As we move into the final months of 2025, the key pivots are "dovish Fed" and ISM recovery >50

VIDEO: As we enter the final third of 2025, we think the prominent changes are the Fed is dovish and the ISM recovers to above 50.  This sets up for stocks to finish 2025 strong.

Please click below to view our Macro Minute (duration: 4:28).

Year to date, the S&P 500 is up 9%, which is an impressive performance in any year, but this is particularly impressive considering the S&P 500 had two consecutive >20% gains back to back (2023 and 2024). As we look ahead to the final months of 2025, we expect markets to be overall strong:

• 2025 has really been characterized by 3 phases:
  – Phase I: Tariff fears, Jan to April
  – Phase II: Most Hated V-shaped rally, April to now
  – Phase III: dovish Fed + ISM recovery >50
• I don’t need to rehash the tariff war period, but recall how many economists and skeptics said equities would not recover. And particularly since the Fed would not unleash liquidity and therefore stocks could not recover. But as you recall, our stance was that waterfall declines see “V-shaped” recoveries, unless there is a recession.
• And the fact high-yield spreads did not widen dramatically is the reason we believed the risk of a recession was low. This proved to be the case, and so far corporate America has proven to be very resilient.
• In the final 3 months of 2025, we believe this is a relief phase for markets:
  – the Fed will finally cut rates, after being on “pause” for entire 2025
  – the ISM will finally recover >50, after spending 28-months plus below 50
• Both of these are positive for stocks and therefore we believe the S&P 500 will reach 6,800-7,000 by year-end. But this will not be a straight path. Mark Newton, Head of Technical Strategy at Fundstrat, sees the S&P 500 correcting sometime in the fall. To us, this makes sense. We just don’t know how stocks might initially react to a Fed cut. But once interest rates are reflecting a dovish Fed, this is good for the economy and stocks.

• There are some important data points for the remainder of this week, all eyes on Fed Chair Powell speech at Jackson Hole Friday:
  – 8/18 Mon 10:00 AM ET: Aug NAHB Housing Market Index    32 vs 34e
  – 8/19 Tue 9:00 AM ET: Aug M Manheim Used Vehicle Index 206.5
  – 8/20 Wed 2:00 PM ET: Jul FOMC Meeting Minutes   
  – 8/21 Thu 8:30 AM ET: Aug Philly Fed Business Outlook    6.7e
  – 8/21 Thu 9:45 AM ET: Aug P S&P Global Manufacturing PMI    49.7e  
  – 8/21 Thu 9:45 AM ET: Aug P S&P Global Services PMI    54.2e
  – 8/21 Thu 10:00 AM ET: Jul Existing Home Sales    4me
  – 8/22 Fri 10:00 AM ET: Powell Speaks on Economic Outlook at Jackson Hole
• The FOMC Minutes might be market moving on Wednesday. After all, the July FOMC had 2 dissenting votes (in favor of a cut). This is the first time in 30 years of 2 or more dissenting. The last time was December 1993.
• To us, this is another reason to expect the Fed to lean dovish on Friday when Powell makes his speech at Jackson Hole. By contrast, many investors we speak to expect a hawkish Fed. But given the 2 dissents, and the recent soft jobs and the fact expectations are for a hawkish Fed, we think the odds favor a stock rally post-Jackson Hole speech.

BOTTOM LINE: Still “most hated rally”

This still remains the “most hated” V-shaped stock rally. As for what we would buy

• MAG7 & Bitcoin & Ethereum
• Industrials
• Financials: Large-cap and regional banks
• Small-caps

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50 SMID Granny Shot Ideas: We performed our quarterly rebalance on 8/17. Full stock list here -> Click here

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Key Incoming Data August:

• 8/1 8:30 AM ET: Jul Non-farm Payrolls Mixed
• 8/1 9:45 AM ET: Jul F S&P Global Manufacturing PMI Tame
• 8/1 10:00 AM ET: Jul F U. Mich. 1yr Inf Exp Tame
• 8/1 10:00 AM ET: Jul ISM Manufacturing PMI Tame
• 8/4 10:00 AM ET: Jun F Durable Goods Orders MoM Tame
• 8/5 8:30 AM ET: Jun Trade Balance Tame
• 8/5 9:45 AM ET: Jul F S&P Global Services PMI Tame
• 8/5 10:00 AM ET: Jul ISM Services PMI Tame
• 8/7 8:30 AM ET: 2Q P Unit Labor Costs Tame
• 8/7 8:30 AM ET: 2Q P Nonfarm Productivity QoQ Tame
• 8/7 9:00 AM ET: Jul F Manheim Used Vehicle Index Tame
• 8/7 11:00 AM ET: Jul NYFed 1yr Inf Exp Tame
• 8/12 6:00 AM ET: Jul Small Business Optimism Survey Tame
• 8/12 8:30 AM ET: Jul Core CPI MoM Tame
• 8/14 8:30 AM ET: Jul Core PPI MoM Hot
• 8/15 8:30 AM ET: Aug Empire Manufacturing Survey Tame
• 8/15 8:30 AM ET: Jul Retail Sales Tame
• 8/15 10:00 AM ET: Aug P U. Mich. 1yr Inf Exp Mixed
• 8/15 4:00 PM ET: Jun Net TIC Flows Tame
• 8/18 10:00 AM ET: Aug NAHB Housing Market Index Tame
• 8/19 9:00 AM ET: Aug M Manheim Used Vehicle Index Tame
• 8/20 2:00 PM ET: Jul FOMC Meeting Minutes
• 8/21 8:30 AM ET: Aug Philly Fed Business Outlook
• 8/21 9:45 AM ET: Aug P S&P Global Services PMI
• 8/21 9:45 AM ET: Aug P S&P Global Manufacturing PMI
• 8/21 10:00 AM ET: Jul Existing Home Sales
• 8/25 8:30 AM ET: Jul Chicago Fed Nat Activity Index
• 8/25 10:00 AM ET: Jul New Home Sales
• 8/25 10:30 AM ET: Aug Dallas Fed Manuf. Activity Survey
• 8/26 8:30 AM ET: Jul P Durable Goods Orders MoM
• 8/26 9:00 AM ET: Jun S&P CS home price 20-City MoM
• 8/26 10:00 AM ET: Aug Conference Board Consumer Confidence
• 8/26 10:00 AM ET: Aug Richmond Fed Manufacturing Survey
• 8/28 8:30 AM ET: 2Q S GDP QoQ
• 8/28 11:00 AM ET: Aug Kansas City Fed Manufacturing Survey
• 8/29 8:30 AM ET: Jul Core PCE MoM
• 8/29 10:00 AM ET: Aug F U. Mich. 1yr Inf Exp

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: