Market Insights Recap — Week of August 11, 2025

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

For our portfolios, better earnings, lower tariffs, but still late. So what does that mean for our portfolios? What should we be doing and thinking about? Earnings are the mother's milk of stock returns, sort of common sense to most of us, but some people have to go to grad school to learn that stock values go up when companies make money and they have good prospects for future growth. Markets like positive earnings, and Wall Street eagerly awaits the middle of each quarter when companies turn in their report cards from the previous quarter. 

For the second quarter, 90% of the S&P 500 companies are reported, including six of the Magnificent Seven. Earnings growth has come in just under 12% for the quarter, above the estimated 9% growth on March 31. CEO comments about the health of their businesses are also improving. Yes, the tariffs still drive uncertainty, but some industries are learning how to cope. Summary, a better than expected set of results, very few companies citing recession and most are learning to deal with tariffs. That fits our indicators, telling us the longer-term bull remains in place.

When we start the August to September period with a rally, this time tends to be choppy, but just not bad as a usual August or September. Of course, we're always one tweet away from new excitement. There is good support down at 6,200 and 6,000 on the S&P 500. Regardless, we don't need to be adding to stocks right now as we're entering a period of seasonal weakness. You want to chase strength as the number of stocks making new highs is going up. If that number had stalled, along with the number of stocks at 20-day highs, less momentum means fewer new records. 

Now back to those CEO comments about tariffs. Receive tariffs for June, 8.9% of the value of goods that came into the U.S. Most of the agreements are in place, and we think the level drifts up to the 12 to 14% range by the time they're all done. Not the 18% tariff rate printed in The Wall Street Journal last week. Tariffs are basically a $2 trillion tax on U.S. companies. Congress basically neutralized the effect of those tariffs with tax cuts and the ability to expense construction and research and development. 

Finally, the too-late Fed missed another chance to cut rates. We think they should have been cutting most of this year; we said they wouldn't if they could hold off with inflation staying level. But inflation triggers off money supply growth. And M2 money supply is growing at 4.5% a year, while inflation is creeping up towards just three. Historically, they're fairly close to each other. Short-term borrowing, however, depends on some degree to the Fed funds rate. It's averaging about 4.3%, again, well over a percent above inflation. Over the last 30 years it's only averaged barely a half a percent either way. So borrowing is more expensive right now. We think they should cut in September and again in December. Inflation will likely be inching higher then, and markets will start to get worried about the Fed stopping. Those are Wall Street worry bricks, not actionable portfolio tools. 

So let's wrap it up. Earnings for the last quarter are coming in well above estimates. Company managements are coming to terms with some of the tariffs. We think we're at the end of the beginning and we can see the end of the tunnel for tariffs. The long-term bull is in place. Rates are reasonable but should come down slightly in the next couple of months. Our indicators are green, but telling us to be patient. Let us know how we can help; 'til next time.