Five for Friday
August 15, 2025
Consumer Stocks, Rate Cuts, Dollar Weakness, Market Bottoms, The Beatles
1. Highs
This week, the S&P 500 Equal Weight Consumer Discretionary index hit a new all-time high. This index includes the most economically-sensitive, consumer-facing industries—auto manufacturers (e.g., Ford), luxury apparel (e.g., Ralph Lauren), homebuilders (e.g., D.R. Horton), etc.—and assigns equal weighting to each of its 51 stocks, making it perhaps the best indicator of how the market views the consumer landscape. Now, the market isn’t always “right,” but the collective perception of the world’s investors—call it the wisdom of the crowd—is usually a pretty good signal. And with the market’s message quite upbeat (again, all-time highs), it raises the question of whether the conventional wisdom about a weakening U.S. consumer and potential stagflation is missing the mark.
2. Fed
Some of the above moves likely also reflects the growing odds of the Federal Reserve cutting interest rates next month—and potentially twice more before year end. The prospect of lower rates (especially against a non-recession backdrop) can boost rate-sensitive sectors like housing and autos (the homebuilders are +17% in the last 2 months vs. the S&P 500 +7%). This week’s inflation data was not perfect by any means, but it’s likely not scary enough to overtake the Fed’s impulse to lower rates after July’s putrid jobs numbers. Markets are now pricing in four 25 basis point (0.25%) rate cuts by April 2026. That may be optimistic given the Fed’s tariff concerns, but the market likes it nonetheless.
3. Dollar
One of the worries I often hear about is the weakness of the U.S. dollar, which is down nearly 10% in 2025. I have a few takes. First, I don’t really worry about the dollar losing reserve currency status. Second, currencies are cyclical: the 2010s and on were a period of strength for the greenback, but the dollar has also fallen 10% or more on many occasions over the last 30 years (including a half-decade-long drawdown of 40% shown in the chart). In my opinion, we have a branding problem. Labeling the dollar “weak” implies an ailing currency situation to be feared rather than the reality that currencies cannot rise in perpetuity without drawbacks. As noted in the chart, the big 2000s dollar drawdown didn’t impede stocks from rising, nor did it hamper bonds (+39%), gold (+231%), or international stocks (+59%) from rallying over the same period of “weakness.” Invest accordingly.
4. Bottoms
Two of the most important concepts in investing are 1) the stock market is not the economy; and 2) bear markets bottom earlier than you think. The stock market is a forward-looking machine and tends to see dawn on the horizon well ahead of most media or (backward-looking) economic data…most bull markets start before recession even ends. One of the most mind-blowing examples of this comes via Michael Cembalest’s 20th anniversary Eye on the Market piece, in which he notes that the S&P 500 Bank Index troughed in early 2009 when only 8% of the bank failures ultimately wrought by the 2008 Financial Crisis had occurred. Banks would go on to rally nearly 400% over the next 5 years. As Michael sums up, “During almost every recession, equities bottomed before all the other indicators that investors tend to follow.”
5. On this day
in 1965, the Beatles performed at Shea Stadium, becoming the first rock band to play a stadium concert (so the story goes) and popularizing the concept. Just 58 years later, Taylor Swift’s The Eras Tour—the post-pandemic sensation that added nearly $5 billion to U.S. GDP in 2023 and even made the Federal Reserve’s (notoriously staid) Beige Book—took place almost exclusively in stadiums. In an economy where live events are a growing portion of consumption, we have the Beatles to thank for showing us just how many people we could squeeze into a single show.
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