Markets Rally Amid Mixed Data

The S&P 500 finished the week 1.05% higher amid a flurry of mixed economic data. Next week, markets will turn their attention to the Federal Reserve's Jackson Hole Economic Symposium, where Chair Powell may signal the potential direction of monetary policy.

Executive Summary

This week's economic data painted a complex picture of an economy navigating tariff-driven inflation pressures while maintaining underlying resilience. The headline story was the 90-day extension of the U.S.-China tariff truce, coupled with an unprecedented revenue-sharing deal requiring Nvidia and AMD to pay the government 15% of their China chip sales revenues—signaling a shift toward "monetized trade policy."

Inflation data delivered mixed signals that complicate Federal Reserve policy decisions. While headline consumer prices held steady at 2.7% annually, core inflation accelerated to a five-month high of 3.1%. More concerning, producer prices surged 0.9% monthly—the largest increase since March 2022—as businesses began passing tariff costs to customers after months of absorption. Import prices jumped 0.4%, confirming that foreign exporters aren't cutting prices to offset tariff burdens.

Despite these price pressures, consumer spending showed resilience with retail sales rising 0.5% in July, though a troubling disconnect emerged between current spending strength and deteriorating sentiment. The labor market maintained its "no-hire, no-fire" dynamic with jobless claims dropping to 224,000, suggesting companies are avoiding layoffs while remaining cautious about new hiring.

The convergence of these trends raises questions about market expectations for aggressive Fed easing. While markets have rallied on rate cut anticipations, the underlying economic data presents a mixed case: unemployment isn't spiking, layoffs remain historically low, and inflation's downward trajectory is increasingly uncertain. With the economy showing resilience rather than distress, the case for aggressive monetary easing appears driven more by market positioning and political considerations than economic necessity.

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This Week's Market and Economic Headlines

U.S.-China Tariff Truce Extended with Unprecedented Revenue-Sharing Deal

U.S.-China tariff truce was extended for another 90 days just hours before a midnight deadline, preventing a return to the 145% tariff levels that would have effectively blocked trade between the world's two largest economies.

The bigger story is the unprecedented side deal: Nvidia and AMD agreed to pay the U.S. government 15% of their revenues from AI chip sales to China in exchange for export licenses. This shifts trade policy from pure economic warfare to what one expert called "monetized trade policy"—extracting value rather than shutting down commerce entirely.

For markets, the extension provides breathing room through mid-November and supports risk sentiment globally. But the revenue-sharing precedent raises questions about whether Washington might seek similar arrangements with other companies and sectors. It also creates uncertainty about whether chip companies will pass this 15% cost on to their Chinese customers through higher prices, or absorb the expense themselves and accept reduced profit margins on these sales.

Source: Wingrove, J., Dlouhy, J.A., and Leonard, J. (2025, August 11). Trump extends China truce for 90 days, averting tariff hike. Bloomberg. Retrieved from https://www.bloomberg.com/news/articles/2025-08-11/trump-extends-china-tariff-truce-for-90-days-cnbc-says-me7g9pop

CPI Report Shows Mixed Inflation Signals with Core Pressures Rising

Consumer Price Index data for July revealed a tale of two inflations: headline CPI held steady at 2.7% annually while core inflation accelerated to a five-month high of 3.1%, creating a more complex picture for Federal Reserve policymakers.

The monthly numbers tell the story. Overall prices rose just 0.2% in July, helped by a 1.1% drop in energy costs, particularly gasoline prices falling 2.2%. But beneath the surface, core inflation jumped 0.3% monthly—the sharpest rise in six months, driven primarily by persistent housing cost increases.

What's particularly noteworthy is the emerging evidence of tariff-driven price pressures. Footwear prices surged 1.4% monthly—the largest increase since April 2021—while household furnishings and other import-heavy categories showed continued upward momentum as retailers begin passing tariff costs through to consumers.

The mixed data keeps September rate cut expectations alive while highlighting the Fed's balancing act between supporting growth and controlling inflation that remains above the 2% target on a core basis.

Source: Bureau of Labor Statistics. (2025, August 12). Consumer Price Index – July 2025. U.S. Department of Labor. Retrieved from https://www.bls.gov/news.release/cpi.nr0.htm

Producer Prices Surge to Three-Year High as Tariff Effects Take Hold

Producer Price Index data for July delivered a shock, with wholesale prices jumping 0.9% monthly—the largest increase since March 2022—far exceeding economists' expectations of just 0.2%. The Producer Price Index, which tracks inflation at the wholesale level, rose 3.3% annually, marking the highest reading since February and showing that tariff-driven inflation is moving through the supply chain.

The increase wasn't limited to volatile categories. Core producer prices, which exclude food and energy to show underlying price trends, also rose 0.9% monthly. Services led the charge with a 1.1% increase—the sharpest rise since March 2022. Trade margins jumped 2.0% as businesses began passing tariff costs to customers after months of absorbing them.

This marks a turning point for inflation trends. As one economist noted, the data serves as "a wake-up call for anyone who believed that tariffs would not influence domestic prices." The report suggests businesses can no longer absorb tariff costs as inventories roll over and profit pressures mount.

For the Federal Reserve, the hot producer price data complicates September policy decisions. While markets still expect a quarter-point rate cut, expectations for a larger reduction have disappeared. The data proves Fed Chair Powell's earlier warnings that tariff-driven inflation could prove "more persistent" than expected.

Source: Bureau of Labor Statistics. (2025, August 14). Producer Price Index – July 2025. U.S. Department of Labor. Retrieved from https://www.bls.gov/news.release/ppi.nr0.htm

Weekly Jobless Claims Drop as Labor Market Shows Resilience

Weekly unemployment claims fell to 224,000 for the week ending August 9, dropping by 3,000 from the previous week and coming in below economists' expectations. The decline signals that layoffs remain contained even as broader economic pressures mount from tariffs and slower growth.

Continuing claims, which track people receiving ongoing unemployment benefits, also declined to 1.95 million. However, this level remains elevated compared to early 2025, suggesting that while companies aren't cutting jobs aggressively, they're also not hiring as readily—creating what economists call a "no-hire, no-fire" dynamic.

The data aligns with July's weak jobs report, which showed only 73,000 new positions added—the smallest gain since 2020. People who lose jobs are taking longer to find new ones, even though initial layoffs remain historically low.

For the Federal Reserve, the claims data reduces pressure for aggressive rate cuts while supporting expectations for gradual easing. The labor market appears to be cooling in an orderly fashion rather than collapsing.

Source: U.S. Department of Labor. (2025, August 14). Unemployment Insurance Weekly Claims. Employment and Training Administration. Retrieved from https://www.dol.gov/newsroom/releases/eta/eta20250814

Retail Sales Rise Amid Consumer Caution and Inflation Concerns

Retail sales climbed 0.5% in July, marking the second consecutive month of growth and hitting $726.3 billion as consumers continued spending despite mounting economic uncertainties. The gain matched economists' expectations and was bolstered by strong auto sales, which jumped 1.6%, and online retailers, which rose 0.8% thanks partly to Amazon's extended Prime Day event.

The spending pattern revealed strategic consumer behavior. Shoppers accelerated purchases of furniture and durable goods—likely anticipating tariff-driven price increases—while pulling back on discretionary services. Restaurant spending fell 0.4%, suggesting households are reallocating budgets from dining out to necessary goods purchases.

However, consumer confidence painted a more troubling picture. The University of Michigan sentiment index dropped to 58.6 in August, well below expectations, while inflation expectations surged to 4.9% for the year ahead—the highest reading in months. This disconnect between current spending and future outlook suggests consumers are spending now but growing increasingly worried about what's ahead.

The retail strength provides some reassurance about economic resilience, but the combination of deteriorating sentiment and rising inflation expectations complicates the Federal Reserve's policy decisions. Markets still expect a quarter-point rate cut in September, though the mixed signals may limit more aggressive easing.

Source: U.S. Census Bureau. (2025, August 15). Advance Monthly Sales for Retail and Food Services – July 2025. Retrieved from https://www.census.gov/retail/marts/www/marts_current.pdf

Import Prices Jump as Tariff Pressures Build Through Supply Chain

Import prices surged 0.4% in July, the largest monthly increase since April 2024 and far exceeding economists' expectations of flat growth. The sharp rebound signals that price pressures are building at the border, potentially feeding into broader inflation trends as tariff effects work through the economy.

Fuel imports drove much of the increase, jumping 2.7% monthly. But more concerning was the 0.3% rise in non-fuel imports, which reversed June's decline and included gains in consumer goods, industrial supplies, and capital goods.

The data suggests foreign exporters aren't cutting prices to offset tariff costs, meaning the burden is passing directly to U.S. consumers. Combined with this week's hot producer price report, it indicates supply-side inflation is building throughout the economic pipeline.

For the Federal Reserve, the import price surge adds another complication to rate decisions. While markets still expect September easing, the combination of rising import costs and tariff-driven inflation could limit how aggressively the Fed can cut rates.

Source: Bureau of Labor Statistics. (2025, August 15). U.S. Import and Export Price Indexes – July 2025. U.S. Department of Labor. Retrieved from https://www.bls.gov/news.release/ximpim.nr0.htm

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By The Numbers

Employment Indicators

Employment data helps gauge whether consumers have jobs and money to spend. Consumer spending accounts for more than 70% of GDP.

Indicator	Current Value	Status
Initial Claims for Unemployment	224,000	Stable
4-Week Average of Initial Claims	221,750	Stable
4-Week Average of Continuing Claims	1.951M	Stable
Unemployment Rate	4.2%	Rising

Note: Values above 250K for the 4-Week Average, combined with rising unemployment, could signal a weakening economy.
Next unemployment report: September 5, 2025. Source: Department of Labor

Economic Growth (Real GDP)

Period	Growth Rate	Status
Q4 2024	2.4%	Slowing
Q1 2025	-0.5%	Contraction - Consider the average of Q1 & Q2 due to tariff distortions = 1.25%
Q2 2025	3.0%	Recovery - Consider the average of Q1 & Q2 due to tariff distortions = 1.25%
Q3 2025 (est.)	2.5%	Stable

GDP growth provides a broad measure of overall economic activity and signals whether the economy is expanding or contracting.
Source: Bureau of Economic Analysis; Estimate from Federal Reserve Bank of Atlanta

Inflation Measures (CPI Year-over-Year)

Month	Rate	Trend
September	2.44%	Improving
October	2.60%	Deteriorating
November	2.75%	Deteriorating
December	2.89%	Deteriorating
January 2025	3.00%	Deteriorating
February	2.82%	Improving
March	2.39%	Improving
April	2.31%	Improving
May	2.35%	Deteriorating
June	2.67%	Deteriorating
July	2.70%	Deteriorating
August (est.)	2.84%	Deteriorating

Source: Bureau of Labor Statistics; Estimate from Federal Reserve Bank of Cleveland

Note: While inflation has moderated, new tariffs may cause temporary spikes in monthly data. Once tariffs have been in place for a full year, inflation should revert closer to the underlying trend.

CME FedWatch Tool - Federal Reserve Meeting Probabilities

	CME FedWatch Tool - Conditional Meeting Probabilities
Meeting Date	175-200	200-225	225-250	250-275	275-300	300-325	325-350	350-375	375-400	400-425	425-450
9/17/2025						0.0%	0.0%	0.0%	0.0%	84.9%	15.1%
10/29/2025	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	47.2%	46.1%	6.7%
12/10/2025	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	36.3%	46.4%	15.8%	1.6%
1/28/2026	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	15.7%	40.6%	33.2%	9.7%	0.9%
3/18/2026	0.0%	0.0%	0.0%	0.0%	0.0%	8.0%	28.4%	36.8%	21.2%	5.2%	0.4%
4/29/2026	0.0%	0.0%	0.0%	0.0%	2.2%	13.5%	30.7%	32.6%	16.9%	3.9%	0.3%
6/17/2026	0.0%	0.0%	0.0%	1.2%	8.7%	23.5%	31.8%	23.5%	9.3%	1.8%	0.1%
7/29/2026	0.0%	0.0%	0.4%	3.6%	13.3%	26.0%	29.2%	19.1%	7.0%	1.3%	0.1%
9/16/2026	0.0%	0.2%	1.6%	7.4%	18.3%	27.3%	25.2%	14.4%	4.8%	0.8%	0.1%
10/28/2026	0.0%	0.4%	2.7%	9.4%	20.0%	26.9%	23.2%	12.6%	4.0%	0.7%	0.0%
12/9/2026	0.1%	0.9%	4.1%	11.7%	21.4%	26.1%	21.0%	10.8%	3.3%	0.5%	0.0%

Understanding This Data:

• This data shows market probabilities for Fed rate decisions
• Probabilities come from federal funds futures pricing
• Each percentage shows likelihood of rates at that level after each meeting
• Blue highlighted cells show highest probability for each meeting
• These are market expectations not Federal Reserve guidance
• Probabilities depend on all previous meeting outcomes

Source: CME Group FedWatch Tool

Data Extracted: August 15, 2025 at 04:17 PM

Note: Data is subject to market conditions and changes continuously. Please verify current probabilities at CME Group's website.

Corporate Earnings Outlook (S&P 500 Estimates for 2025)

Date	2025 Earnings Estimate	2026 Earnings Estimate	Trend
June 28, 2024	$276.29
Sept 30, 2024	$274.73		Deteriorating
Dec 31, 2024	$271.25		Deteriorating
Mar 31, 2025	$266.39	$304.89	Deteriorating
June 30, 2025	$255.29	$295.32	Deteriorating
Current	$258.63	$300.66	Stable

Source: S&P Dow Jones Indices

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Disclosure:

This material is provided by Todd Van Der Meid, MBA, CFP®, through Rhino Wealth Management, Inc., a Registered Investment Adviser, solely for informational purposes. It is not intended as investment, tax, legal, or accounting advice. Investors should consult qualified professionals before making financial decisions.

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