The U.S. day commenced with the release of July’s durable goods orders, which dropped by -2.8%, a smaller fall than the predicted -4.0%. When excluding transportation, orders increased by +1.1% compared to the forecasted 0.2%, with adjustments made for June to 0.3%.
Nondefense capital goods excluding aircraft, an essential measure of business investment, rose by +1.1% against a predicted +0.2%, with June’s results revised to -0.6%. This segment indicated a stable environment for private-sector investment, experiencing alternating gains and losses over recent months.
Consumer Confidence Trends
Consumer confidence in August was 97.4, just above the forecast of 96.2, aligning closely with July’s adjusted 98.7. Mixed views emerged, with some respondents seeing improvement in business conditions, while others noted challenges in the job market and anticipated fewer income gains.
In bond markets, the U.S. yield curve saw changes as the 2-year yield fell by -4.5 bps, the 10-year declined by -1.6 bps, and the 30-year rose by +2.2 bps, broadening the 2s–30s spread to 122 bps.
U.S. stocks ended on a positive note, with the Dow increasing by 135.60 points (0.30%), the S&P by 26.62 points (0.41%), the Nasdaq by 94.98 points (0.44%), and the Russell 2000 by 19.42 points (0.83%).
Investment and Consumer Outlook
The durable goods report from last month, July 2025, presents a conflicting picture we must navigate. While the headline number was weak, the +1.1% jump in core business investment, a key proxy for capital spending, is a strong signal of underlying corporate health. This suggests that despite broader concerns, companies are still willing to invest, providing a floor for the economy.
This strength in business investment contrasts sharply with August’s consumer confidence data, which shows households are becoming more worried about future job prospects and their income. This divergence suggests a potential split in the market, where industrial and technology sectors tied to capital spending could outperform consumer-focused stocks in the weeks ahead. A strategy to consider is favoring industrial sector derivatives over those tied to consumer discretionary goods.
The most significant factor for the coming weeks is the political pressure on the Federal Reserve, which introduces major policy uncertainty. This kind of environment typically leads to higher market volatility. We saw the VIX index, a measure of expected market volatility, spike to over 25 during similar periods of political tension in late 2020, and it would be prudent to expect a similar move from its current level of 18.
In the bond market, the yield curve is steepening, with the gap between 2-year and 30-year yields reaching its widest point since early 2022. This signals that while traders expect the Fed to cut rates soon, they remain concerned about longer-term inflation, a dynamic we also observed in the lead-up to the Fed’s easing cycle in 2007. This makes curve-steepener trades, which profit from short-term rates falling faster than long-term rates, look attractive.
With Fed funds futures pricing in an 84% chance of a rate cut at the next meeting, the move is largely expected and may already be reflected in asset prices. The real opportunity for traders lies in positioning for a surprise, as any deviation from a 25-basis-point cut would cause a significant market reaction. Using options on SOFR futures provides a defined-risk way to capitalize on this potential for a policy shock.
