Risk-Off Sentiment Dominates, But Most Equity Sectors Are Advancing: Aug. 20, 2025

Risk-off sentiments are dominating Wall Street today as the magnificent 7 juggernauts drive retreats for the domestic equity benchmarks. Surprisingly, however, sector breadth is impressively positive despite the Nasdaq 100, S&P 500 and Russell 2000 losing more than 1%. Indeed, 7 of the 11 major sectors are advancing on the session in a broadening attempt, but they are failing to offset the plunge in the technology space due to the segment’s significant concentration and heavy weights within the indices. Simultaneously, Treasuries are gaining as the yield curve descends in bull steepening fashion led by the short end, motivated by fixed-income watchers dialing up the odds of a Fed rate reduction next month to 85%. Investors are left wondering whether Chair Powell will support the case for a dovish move this Friday when he presents at the annual Jackson Hole symposium, while this afternoon’s minutes from the July meeting, which featured two dissenters for the first time since 1993, are likely to provide additional details on the disagreement at the central bank. Meanwhile, part of what’s motivating the recent sluggishness in equities is a weak seasonal period, historically characterized by traders viewing the glass as half-empty rather than half-full. Other influencers include elevated valuations on a relative basis, which essentially reduces the market’s ability to absorb adverse news, an uneventful stateside economic calendar that could have bailed out bulls and mixed retail earnings. In trading action, lighter borrowing costs are generating losses for the greenback, but participants are actively buying in alternative areas. Bitcoin, volatility protection instruments, forecast contracts and the commodity complex minus natural gas are catching bids on this Wednesday.

Stage Set for Powell Relief Rally?

An acknowledgement from Chair Powell at Jackson Hole that the central bank ought to resume its walk down the monetary policy stairs at its next meeting in September could shake the markets from their recent malaise. The last three months of job growth, taken together, were the weakest since the employment losses experienced in the depths of the COVID-19 pandemic, averaging just 35,300 per month. Furthermore, payroll expansions have been carried by non-cyclical industries, namely, private education and health care, signaling that financial accommodation is needed to bolster hiring momentum. A dearth of housing and construction activity, a lack of manufacturing orders, and decelerating consumption on discretionary services also point to the need for a rate reduction. Besides, inflation remains in the mid 2s while the top of the Fed’s range is at 4.5%. I believe 75 basis points of cuts from here would still place us in restrictive territory and are well justified.

International Roundup

Japan’s Trade Balance Swings to Deficit

Japan’s trade surplus swung to a deficit of ¥117.5 billion in July with the country experiencing its third month of declining exports, according to data from the Ministry of Finance. Economists expected the country to produce a ¥196.2 billion surplus after June’s exports exceeded imports by ¥152.1 billion.

Exports shrank 2.6% year over year (y/y), worse than the economist consensus estimate for a 2.1% drop and an acceleration from the 0.5% June decline. Meanwhile, imports fell 7.5%, better than the 10.4% contraction expected by economists and a reversal from the 0.3% gain in June. The decline results from a double-digit drop in energy imports.

Exports were hurt by US tariffs that were initially set at 25% for many products. The rate is currently being lowered to 15%. Cars, auto parts and steel were the largest decliners of items ship abroad in July. When measured by units, or volume, activity increased, implying that Japanese companies are absorbing at least a portion of the US levies on items from the country. 

But Machinery Orders Exceed Expectations

Orders for machinery within the core category, which excludes items with volatile prices, rose 3% month over month (m/m) in June, much better than the economist consensus expectation for 0.4% decline and May’s 0.6% fall. Relative to June of 2025, orders were up 7.6%, exceeding the 5% estimate and May’s 4.4% results.

Canada Homebuilder Prices Fall Again

Housing prices fetched by home builders in Canada sank 0.1% m/m in July, easing from the 0.2% drop in June, according to the New Housing Price Index. The result, however, was worse than the economist consensus expectation for a 0.1% gain

The index is compiled from sales prices of new single homes, semi-detached homes and townhomes.

Annualized UK Price Pressures Spark Concerns

The Consumer Price Index (CPI) for the United Kingdom climbed 0.1% m/m in July, a slower pace than the 0.3% northward change in the preceding month. The result was much hotter than the economist consensus expectation for a 0.1% decline. Relative to July of 2024, the CPI was up 3.8%, hotter than the estimate of 3.7% and June’s 3.6% y/y hike. The y/y result is nearly twice the Bank of England’s (BoE) target inflation rate of 2% and is the highest print in 18 months.

When excluding items with volatile prices, the resulting Core CPI gained 0.2% m/m and 3.8% y/y after climbing 0.4% and 3.7% in June. Economists expected m/m and y/y results of 0.1% and 3.7%.

Housing, however, increased more substantially relative to the same period of 2024 with the CPIH Index jumping 4.2% after increasing 4.1% y/y in June. On a m/m basis, however, the benchmark was roughly unchanged.