Stock Market Update, Friday Aug 1, 2025: Summer Stock Selloff Begins

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It’s been an incredible 3.75 months, V-bottom rally in stocks since peak market fears over the economic uncertainty caused Liberation Day tariff spreadsheet chaos.  This is going to be a pretty short video as its peak Earnings reporting window for the 2q reports so our team is trying to sort out the good from the bad and figure out what and when we might want to make changes to our client’s holdings for a summer stall and then a 4q-1h26 rally.

The investment team at OHFG discussed the likely V-bottom in stocks from mid to late April well before the historic rally took hold and while many others were talking about doom and crashes. The good news is we did V-bottom and it happened WITHOUT Federal Reserve intervention and interest rate cutting. More Fed cuts are in front of us. What’s their timing? I’m with Treasury Secretary Scott Bessent on this one, I’ll let the academic economists at the Fed discuss that one ad nauseum.  And I’ll let the strategists and financial commentaries on TV discuss irrelevant things in my view such as “dot plots and “fed funds futures”.  Study after study of data says that the Fed is a momentum investor.  Cuts beget cuts, and their timing is much less important than most think.  Direction first.

Think investors, we are at marginal new ATH’s, up about 5% above previous ATHs in stocks, and the Fed is paused. Think about it, all those bear calls for a market collapse as the Fed reduces its balance sheet are near 6350 on the cash SP500, as I write this and the Feds balance sheet has shrunk by $2.5 Trillion since they began QT.

Theres good news and bads news.  First the good news. Investors, we are in a bull market.  Against the most recent calls for an inflationary spiral caused by tariffs, we are in a bull market. Plain and simple. If you didn’t get scared out or pulled the plug for emotional reasons congratulations.  You might be with a good planner, might have a strong self directed plan or maybe you are on a vacation!  We are in a bull market.  Up and too the right.  Breadth has been strong, forget those naysayers who keep tellinh you its only 5-10 stocks in the markets.  It’s only NVDA or Netflix or MSFT.  They are wrong and have likely been wrong for months if not longer.

Short term volailty has collpased and that’s without the Fed cutting.  Realized volailty is around 7-8.  Spot vix index is between 14-15 but forward vol futures remain between 20-21, so the costs of forward hedging is very high realitive to actually vol.

Last week we talked about a likely seasonal uptick in inflation and slowdown in growth coming in August-Sept as the tariff effect finally hits.  It’s already apparent in gasoline demand this summer with demand being down almost -5% yty while gasoline prices are also down.  That’s US consumers staying close to home this summer because they are cautious spending.

Which leads me to the #1 area and likely reason for a very normal summer stall and likely 4-6.5% retracement sometime between mid August and mid October.  A further growth slowdown looks to be approaching.  Tariff induced.  Demand pull forward. Uncertainty uptick. Inventory replenished. At the normal time when there is almost nothing a bullish investor can do to offest a negative story and bearish swirl.

Instead of getting FOMO here, how about taking a deep breadth and exhaling and slowing down. Even during the Dot.com run in 1998-2000, there was a peroid of about 3 months after the intial 4 month V-bottom post LTCM blowing up, where the overall SP500 churned without getting burned.  Here’s that update overlay then and now.

Yes, there is 2-3% upside, at the same time there is as good a chance that the market sells off later in Sept back down to where we broke out from 6100-6150.  And the normal time for stalling is fast approaching.  Usually almost exactly 4 months from the lows, and 3 months from crossing back above the 50-day mva.  The historical data triangualtes to a summer toppping around Aug 4-10^th.

Here’s the historic overlay of the NASDAQ composite during Dot.com and currently.

You might not have believed history is repeating but someone does.  Or the market overall does.  But Chris its different now.  Politics, geopolitics, debt, interest rates, the dollar.  Well maybe. Or maybe not.

Here’s the same historic overlay of the Dollar index, the DXY.  Remember just back in December almost every Tv commentator was talking US exceptionalism and the strong dollar?  And what happened?  Poof the dollar topped and sold off.  Now, all I here is about dollar devaluation and US weakness or money flooding out of the US, and? Yet, right when historically the Dollar troughs and rallies. Here’s the overlay.

Guess what the prior overlay of Dot.com and current times says?  Yeap, it says get long the dollar for the rest of summer.  Why?  I don’t know.  Maybe it’s because volatility will uptick and money will flow back to the USA.  Maybe it’s because the Fed won’t be dovish enough and won’t cut even in September as many thinks and rates will stay higher for a bit longer.  I don’t know, I’m not that smart.  Yes, I took all the econ and finance classes, and I have the CFA designation, but investors, the price chart is the collective wisdom and action of all investors, and I know unless you are Warren Buffet or a few others, don’t get in the way of the market.

So, for now, my advice to those still watching, take a deep breath, try not to get sucked in with FOMO changing your allocation to a more aggressive position just because the market is up and step back for a few weeks and months.

Yes Investors, The pattern remains bullish and up and to the right is good.  New ATH’s are not bearish historically.  However, after rallying for almost 4 months off the April lows, (exactly 4 months is between August 4-8^th) do not expect the pace and percentage gains of stocks to continue at this rate.  Expect the pace to slow.

Investors we expect a normal late summer pull back in the markets. If this plays out as Our team has stuck with our 2025-yearend target of 6600 even as stocks sold off into April, you should have a better time and price to add to your favorite growth stocks for a 4^th quarter rally and continuation of the bull market in1h26

Does that mean you shouldn’t add to stocks particularly if you are younger and in saving and accumulation mode?  No, rarely can you pick the absolute level in both price and time, on both the buy side, sell side, and buy side once again, particularly in growth stocks and as we covered in prior videos.

Regardless of the path for the economy and financial markets in the next few months, the investment team at OHFG will be here manning the ship and adjusting our models and long/short, hedged equity fund where we can.

Until next week, have a blessed weekend, and know that the OHFG team is doing what we can to plan for you and your family’s future regardless of what stage you are at in your career or retirement.

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