Diamond Capital Management's Market Commentary
August, 2025
Jeff C. Mantock, CFA, CMT
Vice President, Chief Investment Officer & Manager
Executive Summary:
- Market volatility surged due to concerns over U.S. economic growth, weak job data, and uncertainty surrounding trade policies.
- The S&P 500 Index ended a 27-day low-volatility streak, but stocks remain in a strong uptrend. Corporate earnings and AI adoption could drive future market gains.
- The Federal Reserve maintains a cautious stance on rate cuts, monitoring inflation and tariff impacts. The revised jobs report and rise in unemployment may sway the Fed cut in September.
Market volatility returned in August 2025, driven by renewed concerns about the U.S. economy. The S&P 500
Index ended a 27-day streak of daily price changes within one percent as investors reacted to weaker-than-expected job growth and fears of economic impacts from proposed tariffs. Despite this, stocks have been in a strong uptrend since early April and are on pace to earn an above-average annual return. Periods of volatility could turn out to be opportunities for patient investors.
Economic risks persist, with unemployment rising to 4.2% and nonfarm payrolls revised downward by 260,000 for May and June combined. The Fed has kept the federal funds rate at 4.5%, with Chair Jerome Powell emphasizing a data-dependent approach to assess the inflationary effects of trade policies. The U.S. economy remains resilient, with relatively low unemployment supporting the Fed’s focus on price stability. Inflation has continued to exceed the Fed’s 2% target with the core PCE index advancing 2.8% year-over-year in June.
August and September are historically volatile months for equities, but corporate earnings should ultimately drive performance. While sectors like technology and financials are seen as expensive, these higher valuations can be supported by a lower yield environment. So far, corporate earnings have exceeded expectations with forward estimates climbing. Nevertheless, we recognize that future profits may be challenged if the economy faces a more severe downturn ahead.
Short-term bond yields fell sharply as investors poured money into Treasuries for safety. Yields for the 12-month and 2-year UST are below 4%—signaling some disagreement between the bond market and the Fed. Longer-term yields remain elevated and should fluctuate within a defined range. The yield on the 10-year UST may trade between 3.5% and 5.0%, reflecting stable but higher interest rates. The 30-year is back below 5.0%.
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