August Market Outlook: Slower Growth Signals, Cooler Inflation, and a Market Leaning on Earnings

Markets head into late August with a different tone than early summer: inflation has cooled from last year’s peaks, but growth data and business surveys are flashing yellow. For investors, the near-term path hinges on three forces: Federal Reserve policy expectations, corporate earnings resilience, and the knock-on effects of trade and tariff developments. Here’s what the latest data and events suggest for portfolios as we look toward September.

Macro snapshot: inflation cooler, growth moderating

July’s Consumer Price Index shows inflation still running lower than last year’s pace. Headline CPI rose 2.7% year over year and 0.2% month over month, while core inflation eased to a 3.1% year-over-year pace. Shelter remains sticky but is decelerating on a trendy basis; medical care and motor vehicle insurance continue to run hot relative to the average. 

Growth is slowing from the brisk spring pace. The government’s advance estimate shows real GDP up at a 3.0% annual rate in Q2, powered by consumer spending and business investment. But high-frequency models point to a cooler Q3: the Atlanta Fed’s GDP Now tracker estimates 2.3% growth as of August 19, with residential investment slipping after a brief pickup. 

The labor market remains the key swing factor. July’s jobs report showed softer momentum: the unemployment rate ticked up to 4.2%, and job gains slowed, with prior months revised down. While health care and social assistance continued to add positions, other areas showed signs of fatigue. A cooling labor market is exactly what the Fed expected to see as policy remains restrictive, but it also narrows the runway for growth. 

Business surveys: manufacturing contraction, services barely expanding

July’s ISM surveys depict an economy still growing overall but losing altitude. Manufacturing contracted for a fifth straight month, with the headline PMI at 48.0. New orders remain in contraction, though production was held just above 50. On the services side, the bulk of the economy, the PMI slipped to 50.1, signaling near-stagnation, with softer new orders and continued employment contraction within the survey. Commentary in and around the reports highlighted tariff-related uncertainty and tentative demand.

Rates and the Fed: all eyes on Jackson Hole (Aug. 21–23)

The Federal Reserve kept rates steady at its July meeting, but the minutes due August 20 and Chair Jerome Powell’s speech at Jackson Hole (Aug. 21–23) will guide expectations for a September move. Notably, July saw a rare dual dissent on the FOMC from Governors Bowman and Waller favoring a quarter-point rate cut, reflecting concern over labor softening. Markets now price high odds of a September cut, but the Fed will weigh still-elevated core inflation against the cooling jobs backdrop. The Kansas City Fed’s symposium timing puts policy communication center stage this week.

Treasury yields reflect this cross-current. The 10-year has hovered around the mid-4.3% area in recent sessions while the 2-year has drifted lower on rising cut expectations, a modest bull-steepening that often accompanies growth concerns. If unemployment drifts higher, the market will likely lean into a more decisive easing path, though persistent fiscal deficits and term premium dynamics may keep long rates sticky. 

Earnings: the ballast beneath equities

Second-quarter earnings have been a bright spot. With about 90% of S&P 500 companies reported by August 8, 81% beat EPS estimates—above 5- and 10-year averages, with positive surprise magnitude also running firm. In short, corporate America delivered against tempered expectations, and that resilience has helped contain downside in broader indexes despite macro wobble. Going forward, guidance will matter more than beats as management teams speak to order books, pricing power, and hiring.

Energy and commodities: oil weakens into late summer

Oil prices have eased on expectations for inventory builds and a more comfortable supply-demand balance into 2026. The U.S. Energy Information Administration’s latest outlook projects Brent sliding from about $71 in July to the high-$50s by Q4, with additional softness into early 2026 if OPEC+ proceeds with higher output. Near-term, weekly inventory data and demand into Labor Day will steer price action, but the broader glide path remains lower in base-case forecasts. 

Lower crude—if sustained—would be a welcome tailwind for headline inflation and consumer purchasing power. It also tends to relieve pressure on freight, airlines, and parts of industrials, even as it compresses upstream energy margins. For diversified portfolios, cheaper energy is usually net-positive.

Trade policy and global cross-currents

Tariff policy remains a live macro variable. Reports around the ISM services release and broader news flow indicate trade tensions and higher average tariff rates are weighing on business sentiment and complicating the inflation-growth tradeoff. In parallel, global growth is mixed, with stronger prints in some emerging markets offset by sluggishness elsewhere. For U.S. investors, the takeaway is less about timing geopolitical turns and more about maintaining diversification across revenue streams and supply chains. 

What this means for investors

1. Expect more rotation under the surface. With macro data cooling, leadership may toggle between quality growth and defensive sectors. Earnings strength can still support the broad market, but dispersion should stay elevated. This is an environment to emphasize balance-sheet quality, durable margins, and pricing power over purely cyclical beta. The Q2 beat rate underscores that companies with operational discipline are being rewarded.
2. Rates will likely ease, but long yields may not fall as fast. The Fed could start trimming as early as September if labor data continues to soften and inflation stays contained. However, long-term yields may remain anchored near current levels given term premium and deficit dynamics. Duration exposure should be sized thoughtfully: adding some intermediate duration can help if growth slows further, but an outright bet on a deep long-rate decline looks less compelling without a sharper downturn. 
3. Watch small business and consumer health. The consumer carried Q2, but higher financing costs and softening labor trends argue for caution. We’re watching delinquency data, revolving credit growth, and small business hiring plans for confirmation. If oil stays subdued into fall, headline inflation could buffer real incomes, but any labor-market deterioration would dominate.
4. International allocations: stay selective. If tariffs and trade friction remain in focus, look for regions with internal demand resilience and improving policy visibility. Currency volatility may add or subtract meaningfully from returns; consider hedged exposures where appropriate.
5. Alternatives and real assets: recalibrate, don’t abandon. With public markets pricing a soft-landing path but acknowledging growth risks, private credit, core real estate with strong occupancy, and infrastructure linked to secular demand can still diversify portfolios. That said, underwriting should assume slower nominal growth than in 2021–2023, lower exit multiples, and a higher cost of capital.

The near-term calendar

• Fed minutes & Jackson Hole (Aug. 20–23): Tone around labor softness vs. inflation stickiness will steer September odds. 
• Late-August data: Housing, consumer spending, and sentiment will refine Q3 growth tracking (GDPNow nowcasts are updated regularly). 
• Earnings stragglers & guidance updates: Management commentary on orders and margins remains pivotal. 

Bottom line

August finds markets balancing cooler inflation against a softer growth pulse. The Fed is closer to cutting, but its cadence will be measured; long-term yields may not fall as quickly as short rates if fiscal and term-premium dynamics persist. In equities, resilient earnings and quality factors remain your friends while the macro picture resets. For diversified investors, incremental duration, quality-tilted equity exposure, and disciplined rebalancing remain prudent as we head into September.

At Greenwood Hoff Wealth Management, our philosophy is rooted in clarity and balance. We bring together deep market insight, personalized planning, and disciplined investment management to help clients navigate uncertain environments with confidence. Whether you’re preparing for retirement, building wealth, or seeking tax-efficient strategies, we focus on aligning every decision with your long-term goals. By blending professional expertise with personal attention, we aim to provide the steady guidance you need to turn today’s market complexity into tomorrow’s opportunity.
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