Favorite Fifteen – August 2025
By Vigilant Wealth Management on August 26, 2025
Here are a few important observations:
Global Economic Activity: (Chart #2) Global economic activity accelerated in July, led by strength in the Services sector. However, the Economic Surprise Index (Chart #1) is signaling that a slowdown may be on the horizon, with more pronounced weakness emerging in Emerging Markets.
U.S. Growth: (Chart #3 & #4) The Weekly Economic Index suggests U.S. GDP growth remains resilient at approximately 2.5%. The GDP NowCast supports this view, indicating stabilization following tariff-related volatility earlier in the year.
Consumer Spending: (Chart #6 & #7) Consumer spending held steady in July and continues to be a key pillar of U.S. growth. While consumer confidence rebounded modestly, it remains subdued relative to spending behavior, highlighting a disconnect between sentiment and actual activity.
Labor Market: (Bonus Chart Below) A resilient labor market is fundamental to sustaining consumer spending and economic momentum. When employment is stable and paychecks are consistent, households are more likely to maintain consumption levels. However, recent data from the BLS Employment Situation report suggests momentum is fading. Over the past three months, job growth has averaged just 35,000—well below the pace needed to absorb new entrants into the workforce. Particularly concerning is the rising unemployment rate among younger workers: the jobless rate for individuals aged 16–24 has climbed to 10%, up from below 8% in January 2024. This cohort includes recent college graduates, many of whom are facing a more competitive and uncertain job market.
Inflation: (Chart #6) CPI remained elevated in July but did not spike, suggesting that the initial impact of tariffs has largely been absorbed by businesses. This may reflect ongoing policy uncertainty, which is creating an unclear pricing environment. As companies gain more clarity on the future operating landscape, they may begin to pass on more of the pricing pressure to consumers.
Bond Market: (Chart #10 & #11) The yield curve remains largely unchanged from last month. The Federal Reserve continues to hold the federal funds rate at 4.5%, citing persistent policy uncertainty and inflation risks associated with potential tariff implementation. At the long end of the curve (10–30 years), yields remain elevated due to growing concerns over the federal deficit. Meanwhile, the short end (1–3 years) is under pressure from mounting near-term growth concerns. Bond spreads have narrowed from the highs reached after the initial tariff announcements, reflecting increased investor confidence that the final tariff measures will be less severe than originally anticipated, easing fears of a significant hit to corporate profitability.
Corporate Profits: (Chart #13) Earnings expectations have stabilized following downward revisions in May, supported by strong corporate results in 2Q 2025. Consensus estimates have risen to 11% year-over-year for 2025, up from 9% previously, solid, though still below the 15% forecast from January.
Stock Market: (Chart #12 & #14) The stock market continues to reach all-time highs as investors have looked past lingering uncertainty. The forward P/E ratio has jumped back to recent highs as well, breaking through 22x forward earnings expectations, well above the 20-year average of 16x. This suggests the market has priced in a notably optimistic outlook.
