Traders Dodge Stocks Ahead of September, Historically the Worst Month for Returns: Aug. 29, 2025

There’s no new justification for this morning’s stock market selloff except for investors dodging what’s historically been the worst month for equity returns. On the last business day of August, participants are grabbing profits after the S&P 500 gained around 11% year-to-date heading into September. There was some unfavorable turbulence in yesterday’s action following a lackluster outlook from Nvidia, which is continuing with the name shaving the most value compared to the other magnificent 7 members while technology and specifically semiconductors are taking the heaviest losses on the session across sectors and sub-components. The domestic economic calendar, however, was largely as expected, as consumer spending posted a ferocious rebound in July although UMich sentiment was revised down slightly, as weaker expectations for the future and softening price projections amongst households coincided with stronger confidence about the present. Meanwhile, the PCE supported the reacceleration theme as robust consumption drove up non-housing services charges, while goods, food and energy experienced deflation. Turning to Washington, Fed Governor Lisa Cook’s fate at the central bank is developing as the monetary policy authority requests a prompt ruling to reconcile the quarrel between her and President Trump. Yields are shifting in bifurcated fashion once again, with cost pressures in-line with expectations supporting a cut at next month’s interest rate decision and a lessening of yields at the short-end as a result, but independence concerns are weighing on duration, and the 5- to 30-year tenors are moving in the opposite direction. Elsewhere, folks are scooping up volatility protection instruments, futures of the silver, gold, copper and natural gas commodities. The greenback, lumber and crude oil prices are slipping.

Forget Tariff Fueled-Inflation, Services Prices Are Rising on Momentous Shoppers

This morning’s July PCE report was largely as expected, with price pressures remaining in the mid 2s while core costs inched up marginally to 2.9%. But what drove the climb were services, with both durable and nondurable goods charges seeing declines. Food and energy also served to counter the increase from services. Both saw stickers drop as well. The deflation in physical products occurs as market participants have been worried about tariffs leading to manufacturers raising costs on consumers, but core goods, the area most sensitive to cross-border commerce disputes, comprises approximately just 20% of the inflation picture. So with an average levy of 15% affecting just 20% of overall price indices, it’s not surprising that import duties are not moving the needle.

Services Prices Increased 0.3%, All Other Major Categories Decline

Overall prices climbed 0.2% month over month (m/m) while the core version of the Personal Consumption Expenditures Price Index (PCE) rose 0.3%, exactly as expected. Both metrics were up 0.3% in June. The year-over-year (y/y) figures came in at 2.6% and 2.9%, similar to the prior month’s 2.6% and 2.8%. Services prices rose 0.3% m/m, but energy, food, durable goods and non-durables experienced deflation of 1.1%, 0.1%, 0.1% and 0.1%. Consumer spending grew a sharp 0.5% m/m while incomes expanded just 0.4%, meeting expectations and accelerating by a tenth of a percent on the two indicators. Due to rounding, however, the personal savings rate remained unchanged at 4.4%. Consumption volumes grew across the board with durable goods, non-durables and services climbing by 2%, 0.3% and 0.1% m/m.

Economy Is Reaccelerating

What’s impacting the inflation picture at this juncture is an enthusiastic environment that few saw coming back in April when we experienced the violent selloffs in equity and credit assets. The strength of high-frequency (daily) economic indicators signals a prosperous road ahead and this morning’s data was supportive of a bullish landscape. Indeed, consumer spending volumes rose at the fastest pace in four months, as shoppers place first-half turbulence behind them and benefit from firm employment conditions bolstering the lower-and middle-income cohorts, while robust capital markets support confidence and expenditure trends amongst the wealthiest households. This dynamic is supporting services price pressures that are occurring as firms have been caught offsides with limited capacity and labor counts, but I’m expecting both issues to subside as companies expand capabilities and workers. However, that momentum can drive stickers north now and limit how low the Fed can eventually go.

Rate Cuts After September Are Big Question Marks

I don’t see the CPI rising above 3% in 2025 or in 2026 and that should allow the Fed to cut at least twice by Christmas since monetary policy is tight, in my opinion, at a 4.5% max while cost forces are in the mid 2s. Meanwhile, to the extent that growth remains this buoyant and there’s risk of the CPI advancing to the high 2s or even 3%, then the Fed can stay near the mid 3s and disappoint rate watchers that are projecting an overnight yield of around 3% at the end of 2026. September is in the bag folks, but October, December and next year are big question marks as far as Fed reductions are concerned.

International Roundup

US Tariffs Pushes Canada to a GDP Contraction

Canada’s real gross domestic production fell 0.4% in the second quarter after a 0.5% increase in the first three months of the year, according to Statistics Canada. On an annualized quarter- over-quarter basis, the economy shrank 1.6%, worse than the economist consensus expectation for a 0.6% drop and a reversal from the first quarter’s positive 2% rate.

Business investment and goods exports both contributed to the quarterly decline, although inventory accumulation, higher consumer spending and weaker imports helped dampen the headline weakness. Final domestic demand, which consists of consumption expenditures and investment in capital, grew 0.9%, reversing from the 0.2% contraction in the preceding period. Conversely, exports sank 7.5% with passenger cars and light trucks down 24.7%, industrial machinery, equipment and parts lower by 18.5% and travel services retreating 11.1%. While the numbers apply to global shipments, Canada attributes the declines to US imposed tariffs. Also during the second quarter, the household saving rate weakened from 6% to 5%, a result of decelerating wage growth.

South Korea Production Eases as Consumer Spending Grows

Retail spending in South Korea strengthened last month but production in both industrial and services sectors weakened. Shoppers’ total outlays were up 2.5% m/m after climbing only 0.7% in June. Last month’s result was the largest jump in spending since February 2023 when consumption climbed 5.3%.

At the same time, industrial production grew 0.3% m/m, missing the economist consensus estimate for a 0.5% gain and slowing from 1.7% in June. Relative to July of last year, however, the result was up 5%, surpassing the 3.5% estimate and accelerating from 1.6% in the preceding month. The services sector also slowed with production growth falling from 0.5% to 0.2% m/m.

Japan Sees Stronger Employment, Softer Tokyo Prices

Encoragingly, various gauges this morning depicted Japanese inflation and unemployment easing, although retail sales and industrial production disappointed. The Tokyo CPI and Core CPI for the nation’s capital city descended to 2.6% and 2.5% this month from 2.9% in July.

In another development, the country’s July unemployment rate fell from 2.5% to 2.3%, much better than the economist consensus estimate for an unchanged result. It is the lowest level since December 2019. Employers appear to have increased their recruitment efforts with job offers increasing 9.8% y/y, although weakness surfaced in the hotel and restaurant industry and the wholesale and retailing category with job openings falling 9.7% and 4.7%, respectively.

Despite the tight job market, shoppers tightened their purse strings with retail sales climbing only 0.3% y/y, missing the consensus estimate of 1.5% and slowing from 1.9% in June.