The Pulse on the Economy and Capital Markets: August 2025

To Summarize: The markets seem priced for perfection, with investors anticipating multiple Federal Reserve (Fed) rate cuts even as inflation remains stubbornly above the Fed’s comfort zone. The economic landscape is divided: AI vs. everything else. While AI-focused companies are powering market and economic gains, most of the real economy shows signs of deceleration, and businesses remain cautious on hiring amid persistent uncertainty.

The big takeaway – Despite AI driving market momentum, sticky inflation and cautious business sentiment pose underlying risks and challenges to the broader economic outlook.

In the Markets: For the month of August and the 3^rd quarter, stock markets surged driven by strong gains in small U.S. companies, U.S. tech, and developed international markets. The bond markets have also advanced, rising 4-6% this year. This robust performance by stocks and bonds reflects better-than-expected corporate earnings, as companies exceeding cautious forecasts following the April tariffs announcement. However, the ongoing tariffs conflict has dampened global growth expectations as oil dropped double digits, while copper and bitcoin have shown mixed results.

The Era of Stagflation-ish: Despite investor expectations for multiple rate cuts by the Fed, inflation remains sticky and above the Fed’s comfort zone. Economic growth is positive but slowing, creating a stagflation-like environment marked by low growth and persistent inflation. The plateau in inflation signals the end of an easy money era, with prices no longer falling and higher levels likely to continue.

AI vs. Everything Else: AI-driven companies are leading the market as the rest of the economy cools and earnings data illustrates a clear divide: it’s AI vs. everything else. Despite the AI sector booming, smaller businesses have been treading water since 2023. Amid slowing growth and rising costs, businesses are increasingly cautious. Hiring has stagnated as employers are more selective when it comes to staffing, reflecting shifting priorities in today’s economic landscape. 

Top Headlines: We’re reading about healthcare IT powerhouse Epic Systems announcement of new AI tools in development; Tech IPOs have Wall Street excited after “years of Prohibition;” buyers gain options as the housing market inventory tops 1.1 million units; occupancy and rent growth hold steady across the U.S. apartment market.

Related resources:

• AI/Healthcare IT: Epic touts new AI tools for patients, doctors, and insurers at company’s annual meeting
• Technology: Tech IPOs are roaring after “years of Prohibition”
• Residential Real Estate: Buyers gain options as inventory tops 1.1 million units
• Commercial Real Estate: Resiliency continues across the U.S. apartment market

Disclosures 

Investment advisory services are offered by Aprio Wealth Management, LLC, a Securities and Exchange Commission Registered Investment Advisor. Opinions expressed are as of the publication date and subject to change without notice. Aprio Wealth Management, LLC shall not be responsible for any trading decisions, damages, or other losses resulting from, or related to, the information, data, analyses or opinions contained herein or their use, which do not constitute investment advice, are provided as of the date written, are provided solely for informational purposes and therefore are not an offer to buy or sell a security. This commentary is for informational purposes only and has not been tailored to suit any individual. References to specific securities or investment options should not be considered an offer to purchase or sell that specific investment.   

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