Powell Opens Door to Rate cuts

Market Recap: 18-22 August 2025

Financial Markets

US Stock Market

This week the markets slowly melted into the Jackson Hole meeting. On Friday, the recovery was notorious as equity markets rejoiced on the dovish commentary of Jerome Powell. The S&P500 gained 0.3% and the NASDAQ 100 lost 0.9% for the week. The small cap index (Russel 2000) climbed 3.6%, as small caps would benefit considerably from lower interest rates for their re-financing needs. Trading volumes were average to high – especially on Friday.

COMMODITIES

Precious metals continue holding their levels. Gold and silver gained 1.1% and 2.4%, respectively. Gold is still close to the previous all-time high and has been in the range 3100-3500$. Silver continues strong and should remain in the 34-40$/oz range.

WTI crude oil rose slightly and closed the week at 63.8$/bbl. In the short term, the trading range should be 60-67$ and in the medium term 55-77$/bbl

Bitcoin fell ~2% and is currently trading around 115k$ – holding very close to the historic maximum. It has been surprisingly strong.

US DOLLAR, MONEY SUPPLY

The relative strength of the US dollar (DXY) was essentially unchanged, at ~97.7. The EUR/USD is around 1.172$, the GBP/USD is at 1.353$, and the USD/JPY is at 146.94 JPY.

US M2 money supply at the date of 30th June 2025 was up by 0.6%, 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 11th August 2025 loosened by 1.3%. 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 slightly on the longer end. Yields now sit at 3.698% for the 2-year and 4.256% for the 10-year. The yield curve has uninverted since a year ago, and lower yields are expected in the next few years, likely as a consequence of low growth, low inflation, and short-term interest rate cuts. Long-term growth and inflation expectations remain at ~4.9%.

The VIX remains at a low level of ~14.2, 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 as measured by the market cap-weighted indices (S&P500 and NASDAQ) is at an all-time high. However, the geometric index VALUG is not, which shows that the market median is not at record levels. We predict a sideways market for the rest of the year, as most companies are not being able to increase their profit margins. The tariff headwinds and the labor market softness may soon arise, prompting short-term interest rates to fall.

On the monetary policy front, Powell delivered a dovish speech at the Jackson Hole Symposium, and hinted at rate cuts in September. This may generate a wave of optimism, as long as the economy and jobs market don’t deteriorate.

Have a nice weekend, and good luck!!!