What We're Watching in August

It is August, and that means we are in the middle of the “Dog Days of Summer.” However, the stock market is acting like anything but a dog. Stocks continue to rise while inflation data has held steady, and corporate earnings have generally exceeded expectations. Several factors are affecting the long-term outlook, such as uncertainties regarding future Federal Reserve policies, bond market conditions, and patterns in consumer spending. Here is what our investment team is keeping a keen eye on this month. 

A Tale of Two Markets 

Despite pessimistic views predicting an economic slowdown, the equity market remains remarkably resilient. Year-to-date gains in the S&P 500 are running well ahead of historical norms, lifted in part by continued strength in AI-related sectors and a strong recovery in megacap tech names since April lows. Meanwhile, retail investors appear as the “smart money” for now, even as many institutional investors remain on the sidelines. As an example, hedge funds have been the most defensive since 2022.  

The disconnect between stock and bond market sentiment is important. The Treasury market is signaling something quite different. Longer-duration yields remain elevated, reflecting concern over deficits, fiscal sustainability, and questions around Fed independence. The divergence between stocks and bonds is why we continue to pay close attention to signals coming from both asset classes.  

Fed Policy: Headlines vs. History 

The news that President Trump may consider replacing Federal Reserve Chair Jerome Powell has stirred concern among investors. Historically, presidential pressure on the Fed is not new. Past administrations, including those of Johnson and Nixon, also sought to influence policy. But today’s 24/7 media environment magnifies every word coming from the White House.  

Rather than engage in speculation, we prefer to focus on fundamentals. The bond market is already expressing skepticism about any politicization of monetary policy. Yield curves and weak auction demand tell us that rate cuts if driven by politics rather than economic data could potentially undermine confidence rather than inspire it. Again, this is one possible outcome, while market forces remain a more durable guide than any short-term market headlines. 

The Case for Caution on Rate Cuts 

Inflation remains manageable, thanks in part to cooling housing costs. This is a much-needed relief, given shelter makes up nearly half of the CPI calculation. Yet this moderation is offset by rising goods inflation and a reasonably good labor market. Retail sales, consumer credit data, and employment figures continue to beat expectations, making the case for urgent rate cuts less compelling. 

Calls for four or more rate cuts this year may ultimately prove premature. History reminds us that monetary policy is most effective when it is patient and deliberate. Pushing for faster action could backfire, especially if markets lose confidence in the Fed’s independence or credibility. 

Corporate Earnings: Beyond the Numbers 

Earnings season continues to be a positive story. Most companies are beating lowered guidance. It is a familiar model of managed expectations. What we are watching more closely is the return of forward guidance after a hiatus earlier this year. As companies regain visibility, the tone of earnings calls is increasingly confident, particularly in industrials and AI-related tech. 

Consumer discretionary sectors, however, are showing some cracks. Discretionary spending is moderating as airlines, hospitality, and restaurants are seeing some slowdowns since the post-COVID recovery began. It is a reminder that while headline numbers may still look strong, not all parts of the economy are benefiting equally. 

End of August: Jackson Hole and Back-to-School 

The Federal Reserve’s annual Jackson Hole conference in late August may offer more insight into future rate policy. But unlike years past, we do not expect major surprises. The pace of communication has changed as Fed officials now share their views regularly, minimizing the need for dramatic announcements at such events. Still, we will be watching closely for any shifts in tone or emphasis. 

And students will soon be going back to the classroom. On the consumer front, early signs suggest a more cautious consumer this year, particularly in non-essential spending categories. That could weigh on third-quarter growth, reinforcing the need for a balanced, diversified investment approach. 

Chart of The Month

Energy, AI, and the New Infrastructure Cycle 

For our chart of the month, we would like to illustrate the structural investment opportunity in demand for US power generation. See the chart below.   

One of the most underappreciated forces reshaping markets right now is the surge in power demand. AI infrastructure buildout, particularly among the major cloud providers, is pushing utility demand sharply higher. Data centers, semiconductors, and related technologies require enormous power, and we are already seeing the effects in local construction activity and utility planning across the U.S. 

For investors, this presents opportunities in industrials, utilities, and infrastructure-related sectors. Companies with exposure to power grid modernization, electrification, and efficient generation could stand to benefit significantly in the years ahead. 

Chart of the Month Sources: Historical Data (1950–2022) - U.S. Energy Information Administration (EIA).  Future Projections (2025–2050) - EIA Annual Energy Outlook (AEO 2024); Princeton Net-Zero America Project; NREL Electrification Futures Study; IEA (International Energy Agency). 

Final Thoughts

Investors are being asked to reconcile conflicting signals: strong equity performance vs. cautious bond markets; falling shelter costs vs. rising energy needs; political drama vs. historical precedent. In times like these, clarity comes from a disciplined approach. 

At Carnegie, we remain committed to long-term thinking and pragmatic risk management. Whether you are considering adjustments to fixed income, exploring new equity opportunities, or reevaluating estate plans in light of recent tax and legal changes, our team is here to help you navigate what is next with confidence. 

For general informational purposes only. Opinions referenced are as of the date of the email and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. The information has been obtained from sources we believe to be reliable, but Carnegie has not independently verified the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. 

Reference to Indexes: An index is a group of specific securities (such as the S&P 500, Dow Jones Industrial Average, and Nasdaq composite), the performance of which is often used as a benchmark in judging the relative performance of certain asset classes. Indexes are unmanaged portfolios and investors cannot invest directly in an index. Past performance is neither a guarantee nor indicative of future results. 

Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488. 

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