Key Highlights: Navigating August of 2025
- Stocks: The market continued its climb in August, with the S&P 500 finishing the month up about 2%.
- Bonds: Interest rates moved lower, especially on shorter-term bonds, reflecting expectations that the Federal Reserve may cut rates.
- Credit and Housing: Corporate borrowing costs remained steady, showing investors remain confident in company balance sheets. Mortgage rates also ticked down a little, easing pressure on homebuyers.
Markets Recap: What Happened and Why
Equities spent August grinding higher. The S&P 500 began the month at its low on August 1 and advanced steadily into August 28, the monthly high, supported by a calmer inflation backdrop and growing expectations that the Federal Reserve could move toward easier policy. A modest pullback on August 29 still left the month higher overall. Under the surface there were as many up days as down days, which signals a healthy two way market that rewarded patience rather than a one day surge.
In fixed income markets, the front end did most of the moving. The 2 year yield rose into August 21 and then fell sharply into month end, with its largest daily drop of 12 basis points on August 26. The 10 year yield moved in a much narrower corridor, peaking near August 18 and easing into the finish. Because short rates fell more than long rates, the yield curve between the 10 year and 2 year steepened through the second half of the month. Credit spreads told a constructive story overall. Investment grade OAS narrowed through mid month to 0.75 percent before giving back a couple of basis points into month end. Mortgage rates stepped lower on each weekly print in August.1
Interpreting the Current Environment
When looking at the current environment, there are three main themes investors should keep in mind.
- Momentum with guardrails. Equities climbed through most of August but did so with balanced up and down days. That pattern is consistent with an advance that is being checked by ongoing macro questions rather than a rush of speculative buying.
- Policy expectations are doing the heavy lifting at the front end. The sharper decline in the 2 year versus the 10 year says the market is leaning toward easier policy ahead.1 The curve steepened because short rates fell more than long rates, not because long rates spiked. That is a friendlier version of steepening for risk assets.
- Credit conditions remain constructive. A mid-month tight in OAS with only a small giveback into month end suggests companies still enjoy supportive financing conditions, even as investors remain selective.
The environment still presents risks that can cause short-term swings, but overall conditions remain supportive enough for markets to move forward.
Looking Ahead
As September begins, investors will focus on whether the Fed formalizes an easier policy stance and on whether incoming inflation and labor data confirm the late August move in the front end.2 Watch for any shift in earnings guidance as companies look toward year end, and for whether credit spreads stay anchored near recent tights.
1 Allen, Henry and Jim Reid. “August 2025 Performance Review.” Deutsche Bank Research, September 1, 2025.
2 “Markets Daily: August 1 – August 31, 2025 Series.” Bloomberg, August 1 – August 31, 2025.
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