August Market Update 2025

Posted by Bedrock on 1st September 2025

August Market Update 01.09.2025

“Summer’s lease hath all too short a date”
— William Shakespeare

Summary

Risk assets gained in August, with the Dow Jones and Russell 2000 advancing as leadership rotated away from stretched mega-cap tech into cyclicals.
The Jackson Hole symposium proved pivotal: Powell signalled readiness to cut rates in September but Trump’s move against Governor Cook reignited long-term concerns over Fed independence.
Trade tensions remained heightened as Washington implemented its new tariff regime including levies on the EU at 15%, Switzerland 39%, and India up to 50%. Brussels offered an olive-branch in the form of tariff-free Industrials imports in an attempt to secure concessions from Washington, to the dismay of German producers.
France returned to the fore, where Bayrou has called a 8 September confidence vote amid a lack of progress on his cost-cutting budget. He looks set to lose and a government collapse is likely; OAT–Bund spreads have widened markedly and 30-year yields now sit near decade highs.
Geopolitics remained fraught, with the Alaska and Washington summits producing no breakthrough on Ukraine as Putin pressed gains near Pokrovsk; Western aid remains central to Kyiv’s ability to hold the line into 2026.
Looking ahead to September, stretched valuations and simmering geopolitical tensions leave us cautious. Gold remains a valuable hedge.

August proved fruitful for risk assets

August was another positive month for risk assets, with equities shrugging off geopolitical noise to finish broadly higher. Growing expectations of a September Fed rate cut, bolstered by softening labour market signals acted as a key driver of more positive sentiment. Market leadership is showing signs of shifting, however, with concerns mounting as to the sustainability of the AI-fuelled earnings growth of tech stocks over the past two years. Nvidia’s results last week, while still showing over 50% year-on-year sales growth, highlighted a clear slowdown from the triple-digit gains of 2023–24. More cyclical sectors are taking charge, with the Dow Jones Industrial Average up +3.4% over the month, to the Nasdaq 100’s +0.9%.

The USD slipped on rate cut expectations and mounting concerns about political pressure on the Fed. The DXY – a measure of USD strength against a basket of other currencies, fell -2.2% during the month, while gold continued to propel upwards, reflecting its persisting appeal as a haven asset.

“August was another positive month for risk assets, with equities shrugging off geopolitical noise to finish broadly higher.”

A September rate cut now seems highly likely

The annual Jackson Hole gathering of central bankers was one of the most highly anticipated events of the month, with investors closely watching for clues on the Fed’s latest thinking and implications for rates. The symposium did not disappoint, both in the contents of Fed Chair Powell’s speech, and the political fallout after the meeting. Powell largely neglected the symposium’s stated theme of “Labor Markets in Transition” to provide some not-so-subtle hints as to the prospects of a Fed cut in September. In short: September cuts are firmly on the table. Powell highlighted a cooling labour market (May and June jobs figures were revised down significantly last month; monthly payroll growth averages just 35,000 over the past three months; and unemployment has crept up to 4.2%) while downplaying tariff-related price pressures as a transitory, albeit meaningful, hit. Markets responded swiftly: the Dow surged +1.9%, while the S&P 500 and Nasdaq were up more than +1.5% in the aftermath of the meeting. Near-term Treasury yields dropped, as futures pushed the odds of a September cut from 75% to nearly 90%.

One would hope this dovish turn would be enough to keep POTUS happy (Trump had earlier called Powell a “MORON [sic]” in a post on his Truth Social platform, and demanded “… lower interest rates, NOW [sic]”. But never one to back down, Trump days later waded back into the fray, announcing the immediate dismissal of Governor Lisa Cook from her role at the Fed, citing alleged misconduct. This move was unprecedented and raises immediate and serious questions about the independence of the central bank. It also underscores just how vulnerable the institution has become to political interference in the current political climate. The paradox of an improving near-term economic picture and growing expectations of near-term rate cuts, alongside growing concerns over an increasingly politicised (and less independent) Fed was reflected in the yield curve. Long-dated yields sold off, even as the front end rallied, leaving the yield curve (2-year, 30-year spread) at its steepest since early 2022.

Cook is challenging Trump’s move to oust her, with a lawsuit filed that also requests an injunction allowing her to remain in post while litigation is ongoing. The odds appear in her favour – prediction markets imply a high (c.90%) likelihood she votes in September, and only slightly slimmer chance she will remain through year-end. This has helped calm markets. The 30-year yield remains within the 4.8–5.0% range it has held for much of the past three months, though volatility is likely as this legal challenge rolls on. A victory for the Trump administration could well see more political meddling in the Fed’s makeup, eroding independence and inflicting a sharp hit to an institution seen as key to the US’s financial stability.

“A victory for the Trump administration could well see more political meddling in the Fed’s makeup, eroding independence and inflicting a sharp hit to an institution seen as key to the US’s financial stability.”

US tariffs are starting to bite

Washington formally enacted its new tariff regime on 7th August, pushing the US’s average tariff rate to its highest in over a century. A baseline tariff of 25% was slapped on the majority of the US’s trading partners, with the EU negotiating a moderately lower 15% effective rate (in exchange for heavy concessions), and Switzerland hit with a 39% rate (despite best efforts of President Keller-Sutter to negotiate this down). India deserves special mention, facing an extra 25% levy after talks collapsed over New Delhi’s continued purchases of Russian oil, tipping some tariff lines up to 50%. This ramping up of tensions with India is meaningful, and raises serious questions about US–India strategic relations amid Washington’s push to bring New Delhi closer as a counterweight to China. Punitive tariffs risk alienating India at a time when its export sectors are already under pressure and foreign investment is crucial to its manufacturing ambitions. A jaunt by Prime Minister Modi to Beijing over the weekend further elevates this concern, with the Chinese and Indian leaders affirming the two nations are “partners not rivals”, and vowing closer ties. Alarm bells may be ringing in Washington. Such a shift could undermine the US’s strategic aims and add a fresh layer of geopolitical risk in the region.

In Europe, the impact of tariffs is already filtering through to earnings guidance: UBS now forecasts a 3% contraction in euro-area corporate profits in 2025, with higher trade costs a clear headwind. The European Commission has responded with calls for peace not war, offering to scrap reciprocal tariffs imposed on U.S. industrial goods in the hope of convincing Washington to climb down on some sector-specific tariffs (namely, autos which currently face levies of 27.5%). This has drawn pushback from German industry groups, concerned that American exporters will enjoy freer access to the EU even as European manufacturers remain cut out of the US. However the EC is getting increasingly desperate, and will be keen to push ahead with talks at the next US-EU summit this month.

French political and fiscal concerns are back at the fore

Feeling a lot like déjà vu, French fiscal risk is firmly back in the spotlight. Prime Minister Bayrou’s minority government faces a crucial confidence vote on September 8^th, as it seeks to push through an emergency cost-cutting deficit reduction package. Its chances of success appear slim, and government collapse may be imminent. Against a backdrop of a deficit well above the EU’s 3% limit, debt-to-GDP approaching 115%, and a lack of a credible consolidation path, markets are duly showing signs of stress. Franco–German 10-year spreads have moved out, touching 80bps last week, their widest since April, while yields on 30-year French government bonds climbed to their highest in over a decade. Citi see spreads climbing beyond 125bps should the government lose the vote – pushing levels last seen during the eurozone debt crisis. With government collapse now looking highly likely, further volatility is expected and contagion risks should not be ignored. A failure to approve the package could see heightened scepticism of neighbouring countries’ sovereign debts, with consequences for Italy and Spain in particular, as well as renewed pressure on the euro and ECB policy expectations.

High profile talks on Russia-Ukraine show little tangible progress

The month’s major geopolitical set-piece was the Alaska summit on 15 August, where Presidents Trump and Putin held their first face-to-face talks on Ukraine. While the meeting ended without a ceasefire or formal deal, the talks were deemed “productive” by President Trump, and reports suggest ideas ranging from territorial concessions to phased sanctions relief were at least floated. A few days later, deal-maker Trump hosted Zelenskyy and other European leaders in Washington. While the optics were framed as a show of transatlantic unity, the substance proved more complicated: Kyiv pressed hard for binding security guarantees, but Trump stopped short of offering firm commitments, instead emphasising the need for flexible arrangements and greater burden-sharing among European allies. For European leaders, this reinforced both the value of U.S. engagement and the fragility of its reliability, underscoring the delicate balance now shaping Western support for Ukraine.

“While the optics were framed as a show of transatlantic unity, the substance proved more complicated.”

Since the high profile summits, the strategic picture remains tense. Putin has gained room to pursue his strategy of negotiating while fighting, buoyed by a recent advance near Pokrovsk that pushed Russian lines forward by about 10km. Meanwhile, the EU has pledged over €20 billion in military aid this year, including 2 million rounds of ammunition, while Washington last week approved a further $825 million in cruise missiles and support systems. Despite Trump’s best efforts to negotiate an end the war, tangible progress so far seems scant. With Russia making slow but steady progress on the battlefield, the conflict appears set to grind on into the Autumn.

Looking ahead to September….

September is historically a weak month for markets, with seasonality and softer data often combining to test risk appetite, and we enter this September feeling particularly vulnerable: valuations are stretched near record highs, geopolitical tensions remain at breaking point, and tariff frictions are only just beginning to filter through into earnings. A September Fed cut now looks all but assured, but with futures already pricing this at close to 90%, it is unlikely to provide the same boost it might once have; if anything, the balance of risks is skewed to the downside should the Fed disappoint or questions regarding its independence return to the fore. Against this backdrop, we advise caution, with a continued preference for gold as a hedge against market turbulence.

“September is historically a weak month for markets, with seasonality and softer data often combining to test risk appetite.”

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