Market Insights Recap — Week of August 18, 2025

Hello. I'm Steve Orr, Chief Investment Officer for Texas Capital’s Private Bank.

This week, three topics, at worst, at best; falling into a Jackson Hole; and foaming at the top. What do these mean for our portfolios? What are we going to do about them? 

You know, at worst right now, the economy is just kind of muddling along in first gear, that slow down in the second quarter. Now, at best, it looks like we bottomed a bit and things are starting to improve. Recent retail sales have been revised the last couple of months. Consumers are continuing to spend. Auto sales are on a good track. But what about inflation? Well, hey, consumer prices are kind of a mixed picture there. But producer prices, which always lead consumer prices six, seven, 10 months, they're starting to go up, very consistent with our outlook that we finish this year in the 3% range in inflation. And right now we're running at about a 3.3% annual rate over the last several months in producer prices. So in some spots, tariffs are having an effect and service prices on the producer side are coming up a bit. So, economy's in a decent place. Companies are learning how to deal with the tariffs. And Wall Street's out there jumping around for a Fed cut in the face of rising inflation and pretty steady job growth, pretty steady economy, very low jobless claims. Now this hasn't happened too many times that we can find in the last hundred years that when inflation is going up and we're near full employment, that everybody wants a rate cut.

So where is the Fed anyway on this? This Friday, Kansas City, Jackson Hole, their annual symposium, Chairman Powell will speak at 10:00 Eastern. And we might get a little bit more policy guidance or ideas as to what the Fed is thinking coming up to their mid-September meeting. And again, last September, well, debt ceiling, a lot of Treasury issuance as the Treasury refilled its checking account and corporations made their quarterly tax payments. That drains money out of the banking system. Same thing again this year, and what did the Fed do last year? They cut by a half a percent, so we could even see a rate cut in September or later in the fall that's just trying to counteract money coming out of the banking system and not really any kind of policy change that is, oh, we're giving up on inflation and we're worried about the economy so we're going to cut rates over and over and over and over again, like Wall Street wants. And what we've seen time and time again over the last several years is Wall Street wanting more hikes than the Fed gave them or more cuts than the Fed actually gave them. So we'll see if that holds true. We think it does. We think the Fed may cut one or two times, but nowhere near what Wall Street wants. 

So what does that mean for portfolios? We have a decent economy here. We're not sure which way the Fed's going. But if they do cut, that brings the short rates down a little bit. And there's so much more bond issuance and so much more debt to come out that the long end is going to keep rising a little bit. So if you're a bond investor, you stick to sort of that neutral interest rate sensitivity at the market level. Or if you're a buy and hold investor, you can go ahead and take advantage of fairly high real rates and own bonds in here. 

Now, Wall Street's foaming about rate cuts, but there's also frothy sentiment here near the top. And we've set more records recently in the Nasdaq and the S&P 500 than we can count. That's a wonderful thing. We love a strong rally, especially in August because when you have a good July-August rally, you tend to have a fairly passable September, which is the worst month of the year historically for performance. So we're banging along here at the top, and we're doing so well with these rallies, especially in Big Tech that is really argue all the tech companies, you can argue their 40% of the S&P 500. Right now the Nasdaq market value is bigger than our economy, about 105%. That's never happened before. So this frothy sentiment here kind of tells you you're probably at some kind of top. So it pays to be patient with your capital. So for portfolios, if you want to get into stocks, be my guest. But if you're a long-term investor, you can afford to make sure you know right where your chips are. 

Any questions about what we covered today? Please email me at [email protected]; 'til next time.