August 15, 2025
What if I told you the economy is slowing… yet investors are cheering?
Sounds backwards, right? But it is happening in plain sight.
Look around. Fewer “Help Wanted” signs. Quiet shifts at your favorite restaurant. Friends delaying big purchases.
You’re not imagining it. The data says the slowdown is real: Is it?
And yet, the S&P 500 keeps breaking records. It’s already up more than 8% year-to-date.
So what is going on? Let’s break it down into three big reasons that are possibly driving the market right now.
1) Lower rates are on the table
Thanks to the recent swath of weak numbers, investors are speculating that the Federal Reserve could start slashing interest rates as soon as next month.
Think of the Fed as the country’s financial thermostat. If the economy is cooling too much, it turns up the heat.
Lower rates make it cheaper for companies to borrow and invest. They also make bonds less appealing, which pushes more money toward stocks.
Imagine a seesaw. On one side: stocks. On the other: bonds. Lower rates tip the balance toward stocks.
That is why bad economic news can sometimes push markets higher. Investors are betting the Fed will step in due to this recent inflation data.
We don’t think this weaker news is here to stay, but we do think it will lead to the Fed acting sooner rather than later.
2) A few giants carry the market
The “Magnificent 7” — Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta, and Tesla — have powered much of this year’s rally.
In the second quarter, analysts project these companies will see their earnings jump 14.1% year-over-year. The other 493 stocks in the S&P 500, by comparison, expect to report earnings growth of 3.4%.[1]
Because the Magnificent 7 make up such a large share of the index, their wins can lift the market even if many companies are struggling.
This concentration means a diversified portfolio might not mirror headline market moves and that’s actually a good thing. It shows you’re not betting everything on a handful of tech giants. We still own 6 of the MAG 7 but in lower “dosages” than the broader benchmarks (keeps our risk level lower as well).
3) Money is still flowing in
Years of stimulus and government spending have left plenty of cash in the system. That money must go somewhere.
Investor sentiment matters, too.
Over the past decade, many have been conditioned to buy the dip because markets have often bounced back quickly. Combine that with the ease of app-based trading, and rallies can feed on themselves and pick up momentum.
Think of it like a campfire. The wood is already stacked. It only takes a small spark for the flames to rise.
The bottom line
These three forces, rate cut expectations, a handful of dominant companies, and strong investor sentiment, can push markets higher even when the economy might be slowing. All of them are tied to expectations and human behavior, not just today’s numbers.
That is why chasing headlines is risky.
It is also why emotional decisions can derail a well-built plan.
Our role is to build you a portfolio that will navigate the headlines, not react to them. Market moves reflect both economics and psychology and our goal is to help you make investment allocation choices that align with your long-term goals and values, not reacting to what is happening today.
Markets will always swing. Your plan should help keep you steady.
[1] FactSet Insights, 2025 https://insight.factset.com/are-magnificent-7-companies-still-top-contributors-to-earnings-growth-for-the-sp-500-for-q2
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