Honey badgers are incredibly tough. They are omnivores with a strong immune system that allows them to survive bites from venomous snakes and scorpions. Their skin is thick and loose, protecting their inner organs in a fight. The current stock market is like the honey badger: tough, enduring, and willing to take some punishment. To quote the meme: "Honey Badger Don't Care!" | | Market Update - August 2025 | |
- Like the proverbial Honey Badger, the stock market faced all of its enemies and kept pushing forward: tariffs settled lower than expected, tax cuts passed quicker than expected, earnings continue to climb thanks to artificial intelligence, and Elon Musk's DOGE cuts turned out to be minimal.
- Stocks rose during July, with Technology, Industrials, and Consumer Stocks leading the pack. Consumer Staples, Health Care and Communications lagged the whole month. International and emerging market stocks lagged during July.
- Most bonds fell during July as the growth projections for the US economy continued to look good. Remember, growth and inflation are a nemesis for bond investors.
| | Table 1: Market performance estimates as of 7/31/2025 (LIMW) | | Christmas in July for US stock investors | | |
The stock market received everything it wanted on its July Christmas list:
- Modest tariffs with large trading partners
- Extension of the 2017 Trump tax cuts
- Quiescent inflation
- Earnings growth, especially in tech stocks
Let's look at some charts and figure out if it is the bulls or the bears that should be losing sleep in the coming months.
In general, with earnings good, the Fed about to cut interest rates, and a major April pullback in the rear-view mirror, the technical or trading picture for US stocks looks excellent. The market is breaking up to new highs (bullish), survived a quick bear market (bullish), and has professional investors chasing it (bullish).
Figure 1: S&P 500 performance 2024-2025 (LIWM)
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However, there are some trading charts that indicated the current move in stocks is pressing on upper edge of what is possible and many traditional valuation tools are showing a potential year 2000-type of high-valuation problem.
Figure 2: S&P 500 pressing upper channel boundary 2009-2025 (Sven Heinrich)
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While valuation tools are NOT useful for trading, they are very helpful for long-term analysis of the markets. In the current environment, stocks are nowhere near "CHEAP" and on some metrics valuations are higher than the year 2000 peak. But you all know that records are made to be broken.
The famous value investor Warren Buffett shared with his acolytes some of his favorite market valuation tools over the years. This first one compares the value of all stocks with the size of the economy as measured by GDP. The latest reading is at an all-time high.
Figure 3: Value of public stocks / Gross Domestic Product (GDP) (Long-term trends.net)
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Another Warren Buffett tool compares market valuation to its historical trend. While not as extreme as the Stocks/GDP ratio above, it also shows we are levels that turned out to be great selling points for stocks.
Figure 4: Buffett Indicator showing Value vs Historical Trend (currentmarketvaluation.com)
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One of the best market strategists, Barry Bannister at Stifel Nicholas, also came out with his own take on the over/undervaluation dilemma. He lays it out in the following chart. His complicated methodology compares Economic Value, Invested Capital, Return on Invested Capital and the Weighted Average Cost of Capital (ie (EV/IC)/(ROIC-WACC). Definitely a wonky measurement, but also close to year 2000 highs.
Figure 5: Over and under valuation since the 2000 Tech bubble (Bannister)
| | In conclusion, traders are bullish on stocks and chomping at the bit, but those with long-term investing time horizons need to know that we are at record high valuations. High valuations usually imply lower than average returns looking forward. | | Good news: profits are great. Bad news: it's only a few extremely large companies | | |
It is easy to forget that the broad stock indexes are comprised of hundreds of stocks, but most benchmarks are weighted by the size of the company. For example, the S&P 500's largest weightings are in the largest companies such as Apple, Nvidia, Microsoft, Google and Facebook.
There is nothing wrong with this arrangement, but over the last 20 years, big companies kept getting bigger as they bought young rivals and acted as oligopolies in their respective industries. The result is that today, a handful of companies have earnings reports that drive the whole market.
What this means is that anything that interferes with the profitability of technology stocks will affect the broad markets negatively. This concentration creates risk and on this metric risk is higher than the year 2000.
Figure 6: Concentration of the largest S&P 500 companies (Goldman Sachs)
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Analysts compare today's technology stocks with those of the technology bubble of 2000. These are mostly FAVORABLE comparisons; the extremes for these individual stocks are less extreme than in the year 2000. But still, the comparisons can be made.
Table 2: Comparing top stocks of 2000 and 2025 (Jeff Weniger)
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Finally, the Nasdaq technology benchmark has recently traded in a way that hasn't happened since the late 1990s. Uh-oh! Number of consecutive days above the 20-day moving average is very high!
This doesn't mean the market will crash tomorrow, but it does mean the room for error is getting smaller. We continue to watch closely for signs of deterioration in earnings or orders.
Figure 7: Nasdaq number of consecutive days above 20-day moving average (Bloomberg)
| | The Big Beautiful Bill passes Congress | | |
The Big Beautiful Bill is a structural reorientation of the U.S. tax code with the country. On the surface, it raises standard deductions, revives SALT flexibility, and introduces new deductions and credits.
The expanded standard deduction appears modest with $15,750 for singles and $31,500 for joint filers, but what matters more are the phaseouts. Starting at $150k for individuals and $300k for joint filers, many benefits decline sharply. These cliffs are designed to spare low income workers.
The SALT cap expanded from $10k to $40k (with a phase down above $500k).
More novel are the deductions on tips and overtime pay. These provisions are up to $25k for tips and $12.5k for overtime are a direct nod to the working class, particularly service and manual labor sectors.
The estate tax exemption is raised to $15 million per person.
One of the more intriguing new additions is the Trump Account for Newborns, a $1,000 birth credit plus $5k/year in long-term U.S. equity index investments.
Other tweaks like the auto loan interest deduction only apply to U.S. assembled cars. It’s anti-China, anti-import, and pro-domestic production without needing tariffs. Similarly, the new charitable deduction for non itemizers ($1k single / $2k joint, cash only) won’t shift giving habits, but it does signal moral preference: rewarding traditional, IRS-compliant donations in a time of donor-advised fund scrutiny.
For businesses, there are creative ways to avoid capital gains taxes and aggressive depreciation schedules. Small businesses received a permanent extension of the all-important Section 199 Qualified Business Income deduction.
Table 3: Key changes in the new tax law (LIWM)
| | Figure 8: Income phaseouts of key programs for married filing jointly (wealthmanagement.com) | | President Trump continues to negotiate favorable tariff deals | | |
In March and April, the market feared tariffs high enough to disrupt trade, create inflation and cause a recession. None of those things have happened as the President has settled for modest tariffs in return for promises of capex in the United States.
This whole tariff exercise could become stimulative as capital commitments trigger spending on the domestic US economy.
| | President Trump versus the Federal Reserve | | |
Many of you know that we closely follow Fed policy as part of our portfolio process. Currently, the Fed is holding their policy interest rate at 4-4.25% while the President pressures for those rates to get cut.
The problem for the Fed is that after they cut rates in late 2024, there was a revolt in the bond market. As much as short-term interest rates fell, long-term interest rates rose. This was an "Oh no, you don't!" signal from the bond markets to the Fed that inflation fears are high, especially with government spending that maintains a $2 trillion federal budget deficit.
The bond markets get a vote in policy matters. Governments may ignore this in the short-term, but ultimately will have to comply in the long-term.
Figure 9: Yield curve before and after rate cuts (WolfStreet.com)
| | The two most powerful men in the world politely disagree. | | |
Curiously, there are some short-term indications that the budget deficit is falling. This chart is a few weeks old, but shows some recent favorable trends in spending and revenue.
Additionally, the President's staff testified that they will be rolling out "pocket recissions" to the budget. This was clarified by the The Impoundment Control Act of 1974 and prevented the President from making any unilateral changes to the budget. It looks like the executive branch is going to test the limits of this law to get some spending cuts. The theory is that by making small recissions and giving Congress a chance to reject or accept the change, the President can eliminate certain types of spending. This will all have to be tested in the courts.
Figure 10: Developed market policy interest rates (Bloomberg)
| | The economy muddles along | | |
This is an update to our Institute for Supply Management sentiment chart. It continues to indicate a slowly growing economy for both services and manufacturing. This view was recently confirmed with the 2Q2025 GDP reading.
Figure 11: Institute for Supply Management Surveys (LIWM)
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As some of you know, we bought heavily into the stock market's April sell-off and added to technology, communications, energy and consumer sector ETFs. Recently, we have begun to take some profits in these positions as the Nasdaq 100 is up over 40% since that dip.
The overall economy continues to grow slowly with no signs of recession. The labor market remains strong, inflation is muted, the tax bill was passed, and the tariffs are lower than feared. There is much to be grateful for.
High interest rates should continue to be viewed as persistent headwind for the economy. The real estate business is bearing the brunt of this now. In 1999 and 2007 there were many analysts who said high interest rates were OK because the economy was strong enough to take it. In both cases, those bullish expectations were sadly dashed.
As always, we welcome your feedback and are happy to discuss our research and how it applies to your situation.
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Rob 281-402-8284
Chris 281-547-7542
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Christopher Lloyd, CFP ®
Vice President and Senior Wealth Planner
Lloyds Intrepid Wealth Management
1330 Lake Robbins Dr., Suite 560
The Woodlands, TX 77380
281-547-7542
Chris.Lloyd@lloydsintrepid.com
www.lloydsintrepid.com
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