Market Insights Recap — Week of August 4, 2025

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

Topics for our portfolios? What a week. Our indicator refresh in too late again. So what do those things mean for our portfolios? What should we be thinking about? 

I asked you last week, is this the biggest news week of the year? And it sure was. We got a slew of earnings reports, economic data from last quarter, a Fed meeting, more tariff torture and six of the Magnificent Seven are now done. We thought the economy was improving for the first quarter. Last Wednesday's GDP report showed the economy grew at an annualized 3% in the second quarter. Not bad, especially when you remember first quarter's negative a half percent reading. Recession just around the corner, the media blared. Nope. Just GDP accounting as the huge wave of imports came in in the first quarter. Companies were rushing to stock up from overseas before tariffs hit. Situation reversed last quarter. Exports were greater than imports. Growth averaged 1.2% for the first half of the year. So activity here in the U.S. has definitely slowed over the last six months compared to a year ago. Much of the blame rests with tariff uncertainty. Not really the level of tariffs. It's the constant change, and on and off and on again, that makes businesses sit on their hands. 

One symptom of sitting on their hands is not hiring. In the last quarter, net new job growth averaged only 35,000 jobs per month, that's about 60,000 less than needed. The only sectors that grew were state government, education, and healthcare. Industrial and private payroll growth is pretty much at a standstill. Again, companies hold back when they cannot forecast their cost. Is the economy finally driving into a recession ditch? Time to sell? No? If anything, the dry spell we thought that would come at year-end is here now. Our indicator dashboard is still several shades of green. None are flashing yellow. 

The August 1 tariff deal deadline did push a number of countries to make deals, or at least deal outlines. The biggest, of course, are the European Union and Japan. We have more certainty now than two weeks ago and a lot more certainty than April. So in terms of uncertainty, the worst may be behind us for the slowdown. We'll see. 

Now, one group that is late to the party, though, is the Federal Reserve. For the fifth straight meeting, they did not lower interest rates, much to the chagrin of President Trump, and would-be home buyers. We've been griping for years about the Fed being too late, raising rates and then moving too fast and going too far. In the last inflation cycle, the Fed was a year late. Now they're probably six months behind in cutting rates. We stated that the Fed will not cut rates this year unless something drastic changed. Last week, Chair Powell said unemployment was more important than inflation, and we wonder what level of unemployment the Fed would need to justify cutting a quarter or a half a percent from the present 4.25% lower bound, perhaps four and a half or 4.7% unemployment, up from today's 4.2 level? We think four and a half may be reached by the end of the year if tariff uncertainty does not settle down. And traders are betting that the economy forces the Fed to cut later in the fall. If the economy has fought through the worst of the tariff trauma, then their hopes may be dashed. 

So let's wrap it up. Regardless of all this noise and news, our charts and indicators tell us long-term bull is still in place. Earnings for the last quarter are coming in well above estimates. So the foundation is there for a renewed rally after some tariff and growth choppiness here for the next few weeks. Do not be surprised by a 4 to 6% correction. And don't forget new hand-wringing about a government shutdown at the end of September. Our bingo card is crowded, but we may be at the beginning of the end of tariff trauma. Our indicators remain green. They're also telling us to be patient. If you don't have money to put in the market right now, best to wait for a pullback. Let us know how we can help; 'til next time.