Market Update – August 11th, 2025

Financial Markets

Markets experienced a choppy but ultimately positive week as a new round of tariffs took effect on Thursday, with sentiment improving enough for the Nasdaq Composite to reach a new high on Friday. For the week ending August 8th, the Nasdaq Composite led with a 3.87% advance, the S&P 500 gained 2.43%, and the Dow Jones Industrial Average rose 1.35%.

Market News

Tariff Rates. A new wave of tariffs took effect last Thursday, with increased rates across many countries. Among the most notable changes were a 41% tariff on Syrian imports and a surprising 39% tariff on goods from Switzerland. A 25% tariff was also imposed on India, intended to pressure the country to reduce its dependence on Russian energy. President Trump has indicated that additional tariff increases may follow if India does not take steps to shift away from Russian oil.

The effective tariff rate, which represents the average tax imposed on all imported goods, has become a primary metric for assessing the aggregate impact of tariff rate increases. Historically, the effective rate has been on a steady decline since 1960. However, it has reversed course in recent months with new protectionist trade policies.

Source: The White House, as of 8/7/25

Despite the tariff headlines, a recent analysis by Yale University found that the effective tariff rate may actually be lower today than it was in April, when the first round of new tariffs was announced. This nuance helps explain why markets have remained relatively resilient, while tariff rates of 40% sound alarming, some trading partners are facing lower rates from April’s initial “reciprocal tariffs”, after negotiating with the U.S.

As of last week’s update, the effective tariff rate sits around 19%, down from approximately 28% in April. Although this is less dramatic than April’s initial tariff hikes, this still represents a meaningful increase in taxes on imports compared to the start of the year.

Source: The Budget Lab at Yale University

Looking ahead, we are monitoring the balance of potential outcomes. While higher tariffs may boost domestic industries and tax revenue, they also carry risks—most notably the potential for rising inflation and supply chain disruptions. We will continue to monitor closely for how the competing effects of tariffs balance out in the coming months.

Sharp Drop in Trade Deficit. The U.S. trade deficit in goods and services narrowed significantly in June, falling to $60.2 billion from $71.7 billion in May. This marks a return to more normal trade deficit levels last seen two years ago, suggesting a degree of normalization following the surge earlier this year. The earlier spike was largely driven by companies front-loading imports in anticipation of higher tariffs.

The balance of trade, defined as exports minus imports, determines whether a country is running a trade surplus or deficit. In theory, higher tariffs discourage imports and encourage domestic production, which could improve the trade balance. However, protectionist measures may also lead to unintended effects, such as retaliatory tariffs or reduced demand for U.S. exports, potentially widening the deficit rather than shrinking it.

Source: US Bureau of Economic Analysis, US Census Bureau

ISM Manufacturing. The U.S. manufacturing sector contracted again in July, marking its fifth consecutive month of decline. The ISM Manufacturing Index fell to 48.0%, down from June, signaling continued weakness. New orders remained in contraction, employment declined at a faster pace, and prices continued to rise, albeit at a slightly slower pace. Overall, manufacturing data continues to point to a bearish outlook for the sector.

Source: Institute for Supply Management

ISM Services. The ISM Services Index registered 50.1% in July, signaling slight growth in the sector for a second consecutive month but slipping slightly from June. Under the surface, prices increased at a faster pace, while business activity and new orders continued to grow but at a slower rate. Employment contracted at an increased pace, highlighting softness in the labor side of the services economy.

Both imports and exports declined, suggesting signs of deglobalization even in this typically less tariff-sensitive sector. Though tariffs generally apply to goods, rising global trade tensions may be indirectly pressuring services as the U.S. moves toward a more protectionist stance, underscoring the growing complexity of the economic landscape.

Source: Institute for Supply Management

Q2 Earnings Surprises. 90% of S&P 500 companies have now reported Q2 earnings, and the results have broadly exceeded expectations. As of August 8th, the blended year-over-year earnings growth rate for the index stood at 11.8%, with revenue growth at 6.3%. Both figures are well above analyst forecasts heading into the reporting season.

Among the strongest individual performers were companies like Coinbase, Stanley Black & Decker, Electronic Arts, and Allstate, all of which delivered substantial earnings surprises. Encouragingly, every sector except Utilities reported better-than-expected earnings, highlighting the breadth of this quarter’s strength. Many of the companies with the biggest surprises are in very cyclical and risk-on industries, an encouraging sign for the underlying health of the U.S. economy.

Source: FactSet

Summary

Markets rose for the week as investors looked past new tariff measures, buoyed by strong earnings reports and a stable economic backdrop. While trade tensions remain in focus, easing effective tariff pressures and a narrowing trade deficit helped support sentiment. Robust corporate results across most industries and stability in the services sector underscored continued economic strength despite lingering signs of softness in manufacturing.

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