June 2025 Jobs Contraction = Rate Cuts

Market Recap: 1-5 September 2025

Financial Markets

US Stock Market

This week the main US stock market indices were positive for the week, but show loss of momentum. The S&P500 and the NASDAQ 100 gained 0.3% and 1.0%, respectively. The SPX is at an all-time-high! The small cap index (Russel 2000) climbed 1.0% and is reaching the historic maximum. Trading volumes were average.

COMMODITIES

Precious metals got a boost this week. Gold and silver gained 4.0% and 3.2%, respectively. Gold is at a new all-time high. Silver continues strong and might have some resistance around 43$.

WTI crude oil fell to 62$/bbl. In the short term, the trading range should be 60-67$ and in the medium term 55-77$/bbl

Bitcoin recovered ~2.7% and is currently trading around 111k$ – it seems Bitcoin is starting to show signs of weakness. 100k$ and 93k$ should act as short term supports for the cryptocurrency.

US DOLLAR, MONEY SUPPLY

The relative strength of the US dollar (DXY) was essentially unchanged, at ~97.7. The EUR/USD is around 1.171$, the GBP/USD is at 1.351$, and the USD/JPY is at 147.43 JPY.

US M2 money supply at the date of 28th July 2025 was up by 0.43%, showing a continuous increase in the money supply since December 2023. Banks didn’t stop lending so far – if the money supply was going down, it would be a warning sign for the economy and equities.

The national financial conditions index (NFCI) released on 25th August 2025 tightened by 0.9%. Note that this indicator is delayed by two weeks. Positive numbers in the NFCI mean tighter financial conditions, while negative numbers indicate looser financial conditions.

BONDS AND OPTIONS

US bond yields fell this week. Yields now sit at 3.509% for the 2-year and 4.076% for the 10-year. The yield curve has uninverted since a year ago, likely as a consequence of low growth, low inflation, and short-term interest rate cuts. Long-term growth and inflation expectations are at ~4.8%.

The VIX spiked during the week, reaching 19, but closed at approximately the previous level of ~15, showing investor complacency. The overall market remains quite expensive and the risks of a recession are mounting. Options premiums are not very attractive at this moment – option sellers need to be patient and particularly selective regarding which contracts to sell.

Comment Section

The US equity market has been holding up mostly due to the big cap names that dominate the indices. However, recently many small caps have been rising, as they will benefit from lower interest rates. Beyond the overvaluation of many tech companies, we see another risk: the possibility of an unemployment increase being translated to a stop of inflows to retirement plans (passive investors) and even liquidation of positions (especially if the market corrects). A bit of selling by institutions could start a correction, which can then be followed by small investor panic – the soon-to-be retired and the individual investors will sell to cut their losses short (or to try to lock-in some gains), fueling an even quicker meltdown. This can happen at any moment, and we must be prepared for it.

However, the authorities will not let the markets melt down, and artificial “life” support will be granted, otherwise the financial systems could collapse – mayhem would develop on the streets as people couldn’t access their bank accounts and retirement funds – and that would be the end of some governments. Thus, it will not happen. Financial trickery and liquidity will be the solution.

Regarding the jobs report, it was dramatic! Not only it missed expectations and forecasts for the current month, but the revision to June was negative. US nonfarm payrolls rose by 22K in August 2025, well below an upwardly revised 79K in July and market forecasts of 75K, underscoring signs of a cooling labor market. Additionally, the U.S. economy lost 13 000 jobs in June, the Bureau of Labor Statistics said Friday, downwardly revising its estimate of a gain of 14 000 jobs. It was the first time since 2020 that the U.S. economy lost jobs. The labor market returned to growth in July but grew far more slowly in August than economists expected. Employers have curtailed hiring as tariffs push up prices and squeeze consumer budgets.

In the face of a cooling labor market, it remains to be seen what the inflation numbers reveal next week. At this moment, an interest rate cut by the FED, later in the month, is almost certain.

Have a nice weekend, and good luck!!!