Stocks Reach Fresh Records but Lack Follow-Through, Despite Strong Econ Data: Aug. 28, 2025

Stocks reached fresh records today but lacked follow-through with a lackluster outlook from AI juggernaut Nvidia failing to lift the S&P 500 above the pivotal 6,500 level. Equities are now nearly flat amidst all sectors retreating except for technology. With the exception of 1- and 2-year tenors, Treasurys are gaining even as this morning’s economic data was much stronger than expected; second-quarter GDP was revised upward on firmer business investment and consumer spending momentum while unemployment claims sank in both the initial and continuing segments. Pending home sales were an exception, however, missing estimates as elevated mortgage rates and lofty valuations have continued to weigh on the affordability picture for housing, driving a mismatch between seller expectations and buyer capabilities. Investors aren’t making high-conviction trades in equities or fixed-income as they largely await tomorrow’s release of the Fed’s preferred price pressure gauge. Nevertheless, they are scooping up bitcoins, forecast contracts, and commodity futures tied to natural gas, copper, gold and silver with enthusiasm. Conversely, lighter borrowing costs are weighing on the greenback and volatility protection instruments are experiencing lessening demand.

Consumers and Capex Push GDP Higher

Second-quarter gross domestic product (GDP) was upgraded to 3.3% from 3% as stronger consumer spending and business investment drove the improved revision. Corporate profits also recovered from the 3.3% drop in the first three months of the year, expanding 2% during the April-June period. 

Unemployment Claims Ease

Unemployment claims declined during the past two weeks, according to this morning’s Department of Labor report. Initial filings slipped to 229k in the seven-day period ending August 23, beneath the median estimate of 230k and the previous span’s 234k. Continuing applications also decreased, declining to 1.954 million through the week culminating on August 15, below expectations of 1.970 million and the prior interval’s 1.961 million. Four-week moving averages were bifurcated but figures remained in the safe zone. The most recent results came in at 228.5k and 1.954 million, shifting from 226k and 1.961 million.

Inventory Builds and Discounts Aren’t Helping Housing Sales Yet

An inventory buildup and plunging price growth in housing aren’t yet countering the affordability challenges stemming from elevated mortgage rates and lofty valuations. Pending home sales remained at depressed levels in July, sinking 0.4% month over month (m/m), worse than the -0.1% median estimate although the decline was more modest than June’s 0.8% plunge. Contract signings in the Midwest, Northeast and South weighed on results with m/m decreases of 4%, 0.6% and 0.1%, but the West offset some of the weakness with a gain of 3.7%. The gauge serves as a leading indicator to completed transactions, since paperwork is filled out, prepared and acknowledged roughly 30 days before financing is secured and deals are closed.

Back Half Outlook Remains Robust

Real-time gauges of consumption, capital expenditure and hiring activities suggest a reaccelerating economy in the coming months and this morning’s data was supportive of a buoyant path ahead. The middle of July was a key turning point for labor health, with employers now incrementally looking to expand rosters following a first half of the year that was dominated by uncertainty and turbulence related to President Trump’s efforts to restructure global trade. But now that households and corporates have a better idea of what the landscape will look and feel like, there’s been a notable advance in relative certainty which is conducive to animal spirits on Wall Street, shoppers spending, corporations investing and establishments adding workers. The environment has provided businesses with pricing power, which was evident in both the Consumer and Producer Price Indices (CPI and PPI) as they were bolstered by services, rather than the tariff-fueled goods cost pressures that many participants have been fearing. In conclusion, a sharp pick-up in the pace of GDP advancement can be inflationary, as firms are caught offsides with the unexpected surge in demand and must raise charges in response. And while that robust momentum may not be helpful for Fed rate cuts, it does tend to moderate with time as sellers adjust to transaction volumes by lifting their supply quantities. Indeed, this kind of sprint sent the CPI to 2.9% in July of 2018, but a restrictive central bank alongside more goods and services drove the figure to 1.5% by February of 2019.

International Roundup

Bank of Korea Holds Key Rate, Assesses Tariffs

The Bank of Korea (BOK) agreed yesterday to maintain its key interest rate at 2.5% but signaled it is open to trimming the benchmark in the near future as the organization monitors household debt and US tariffs. Of the six BOK policymakers, five said they are open to making cuts in the next three months. In a statement after the decision, the bank said it wants to get more comfortable with high levels of household debt before providing additional accommodation. The BOK also said it estimates that US tariffs will trim this year’s GDP growth by 0.45 percent point and 2026’s result by 0.6 of a point. The country’s exports to the US are hit with a 15% import tax.

Canadian Wages Climb

Hourly wages in June moved northward 0.7% m/m and 3.7% year over year (y/y) in Canada. The y/y metric accelerated from the 3.3% increase in May. The average number of hours worked in a week was roughly unchanged at 33.4.

Business and Consumer Sentiment Weakens in Europe

The European Commission’s Economic Sentiment Indicator, which tracks the overall mood of businesses and consumers, fell from 95.2 to 94.9 in the European Union this month. Broadly speaking, inflation fears and an unclear outlook for the labor market weighed on the result.

Retail trade was the only sector to post an improvement while industry, services, construction and consumer confidence dragged down the headline result. The gauge’s long-term average is 100. On a positive note, the Employment Expectations Indicator edge up 0.3 points to 97.8 with plans for increased hiring in industry, retail and construction although the employee recruitment expectations in retail were unchanged. The Economic Uncertainty Index, furthermore, showed improvements with services, retail and industry, but it moved south for construction and consumers.

ECB to Maintain Neutral Outlook

Policymakers during the European Central Bank’s July meeting expressed concerns that risk to the region’s economy remained tilted to the downside, with a potential escalation in global trade tensions and associated uncertainties dampening exports. Other uncertainties include the Russia-Ukraine war and tension in the Middle East. The ECB members, furthermore, concluded that communications from the organization should maintain a neutral tone and that a data dependent approach will be used as policymakers shift their focus from assessing the speed of normalizing policy to instead making marginal adjustments for the remainder of this year.