Weekly Market Sparks 8/17/25

Rusty Vanneman

— 2 min read

Talking Points for The Week That Was and The Week Ahead

Executive Summary Sparks

  • Last Week: Stocks climbed on growing expectations of a September Fed rate cut, with small-caps outperforming large-caps by the widest margin since April. Inflation readings were mixed—CPI supportive of cuts, but PPI showing the biggest monthly rise since March 2022.
  • The Week Ahead: Key housing data (starts, permits, existing sales) and global PMI releases could test bullish sentiment and provide more insight into consumer resilience and Fed policy direction.
  • Market Wisdom: With tech dominance at record levels and optimism running high, diversification is essential. Broad market participation, however, historically improves the durability of bull markets.

Sparks from the Week That Was

  • Stocks surge on policy hopes:
    • The S&P 500 and Nasdaq hit fresh record highs midweek before a modest pullback.
    • The Russell 2000 small-cap index outperformed large caps by the most since April, a sign of broadening market participation.
  • Inflation: split decision:
    • Headline CPI eased to 0.2% m/m, helped by lower grocery and energy costs.
    • Core CPI rose to 0.3% m/m, pushing annualized core inflation to 3.1%—the highest since February.
    • PPI came in +0.9% m/m, the hottest since March 2022, raising questions about cost pass-through ahead.
  • Consumer resilience:
    • July retail sales rose +0.5%, with June revised up to +0.9%.
    • Control group sales, which feed into GDP, also gained +0.5%.
    • Offsetting this: University of Michigan consumer sentiment dropped to 58.6 from 61.7, the lowest in three months.
  • Housing affordability crisis deepens:
    • The income needed to afford the median U.S. home ($124k) is now 57% above the median household income ($79k)—the widest gap on record.
    • Home sellers now outnumber buyers by nearly 500,000—the largest imbalance since data began in 2013.
  • Bond markets mixed:
    • Short-term Treasury yields slipped, long-term yields rose, steepening the curve.
    • Credit markets stayed strong: investment-grade and high-yield bonds outperformed, signaling investor risk appetite.
  • Sentiment snapshots:
    • NFIB small business optimism rose to 100.3, the best this year.
    • But uncertainty also rose, with trade policy and tariffs still lurking as risks.

Sparks for the Week Ahead

  • Housing in focus:
    • Housing Starts & Permits (Tues)
    • Existing Home Sales (Thurs)
  • Global growth signals: Flash PMIs (Thurs) will show whether manufacturing softness is stabilizing or deepening.
  • Fed spotlight: Chair Powell’s Jackson Hole speech (Aug. 22) could set expectations for the size of a September cut. The market is pricing an 85% chance of a 0.25% cut.

Sparks of Market Wisdom

  • Tech dominance at extremes: Tech sector outperformance is at a record high, surpassing last year’s peak and even levels from March 2000.
  • Size imbalance: The large-cap/small-cap ratio is at its highest since April 1999—more than three standard deviations above its long-term mean. Historically, such extremes often precede periods of small-cap catch-up.
  • Investor takeaway: Optimism is building, but concentration risk is real. Long-term investors should remember:
    • Stay invested when the headlines make you doubt.
    • Stay diversified when markets feel one-sided.
    • Stay disciplined by leaning on your plan—not emotions.

Quote of the Week

“In the long run, the market rewards patience far more than panic.” — Jeff DeMaso

Invest well, be well.
Rusty Vanneman, CFA, CMT | rustysbridge.com
Listen to my new podcast: Invest Well, Be Well

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