August 2025 Market Recap

Here are the latest market insights from the Goldman Sachs Wealth Management Investment Strategy Group (ISG). 

After a volatile beginning, US equities increased in August, with the S&P 500 reaching a new all-time high.

Here’s a recap on what happened in the market and economy.

The markets: equities remain strong

A weaker-than-expected labor market report on the first day of the month led to a sharp market response, causing the S&P 500 index to fall 2.4% from its July peak. However, other economic activity indicators demonstrated more resilience, and consumer and business sentiment improved, along with expectations for a possible Federal Reserve rate cut. 

Strong earnings also contributed, as aggregate S&P 500 earnings rose 12% year-on-year in Q2 2025, surpassing the 4% consensus estimate. US equities returned 2.0% in August. 

International equity markets also performed positively, with MSCI EAFE returning 2.1% and MSCI EM returning 1.5%.

US government bond yields declined following the weak labor market report and Federal Reserve Chairman Jay Powell’s remarks at Jackson Hole, which hinted at the possibility of a September Fed rate cut. 

Short-term yields, which are more affected by policy-rate expectations, declined more than long-term yields, which faced upward pressure owing to concerns about the fiscal outlook and Fed independence. The same factors influenced the US dollar index (DXY), which ended the month 2.2% lower.

The economy: mixed signals with potential downside risks

The US economy, particularly the labor market, is currently exhibiting mixed signals. While job creation has notably decelerated since May, initial claims for unemployment have increased only slightly, and the unemployment rate continues to hold at a historically low 4.3%. 

Although GDP growth has slowed in the first half of the year, personal income and consumer spending have held up well, supported by improved household sentiment from previously subdued levels. 

Nevertheless, risks to the economic outlook are predominantly skewed to the downside. In his address at Jackson Hole, Chair Powell described the labor market as displaying “a curious kind of balance that results from a marked slowing in both the supply of and demand for workers.” He further cautioned that “[t]his unusual situation suggests that downside risks to employment are rising. And if those risks materialize, they can do so quickly in the form of sharply higher layoffs and rising unemployment.” 

The influence of tariffs on consumer prices has become more pronounced and we anticipate it to intensify in the near term. While this effect is expected to be temporary, there is a risk it could persist. The Federal Reserve will need to proceed with caution under these circumstances. 

However, current signals indicate that a 25-basis-point rate cut is likely in September, consistent with ISG’s expectations and market pricing. 

Looking ahead

In addition to closely watching the upcoming central bank meetings, ISG will be paying special attention to the US labor market data. In Europe, the focus will be on the political developments in France and fiscal policy in the UK.