Monthly Outlook: August 2025
July was another good month for global stock markets despite constant news about on-off tariffs, inflation, interest rates, and earnings. The S&P500 had its third best July since 1928, with 10 new highs, and a gain of 2.2%. Before we get too excited about that, you should know that the 2nd best July since 1928 was July 1929, and we all know how 1929 ended up. We could also factually point out that the S&P500 is up about 25% in the past three months, which sounds great. But we must remember the March-April market plunge caused by Trump’s “Liberation Day” tariff announcement, when the S&P500 dropped nearly 20% in two months. You can see how misleading facts can be when we report on a selective window of time. Looking at the YTD returns, a more common reference timeframe, the S&P500 is up 8.4%, the international EAFE index is up 17.7%, and bonds are up 3.7%. Even though the volatility doesn’t feel very good, 2025 has been a good year for investors.
A Brave New World Market?
August 1st, marks the deadline for “Let’s Make A Deal” with Trump’s tariff deciders. Every country has been brought to the negotiating table to work out how much trading tax they’re going to pay the U.S. for the right to sell products and services into our country. If they don’t, they risk even higher tariff taxes. By now, after many months of erratic threats and rumors, most countries have accepted a deal, and markets are starting to sort out the impacts. Trump & Co. seems intent on creating a Brave New World order in many ways, and a new market to match.
Almost daily, we’re hit with a policy change or tariff deal that will dramatically benefit and hurt different parties at the same time. Today, for example, a tariff on copper parts imports has sent the price of copper down 20% in one day. We didn’t know this yesterday, is my point. It’s hard to guess what global economies and markets will be like in the months ahead, when the stroke of one person’s pen can change the outlook overnight. Yet this is exactly the Brave New World Market we operate in today. Surely, we are getting closer to incorporating these new policies and negotiations. Surely, the market volatility will subside as we watch the consequences, both intentional and unintentional, of such radical policy changes. Surely, we don’t really know, but we’re going to find out together. The last time we had such radical tariffs was 1932, with the passage of the Smoot-Hawley Tariff Act. It’s always “different this time” with anything, but we can, and should, learn from history. Hopefully, tariffs will reduce our trade deficits, increase tariff tax revenue to reduce our annual deficits, and lead to more good jobs in the U.S. as more companies onshore more factories and services back to the U.S. That’s the plan, but that’s not exactly how it worked out in the Great Depression of the 1930s and for what it’s worth, Messrs. Smoot and Hawley were not re-elected.
How We Approach the New Normal
In some ways, the best approach to investing today is not that different than it’s been for decades. Yet today, we have to accept less certainty because some of the rules have changed. The goal for investing is still to grow your capital in a risk-managed way that you can tolerate. It’s often said that the best investment strategy is one you can stick to.
Diversification remains a cardinal rule. For many reasons, we advocate investing in global stocks in all sectors, of all sizes, with both growth and value characteristics. For much of the past 10 – 15 years, “US Large Cap Growth” (think technology stocks like AAPL, MSFT, GOOG, etc.), have easily outpaced every other market. Nevertheless, this large asset class is only 30% of the global stock market. Don’t overlook US Small, INTL Value, and Emerging Markets.
Now, more than ever, we encourage all investors to 1) define risk in terms of drawdown risk, and 2) devise a plan to manage that risk, somehow. How much loss can you really absorb before you panic and want to change your long-term strategy? Balanced portfolios of, say, 70% global stocks and 30% bonds have had drawdowns of 10%, 20%, even 40% or more every other year or so. If you really can’t tolerate more than a 10% drawdown, then you can’t just buy & hold. This is especially true now, with the Brave New World Markets. Our own risk management solution is to overlay systematic trading rules to sell when downtrends start. You could use options or hedges. But do something, the new world demands it.