Markets Stuck in Neutral, Wallets on Guard

The S&P 500 bounced back this week, gaining 2.38% after slipping 2.36% the week before. It’s been a choppy stretch, with swings driven by uncertainty over geopolitics, monetary policy, and trade developments. Despite the volatility, the market has basically gone nowhere, underscoring that we're still operating in a rangebound environment—even amid pockets of outperformers and uncertainty.

The Consumer and the Economy

The consumer drives the U.S. economy. Household spending makes up roughly two-thirds of total economic activity, so when consumers feel confident and financially secure, it often translates into stronger growth. When they pull back, the effects ripple quickly through businesses, jobs, and markets. That’s why we keep a close watch not only on the hard data — like spending, debt, and employment — but also on sentiment and financial stress. Together, these indicators can give us early clues about where the economy is headed.

Consumers are still spending — but with a shorter leash. Real consumer spending barely grew in June (+0.1% after inflation) even as prices ticked higher, which fits the “cautious but not collapsing” mood showing up in recent surveys. Confidence improved modestly in July, with the Conference Board’s index rising to 97.2 and the University of Michigan’s sentiment measure nudging up to 61.7, but both remain well below late-2024 levels. Inflation worries have also crept back in, with the New York Fed’s survey showing one-year expectations at 3.1% and five-year expectations at 2.9% — not panic territory, but enough to keep wallets on guard.

We’re also seeing overlap between consumer caution and the “no fire no hire” approach many businesses are taking to hiring. Companies aren’t aggressively expanding their workforces, but they’re also reluctant to cut jobs outright, preferring to slow hiring and hold onto existing staff. That helps explain why job availability perceptions have softened without a corresponding surge in layoffs — and why consumers may be feeling just stable enough to spend selectively, but not confident enough to open their wallets freely.

The ISM Services PMI Report—that's the Institute for Supply Management's Purchasing Managers' Index for the services sector—came out this week with some mixed signals about where our economy is headed. While the manufacturing and goods side of the economy has been slowing for some time now, the services sector has been the bright spot keeping things moving forward. That's what makes July's reading of 50.1 worth paying attention to—it shows the services sector is still growing, but just barely, since anything above 50 indicates expansion. What's concerning is that employment in services dropped to 46.4%, meaning businesses are still cutting jobs even as they're seeing modest growth. Meanwhile, the prices companies are paying for goods and services jumped to 69.9%, the highest we've seen since late 2022, which suggests inflation pressures aren't going away anytime soon. Overall, it paints a picture of an economy that's expanding slowly while dealing with persistent cost pressures.
Source: Institute for Supply Management, Services PMI Report on Business, August 5, 2025

The Federal Reserve Bank of New York Household Debt and Credit Report for Q2 2025 shows total household debt reached $18.39 trillion, up $185 billion from the previous quarter. While this growth reflects a healthy economy, the rising delinquency rates deserve attention. Overall delinquency rates climbed to 4.4% of outstanding debt, with concerning variations across debt types.

Mortgage debt, which represents the largest share at $12.94 trillion, continues performing relatively well by historical standards, though delinquency rates edged up slightly. Credit card balances rose to $1.21 trillion, with serious delinquency rates remaining stable but elevated. The most alarming trend appears in student loans, where 10.2% of the $1.64 trillion in outstanding debt is now seriously delinquent, largely due to the end of pandemic-era payment pauses.

These higher delinquency rates could signal trouble ahead for consumer spending. When households struggle with debt payments, they typically pull back on discretionary purchases. The student loan situation is especially noteworthy, as these borrowers often represent younger consumers who drive spending in key categories. Even stable credit card delinquencies at elevated levels suggest consumers are stretched. This trend bears watching as we assess the sustainability of current consumer spending patterns.
Source: Federal Reserve Bank of New York, "Quarterly Report on Household Debt and Credit: 2025 Q2," August 2025

The Federal Reserve Bank of New York’s July Survey of Consumer Expectations shows longer-run inflation concerns are creeping higher. Five-year inflation expectations rose to 2.9%, up from 2.6% in June and the highest reading since March. One-year expectations also ticked up to 3.1%, reflecting consumer worries that prices may remain elevated despite recent progress in slowing inflation. Rising expectations matter because they can become self-fulfilling — when people anticipate higher prices, they often adjust spending and wage demands accordingly. This shift comes at a time when tariffs and supply constraints could add to cost pressures in the months ahead.
Source: Federal Reserve Bank of New York, “Survey of Consumer Expectations,” Aug. 7, 2025.

A 100% Tariff on Semiconductor Imports is now in effect, though President Trump granted exemptions to companies pledging to expand U.S. manufacturing. Apple secured one of those exemptions alongside a $600 billion domestic investment pledge — a deal reportedly marked by CEO Tim Cook presenting Trump with a gold-and-glass statue.

The administration’s broader “reciprocal tariffs” also took effect, applying rates from 10% to 41% on nearly 70 countries. Canada faces a 35% tariff, EU nations 15%, and Switzerland 39%. India’s levy will climb to 50% later this month in retaliation for its Russian oil purchases. Smartphones and computers remain largely exempt, providing relief for consumer technology companies. For context, the average U.S. tariff rate in recent decades has been closer to 2–5%, making current levels the highest since the early 1930s.
Source: Reuters, “Apple Leads Surge in Global Tech Shares After Trump Tariff Relief,” Aug. 7, 2025.

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.

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)

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)

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.

Interest Rate Outlook

Current Fed Funds Rate: 4.25-4.50%

Note: Changes in monetary policy expectations reflect market participants' views on how the Fed will likely respond to shifts in inflation or employment.
Source: CME FedWatch Tool

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

Source: S&P Dow Jones Indices

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.

Opinions expressed herein are general in nature and not tailored to individual circumstances. Investment strategies discussed may not be suitable for every investor. All investments carry risk, including possible loss of principal, and past performance does not guarantee future results. No investment strategy or risk management technique ensures profit or eliminates risk in all market conditions.

Investments in foreign or emerging markets involve additional risks, such as currency fluctuations, geopolitical instability, and varying accounting standards. Sector-specific investments can be more volatile due to their concentrated nature. References to indexes are for illustrative purposes; indexes are unmanaged, cannot be invested into directly, and their performance does not reflect fees, expenses, or sales charges. Index performance is not indicative of specific investment performance.

Economic forecasts and forward-looking statements reflect current views and assumptions and are subject to change. Actual results may vary materially due to market or other conditions. There is no obligation to update forward-looking information.

Information presented herein comes from reliable third-party sources but is not guaranteed for accuracy or completeness. Rhino Wealth Management, Inc. disclaims liability for errors or omissions. Portions of this content may be generated using advanced analytical tools, including artificial intelligence, and all such content has been reviewed and validated by Todd Van Der Meid, MBA, CFP®, using proprietary quality-control measures.

Rhino Wealth Management, Inc. does not directly hold securities; however, securities mentioned may be included within recommended portfolio models or held by clients. Please refer to our Form ADV for additional details regarding potential conflicts of interest.