 4 August 2025, https://www.foxbusiness.com/politics/us-collects-29b-tariff-revenues-july-setting-new-monthly-record?utm_source=chatgpt.com
[5] Nishant and Azhar. “Trump rebukes Goldman’s Solomon over bank’s tariff research.” Reuters, 12 August 2025, https://www.reuters.com/business/finance/trump-rebukes-goldmans-solomon-over-banks-tariff-research-2025-08-12/.

[6] Seligman et al. “Trump Rolled Out the Red Carpet for Putin. He Got Little in Return.” The Wall Street Journal, 16 August 2025, https://www.wsj.com/world/russia/trump-putin-summit-ends-without-breakthrough-7406d667?mod=djem10point

[7] CME FedWatch, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html.
[8] Data obtained from YCharts
[9] https://worldpopulationreview.com/country-rankings/us-trade-deficit-by-country.

[10] “CPI Inflation Report: Price Growth Holds Steady at 2.7%.” Barron’s, 12 August 2025, https://www.barrons.com/livecoverage/inflation-july-cpi-rate-report?mod=djem_b_Feature_8122025%2065000%20AM.
[11] FedWatch, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html.

[12] Kazin and Genovese. “Mortgage rates fall to lowest level of 2025.” Fox Business, 14 August 2025, https://www.foxbusiness.com/economy/mortgage-rates-august-14-2025.

[13] Glover and Wolf. “Paramount Stock Falls on UFC Deal. There Could Be More Deals Coming.” Barron’s, 11 August 2025, https://www.barrons.com/articles/paramount-ufc-deal-tko-stock-price-eef9a8bc?mod=djem_b_Feature_8122025%2065000%20AM.
[14] Rizzo, Lillian. “ESPN, Fox to bundle upcoming streaming services for $39.99 a month.” CNBC, 11 August, 2025, https://www.cnbc.com/2025/08/11/espn-fox-to-bundle-upcoming-streaming-services-for-39point99-a-month.html.

[15] Butters, John. “S&P 500 Earnings Season Update: August 8, 2025.” FactSet, 8 August 2025, https://insight.factset.com/sp-500-earnings-season-update-august-8-2025?utm_source=Direct&utm_medium=Email&utm_campaign=FO-08-08-2025&utm_content=httpsinsightfactsetcomsp500earningsseasonupdateaugust82025.

[16] “Violent Crime in D.C. Hits 30 Year Low.” United States Attorney’s Office, District of Columbia, Press Release, 3 January 2025, https://www.justice.gov/usao-dc/pr/violent-crime-dc-hits-30-year-low.

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