Stocks at All Time Highs in August – Pleasantly Surprised: Stock Market Update, Friday Aug 22, 2025

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Let’s get right to the point, I am surprised how high we are in the S&P 500 at this point of August, 6450 as I wrote this, but pleasantly surprised.  While our team discussed past V-bottom rallies in stocks months ago, paying attention to the late 90’s Dotcom/internet infrastructure buildout/Y2k period versus our current AI infrastructure, Federal reserve cycle, I didn’t have high confidence we would mirror it out beyond the 4 month window, particularly during late summer months when markets tend to slow, reverse and decline due to lower stock buybacks, earnings uncertainty, and lower liquidity.

That said, overlaying the -21% S&P500 drop caused by LTCM blowup in October 1998 early to mid-Dotcom buildout with the -21% S&P500 drop in  early April 2025 caused by Trumps tariffs and “Liberation day” we continue to mirror Dot.com almost to the week and day. We had the 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. However, I had expected a summer stall and pullback in stocks of a little over -5%, call it back down to 6125-50.  We haven’t gotten that.  In fact, so far, we barely got -3.5% peak to trough decline on the S&P500 into the August 1^st low of around 6212.  And that if you were perfect!

Here is an updated overlay of the S&P500 then and now. How remarkable is this.

We are still mirroring the same pattern back during Dotcom almost to the day and week.  Looking back in time, the % drop during the first stall after the LTCM v-bottom 4 months out was only -3.5% in the S&P 500.  If one uses that as the drop from our high of 6427 on 7/31 one gets? 6202 on the cash S&P 500.  The low print for the 2h of 2025 so far has been right at 6200 and on 8/1 the first day of August was 6212 so far.  Almost exactly 3.5% off the top.

Given what I am seeing in earnings, sentiment, seasonality, cycles, institutional positioning and volatility markets as well as Fed interest rates to come, as well as prior V-bottom moves, I think that it’s likely that August 1^st print was the low for the 2h2025. And while we “should” pullback lower to test that range or higher than that, it’s more likely the 4^th quarter of 2025 and first half of 2026 will bring higher stock markets than most investors think.

Many investors are worried about interest rates.  Many have come up with wild theories that foreign selling will cause a massive bond market selloff sending LT interest rates much higher. These theories have been out there for years now and while foreign holders have been net sellers for years, it’s unlikely that it has had much impact on our overall yields.

Investors, volatility has been in a down trend. Both realized actual stock vol and bond vol trending lower.  The cost of hedging stocks 2-6 months out, 3 month vol futures/realized vol) is almost 2-3x as expensive as actual vol.  In the bond market, the MOVE index has now broken below 50 and regardless of what you hear on TV it is declining not rising.  This has historically been a great thing for uptrends in stocks over months and quarters.  Heres a chart of the MOVE index.

Remember that lower bond vol is the key to leveraged players buying more assets as Treasury bonds are the lowest risk collateral in the financial markets.

Higher nominal interest rates are not guaranteed to hurt stocks.  If they were, explain a 6400+ S&P 500 with interest rates 200-400bps higher than 4-5 years ago?

We are at new ATH’s, up about 10% YTD and the Fed is paused. Think about it, all those bear calls for a market collapse as the Fed pauses or reduces its balance sheet and we are near 6450 on the cash SP500, as I write this and the Feds balance sheet has shrunk by $2.6 Trillion since they began QT.

Investors, we are in a bull market.  Short term volailty has collpased and that’s without the Fed cutting.  Realized volatility is around 7-8.  Spot vix index is around 15 but every time it gets near 21, sellers coming into those markets and buyers flood in to buy stocks. The costs of forward hedging is very high realitive to actually vol.  Can and should vol spike some over the next 3-4 weeks and stocks decline some?  Yes, we have the Jackson hole speech today, some Fed meetinging, 3q EPS blackout wiondow coming and lower overall liquidity.

Look at the negative reaction of tech stocks to small changes in forward outlooks?  AMAT among others.  But believe it or not the near exact same thing happened at this point of the Dotcom run.

Here’s the historic overlay of the Sox semiconductor index during Dot.com and currently for those still watching.

And here’s the overlay of AMAT then and now.  Is that Déjà vu?

Amat just dropped over 20% into and after its 2q25 EPS.  Clearly the markets were surpriosed.  Back in Dot.com, in the same overlayed quarter AMAT dropped -22%+ on a similar negative Earnings reaction.

If you believe in this model?  A sideways or down 3-5 weeks is very possible as inventory and stock gains get digested, as no one can dispel the notion of double ordering, pull forward in demand or hoarding.  Of course what followed would then be a big pickup in 4q25-2026 orders and stock price performance.

You might not have believed history is repeating but someone does.  Or the market overall does.  What could possibly cause this kind of parabolic move up in 2026 my friends ask.  I don’t know, all I could do is guess.

Fed cutting rates?  Trump gets his dovish Fed Chair in April/May 2026, that’s out 6-8 months from here.  AI investment remains strong and tech earnings and revenue keep beating materially.  The Trump accelerated depreciation tax incentive gets more tailwind and drives spending on equipment and people?  Russia/Ukraine gets “solved” and China starts opening up again to try to stimulate its stalled and lagging economy?  I don’t know, those are guesses high on my list of reasons made out in mid 2026 for major new ATHs coming.

Expect breadth to widen materially if and when the Fed cuts rates.  The RUT loves unforced Fed cuts, that’s the Russell 2000, loves Fed rate cuts.

Maybe be prepared in advance of the 4q25, to hear about the “chase for performance into year end” before it takes place.  Investors, even small cap stocks tend to work and even lead for awhile most periods when the Fed cuts rates and many institutions are behind their benchmarks like 2025.   Come late Sept and early October, most of those S&P500 targets for year end and 2026 are likely “moving on up” higher not lower for the 4^th quarter and beyond.

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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