Insights 
VT 
After four straight months of optimism-fueled gains, is the market about to experience the classic August cooldown?
July closed on a high, with both the S&P 500 and Nasdaq posting their fourth consecutive month of growth. The rally has been impressive & markets have surged approximately 28% since spring. But as we enter August, a familiar question arises: Can the momentum continue, or is the music about to come to a halt?
What History Says
Historically, August tends to be one of the weakest months for equities. In post-election years, such as 2025, this seasonal dip is often even more pronounced, with major indices typically showing declines of between 0.8% and 1.5%.
Given the strength of the recent run-up, a pause or pullback would not be surprising. Momentum may begin to fade as traders reassess.
Markets Look Good But Not Great
Second-quarter corporate earnings have come in solid, with a year-over-year increase of around 6%. While this marks the eighth consecutive quarter of growth, it’s a clear deceleration from the nearly 17% gains recorded in late 2024.
Roughly 80% of reporting companies have beaten analyst forecasts, but the margins of surprise are shrinking. It suggests companies are meeting expectations, but fewer are delivering the kind of upside shocks that fuel extended rallies.
Tech continues to outperform, but broader sector strength will be needed to sustain the market’s upward trajectory.
Valuations Leave Little Room for Error
Currently, the forward P/E ratio for the S&P 500 stands at 22.4, significantly higher than both the 5-year average of 19.9 and the 10-year average of 18.4. While elevated valuations don’t always lead to market corrections, they do increase risk.
With high expectations already built into prices, any disappointing economic data or earnings reports could lead to sharper pullbacks than usual. The market is positioned for perfection, which makes it particularly vulnerable.
All Eyes on Inflation & The Fed
The macro picture remains mixed. Inflation has cooled to 2.7%, inching closer to the Fed’s 2% target, while unemployment has ticked up to 4.2%. These shifts have sparked renewed speculation that the Fed may finally pivot toward rate cuts in September.
Still, upcoming economic data will be crucial. Stronger-than-expected inflation or employment figures could delay easing, pushing rate cuts further out and potentially souring sentiment. In this setup, “good news” (i.e., resilient data) could paradoxically be bad news for risk assets.
Key Movements of the Week
Dollar (DXY)
The dollar dropped below the key 100.20 level following the weaker-than-expected U.S. jobs report, reinforcing the market’s rate cut expectations. As sentiment shifts, the path of least resistance appears lower for the greenback.
USOil
Crude retreated from its late-July high of ~$71.00 after the NFP report rattled markets. The rejection from the top of its recent range suggests short-term sellers have taken control.
Watch for a potential corrective bounce near the $69.30 level. Failure to break higher from that point would confirm a lower high and a likely continuation of bearish momentum.
Bitcoin
In July, Bitcoin (BTC) traded steadily within the range of $116,000 to $122,000. However, by the end of the month, it fell below its support level, leading to a shift in short-term sentiment to bearish. As a result, the price has dropped to the $111,000 support zone, with a slight rebound observed around $112,500. It remains uncertain whether this rebound is just a temporary relief or the start of a more significant recovery. For now, we need to see further price movements for confirmation.
Key Events of the Week
Tuesday: US ISM Services PMI
Forecast: 51.5 (vs. 50.8 prior)
After the dollar selloff post-NFP, this PMI data will be a key trigger. A weaker reading would bolster the case for a Fed rate cut, likely extending downside pressure on the dollar.
A stronger-than-expected reading, however, could halt the dollar’s decline, suggesting the economy is more resilient than the jobs data implied and possibly delaying Fed easing.
Thursday: Bank of England Rate Decision
The BoE is expected to cut rates from 4.25% to 4.00%, but this move is already priced in.
However, the real twist comes from the weaker U.S. jobs data, which raises expectations that the Fed might follow suit. This creates a tug-of-war in GBP/USD, as both currencies face potential easing paths.
With no major data due Friday, traders are likely to position ahead of next week’s CPI and PPI inflation reports.
Ready to trade on this week’s key events?
