Navigating a Market on the Rise

By Alexandria | Hightower on August 11, 2025

Week of August 11, 2025

Productivity Surge Anchors Inflation Outlook Economic momentum is holding strong, being led by growth in productivity, soaring to 2.4% after last quarter’s sharp plunge of –6%. Productivity growth acts as a natural damper on inflation by offsetting wage pressures, allowing companies to keep margins healthy while avoiding the inflationary spiral that scares markets. Supporting this encouraging dynamic, unit labor costs nudged up only 1.6% this quarter, a tame figure that reassures investors that inflationary pressures remain well contained.

The labor market is showing its usual resilience, too. Initial jobless claims came in at a solid 226,000, with the four-week moving average steady around 220,000, comfortably within healthy, non-recessionary territory. Even amid the noise and drama surrounding last week’s nonfarm payroll report and its downward revisions, broader labor market gauges like JOLTS (Job Openings and Labor Turnover Survey) remain steady and strong. This stability played a major role in calming nerves and helped markets rebound quickly from the payroll-related volatility, proving once again that beneath short-term headlines lies a durable economic foundation ready to support continued growth.

Tariff Clarity and Growth Tailwinds The chatter around tariffs had some traders on edge recently, but beneath that short-term uncertainty, the picture is becoming much clearer and more constructive. The exemptions granted to tech giants like Apple, following their pledge of $600B to US manufacturing, are a strong, unmistakable message from policymakers: if you manufacture here and bolster U.S. supply chains, you’re likely to earn exemptions and support. On top of this, tariff concerns are being balanced by very real economic tailwinds. Coming in February is a massive $120 billion consumer stimulus package that promises to turbocharge spending power just when it’s needed most. Meanwhile, low tax rates remain firmly in place, providing an additional layer of support for both businesses and consumers.

Additionally, there seems to be a rise in confidence regarding China’s recovery, with improvements reported across consumer, industrial, and energy sectors. The Atlanta Fed’s GDP tracker reinforces this optimistic view, holding steady at 2.5%, directly contradicting the gloomy “sub-trend” growth narratives. Add to this the roughly 10% earnings growth year-to-date, alongside strong buybacks and healthy capital expenditures, and what emerges is a vibrant, expanding corporate America that’s not merely surviving but thriving despite global challenges.

Fed Turns More Dovish as Market Odds Shift The Federal Reserve’s stance continues to shift toward a more accommodative and market-friendly posture. The recent appointment of a Trump-appointed board member, Stephen Miran, has shifted the balance on the Fed’s board, now counting three doves against two dissenters, signaling increased chances for easing in the near future. Market expectations have responded accordingly, with the odds of a September rate cut skyrocketing from just 38% two weeks ago to a robust 80% today.

While debate circles around whether the Fed will trim rates by 25 or 50 basis points, the more important takeaway is that current economic conditions don’t strictly require such cuts. This means any move is likely to be as much about bolstering market confidence as about stimulating growth. In other words, the Fed enjoys a rare position of strength, able to act proactively and steer markets gently rather than act retroactively. This tailwind is a crucial support for risk assets and underlines why investors can remain confident despite the usual chatter of economic uncertainty.

Earnings Pullbacks Create Buying Opportunities Earnings season continues to serve up fascinating opportunities, especially for those who are patient enough to look beyond headline reactions. Following a strong 29% rally from April lows, investors came into earnings with lofty expectations, which sometimes caused sharp selling even after solid reports. But here’s the catch: many of these selloffs occurred alongside rising forward earnings estimates, creating what we see as attractive dislocations ripe for buying.

Eaton posted a 55% growth in orders, a powerful indicator of future revenue and profit strength, yet its stock fell nearly 10%. Similarly, Rockwell Automation increased core earnings guidance by 51 cents, but the market barely noticed before pulling shares lower. Uber’s story is even more remarkable: beating every key metric, raising guidance, and announcing a huge $20 billion buyback, only to see shares dip 5%. In each case, the fundamentals are screaming strength, while market reactions reflect short-term emotion and technical selling. For savvy investors, these pullbacks are golden opportunities to add quality names at compelling prices ahead of what we expect to be continued earnings momentum.

Leadership Rotation Beyond Mega-Cap Tech While the spotlight often shines brightest on the mega-cap tech giants, there’s a powerful and perhaps underappreciated leadership rotation underway. Retail stocks that have languished in sideways trading for months are starting to break out, led by well-known names like Gap and Target that are now positioned for a solid second half of the year. Discretionary names like Deckers also stand out, boasting guidance for 20–25% earnings growth while trading at a reasonable 16 times earnings. Even the traditionally “boring” utility sector is showing impressive signs of life, delivering nearly 9.5% revenue growth alongside attractive dividend yields and low valuations, making it compelling for income-focused investors. Interestingly, earnings growth in select data center industrials and utilities is now outpacing many of the mega-cap tech titans, a powerful reminder that the market’s breadth is wide and opportunities extend well beyond the Magnificent Seven. This diversification of leadership sets the stage for a healthy, sustainable advance as more sectors begin to take their turn in the spotlight.

Fixed Income U.S. Treasury yields rose across the curve last week, partially retracing the sharp declines from the prior week following a significant downside surprise in the July nonfarm payrolls report and notable downward revisions to previous months’ data. By Friday’s close, the 2-, 10-, & 30-year yields were higher by 8, 7, & 3 basis points, respectively. Following the resignation of Adriana Kugler, President Trump has nominated Stephen Miran to fill the vacant seat on the Federal Reserve Board. Miran, who currently serves as Chair of the Council of Economic Advisors, is expected to serve as a stop-gap nomination till January and is perceived by market participants as a potentially more dovish addition to the committee. The market’s focus now shifts to July’s CPI release on Tuesday, followed by the PPI print on Wednesday.

The increase in U.S. Treasury yields contributed to tighter credit spreads last week. Investment-grade spreads tightened 3 basis points to + 121, while high-yield spreads narrowed 14 basis points to + 341. Concurrently, U.S. credit quality improved as the main rating agencies issued 32 upgrades and 26 downgrades. The Financial sector accounted for the majority of the downgrades, while the Consumer Discretionary led with the most downgrades. Investment-grade spreads remain 11 basis points above their year-to-date lows, while high-yield spreads are currently 48 basis points wider. In the context of relatively tight credit spreads, there remains a compelling opportunity to enhance portfolio quality without materially sacrificing yield—an approach we have been methodically implementing across our corporate portfolios for some time by increasing allocations to A-rated and better securities.

Tax-exempt yields declined 1-4 basis points across the curve. New issue volume reached $21.7 billion last week, marking the highest weekly total since late December 2017. This week’s calendar is notably lighter, with $9.2 billion in new issuance expected. Long-dated municipal bonds are now offering yields on par with Treasury bonds of similar maturity—a rare occurrence – with Muni-to-Treasury yield ratios nearing 100%, investors are effectively getting the benefit of tax exemption without a yield penalty. To take advantage of this unusual pricing dynamic, we are extending duration by up to one year in our Intermediate Municipal strategies. This modest shift allows us to allocate up to 20% of portfolios—or 2– 4 positions—into long-dated Munis, capturing the value while maintaining prudent risk management.

The Week Ahead.

Economics- Tuesday: Consumer Prices, Labor Market, Government Finance Thursday: Labor Market, Producer Prices Friday: Trade Prices, Retail Sales, Industry Capacity, Industrial Production, Industry Inventories

Earnings – Tuesday: CAH, Wednesday: CSCO, Thursday: TPR, AMCR, DE, AMAT

Stephanie Link’s TV Schedule:

Return for Selected Indices^[1]

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[1] Source: Bloomberg. As of August 8, 2025.