Solid earnings propel markets higher, with the US close to a record and a very strong rebound from Japan, now back in the game. No deal in Alaska, but a further discussion next week between Presidents Trump and Zelensky, and European leaders, in Washington. The Fed should cut at least 2 times until the end of the year, with the first coming in September; a key speech by Jerome Powell will be next Friday from Jackson Hole. We could be entering a more difficult and volatile market until early October. Oracle, in early September, can give us an idea of how strong the overall demand was in July and August. The biggest tail risk is the US Economy falling into a recession (35% chance in 2025), resurging inflation, revenues/earnings not matching forecasts, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 18th – 22nd August 2025

Economic data highlights of the week

Mon: EU Trade Balance (6/25)

Tue: ACA CPI (7/25), US Atlanta Fed GDPNow (3Q25)

Wed: JP Trade Balance (7/25), CN PBoC Loan Prime Rate (8/25), NZ RBNZ Interest Rate Decision, UK CPI (7/25), DE PPI (7/25), EU ECB President Lagarde Speaks, SW Riksbank Interest Rate Decision, EU CPI (7/25), US Fed FOMC Meeting Minutes

Thu: US Jackson Hole Symposium, EU Services PMI (8/25), EU Manufacturing PMI (8/25), UK Services PMI (8/25), UK Manufacturing PMI (8/25), US Philly Fed Manufacturing Index (8/25), US Initial Jobless Claims, US Manufacturing PMI (8/25), US Services PMI (8/25), US Fed’s Balance Sheet

Fri: US Jackson Hole Symposium, UK Retail Sales (7/25), DE GDP (2Q25), US Fed Chairman Powell Speaks

Performance Review

Source: Google

InflectionPoint reports:

* Yet another very solid week, with US Markets approaching records, EU progressing, and the very notable comeback of Japan. With no tangible progress from the summit in Alaska, unfortunately, the onus is on President Zelensky to make concessions if he wants to stop the war. At the point of writing, he doesn’t seem willing to concede the vast swathes of land President Putin is demanding in order to rein in his attacks, but he is flying on Monday to Washington, together with European leaders, to speak, once again, with President Trump. It is true that the Russian President was received like a world leader, instead of a pariah, by the US Administration, much to the dismay of the Ukrainians – but it is a benefit to everyone if two of the biggest world leaders talk to de-escalate the situation. Elsewhere, Secretary to the Treasury Scott Bessent said that interest rates should be much lower than they presently are – it is no mystery that the President wants to save money on debt servicing.  It will be useful to see what Fed Chairman Jerome Powell will say on Friday after the Jackson Hole summit.  It is very likely that the first Fed cut will take place at the September meeting; the current forecast for December 2026 sees 5 cuts, of which 2 this year and 3 next year. The overall feeling is that earnings were much, much better than investors thought, and the fear of the slowdown didn’t quite materialise – so far. The latest retail sales report was seen as a sign that consumer spending remains resilient, even in the face of ongoing economic concerns and trade tensions. With a few signs of weakening employment and a soft job market, can it continue spending? Definitely, at the moment, AI capex is all the rage, and people are still trying to figure out which jobs will be taken over by computers once the revolution is complete. However, that can change quickly if consumer spending starts to drop, so it is worth paying attention to the strength of the economy and of the consumer, as it could fall off a cliff like the optical networking spending craze did in 2000. Please be aware that there are some strategists, notably Morgan Stanley’s Mike Wilson, who think that the market can have a downside of 15% in two traditionally difficult months – September and October. While I think that is entirely possible, I think it will be very difficult to time the market, and I’m reluctant to pull the plug now, at least until Oracle’s report, tentatively on September 8th. The USD lost some ground after flirting extensively with the key support level 1.1580, and is now trading just below 1.17. While bottom-up earnings for the whole year are being lifted by the current performance of 2Q25, soon we will start looking at 3Q25, and questions will rise about the perceived slowdown. It will be Oracle, in early September, who will shed some light on how July and August have gone. Regarding earnings, I believe that by the end of August (Nvidia reports on August 27), we will have a clearer picture of the back half of the year, when, let’s not forget, the Fed will also come into play. David Kostin of Goldman Sachs raised his targets (again!) for the S&P 500, seeing 6,600 by the end of the year, and 6,900 in the next 12 months, but eventually sees potential risk in earnings, while raising the target multiple to 22x. I certainly agree with him, while thinking that there could be risks to the upside as companies benefit from a notably weaker currency. So far, large stocks have been the primary drivers of the market, and David Kostin is confident they can weather the current economic headwinds and continue on their stable path. Goldman Sachs forecasts S&P 500 Earnings Per Share (EPS) to reach $262 in 2025 and $280 in 2026, representing a 7% growth rate for both years. These current projections represent a notable upward revision from earlier, more pessimistic assessments that were heavily influenced by initial fears of stagflation and the potential adverse impacts of heightened tariffs. Furthermore, the US Investment Bank has reduced its odds of a US recession to 35% from 45%. Keeping equities to buy (with the famous 3% weekly stop), keeping US bonds to hold, and European bonds to buy, and remaining positive on the CHF, which seems to be the only currency to hold its value no matter what (the SNB has one of the lowest interest rates among major countries at just 0.00%). 

* GDP forecasts for 3Q25 seem to be good, with the Atlanta and New York Fed finally in agreement on a positive direction. The current P/E ratio of 22.1x is above the average P/E ratio of the last 5 years at 19.9x and the 10-year average at 18.5x. David Kostin believes that the multiple can hold over the next 12 months; it is the same assumption I had back in 1999, when the multiple was 24x. That multiple lasted for the good part of almost two years, and despite the fall in 1H00, technology stayed strong through the summer, until the Intel preannouncement in September sealed their demise and gave way to 2 years of bear market. Given the capitulation from early this year,  I would love to think that we have seen the lows in 2025, leaving room to grow, even with a multiple which begins with a 2, but continue to diversify and use prudent risk management. 

*  The Federal Reserve was on hold in September, as expected, and Chairman Powell mentioned that the outlook is becoming more uncertain, chiefly due to the impact of tariffs. As mentioned previously, there were two dissenters, who voted for a 25bp cut – this is the first time this happened since December 1993, so indeed a very rare event. While after the meeting, a cut in September seemed unlikely and 50/50 at best, things changed completely after the July labour report on Friday. September seems like a good chance for a first cut (92.1%), with a possible second cut in October ( 55.2%). The forecast for December 2025 currently prices in 2 cuts, with rates at 3.75-4.00%, but leaves the door open to a potential third cut (41.8%). Goldman Sachs thinks the US Central Bank is going to cut three times in 2025, once per meeting. If we look at December 2026, at the moment the forecast sees rates at 3.00-3.25%, hence with 3/2 more cuts during the next year. Be wary of aggressive Fed cuts because they might signal an upcoming recession; non-recessionary interest rate eases are always welcomed by equities. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000), but it is increasingly difficult to get these in the US. You can look forward to these in Europe, even though the European Central Bank might finish its easing cycle (with the Fed yet to start) with a last cut in September. It was on hold last week, with an update on GDP on Wednesday, which saw year-on-year GDP growth of 1.5% and on inflation on Friday, which saw inflation at 2.2%. 

* Yields on US 10-year Treasuries have reached 4.328%, and were up last week, in line with most European government bond yields. Among the developments in Europe, it has been signalled that the 5-year OATs have a similar yield to equivalent BTPs. France is addressing its issue by starting to work more, as Easter Monday will no longer be a holiday. While in 1999 yields were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. The 2025 S&P 500 bottom-up earnings estimate has continued its strong bounce to 267.48 and is close to the original forecast of Goldman Sachs of $268 per share, while being well clear of the revised top-down estimate of 262. In 1Q25, earnings were strong; more of the same, so far, for 2Q25. There is now a worry that there will be a slowdown, so let’s watch closely both the GDP estimates and the earnings estimates (Oracle) for 3Q25. I remain optimistic, particularly on technology (the main driver for the S&P 500). 

Source: FactSet

* The US GDP closed 2Q25 with a reading of 2.97%, but is not gold all that glitters. The Atlanta Fed GDPNow model starts its forecast for 3Q25 in positive territory, with a current forecast of 2.5%, in line with last week, and as usual, is ahead of the Blue Chips consensus, which is currently around 0.9%, starting to move slightly upwards. The New York Fed’s Nowcast model has a current forecast of 2.06%, up from 2.02% last week. I believe it is prudent to make an average of those two forecasts to get to the real number; it is particularly good that these are now converging. Earnings growth for 2Q25 is now 11.8%, compared with a forecast of 4.9% as of June 30th. Revenue growth is slower, but also revised higher, at 6.3% in 2Q25 vs 4.2% as of June 30th. Introducing a forecast for 3Q25, with earnings expected to climb by 7.2%, compared with a forecast of 7.2% as of June 30th, and with revenues growing by 5.8% vs 4.7% as of June 30th. For 2025, earnings growth is forecasted at 10.3% vs 8.9% as of June 30th, with revenues coming in at 5.8% vs 5.0% as of June 30th. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (June 2026) 25.68%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise given such a forecast. The current level is not too far from what economists are currently predicting: a 35% chance of a recession in 2025.

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 2Q24 is continuing in earnest. Here’s a list of companies reporting this week. 

Source: Earnings Whispers

Market Considerations

Source: J.P. Morgan, ISABELNET.com

Source: Bloomberg, ISABELNET.com

Source: Department of Labor, Goldman Sachs Global Investment Research, ISABELNET.com

Source: FactSet, STOXX, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Carson Investment Research, FactSet, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.8% (5.0% on June 30th), and earnings growth estimates for 2025 are predicted to grow by 10.3% (8.9% on June 30th), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.3% (6.3% on June 30th) and earnings to grow by 13.3% (13.8% on June 30th). As mentioned, the Fed has cut its rates by 100bp in 2024 and will continue easing. Apart from the cut from quite high levels, which will probably help make these lofty multiples seem more bearable than offering a real stimulus to the economy, it will be important to see the extent to which the Central Banks are willing to cut rates and their timeframe.  

Five highlights this week. First, we have a chart from J.P. Morgan, which evaluates the performance of the S&P 500 since 1970 through bullish and bearish phases. Their conclusion is that bear markets, on average, last for 14 months and have an average return of -38%; and they are usually followed by bull markets lasting an average of 70 months and with an average return of 221%. I remember my usual advice to never sell in a downturn. The second chart from Bloomberg highlights a story from last week, as a more benign than expected CPI on 8/8 propelled the market higher. We will delve into CPI forecasts with the third chart from Goldman Sachs, which sees CPI at 3.3% by the end of 2025, reaching 2.6% in 2026. This includes future spikes due to tariffs. Chart 4, again from Goldman Sachs, gives an idea of earnings sentiment, after 2Q25 earnings, not over yet, blew all estimates, including those of the investment bank. Finally, chart 5 from Carson Investment Research shows what happens to the market when the Fed cuts rates, while the market is very close to the top. The returns after 12 months are positive, with an average of 13.9% and a median of 9.8%. 

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. In particular, I have noted that Berkshire Hathaway is losing the Buffett premium, having recently had a hit on valuation and a meaningful underperformance vs the S&P 500. Of course, I remain optimistic in the long term; I have faith in the new CEO, but to follow the Oracle means filling very, very big shoes. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East: this will dominate the news for a while. Any escalation would be negative for the markets.  

I now recommend a long position in equities and a neutral position on US bonds. For EU Bonds, I advise going long, while I still suggest putting together a portfolio that includes the yield of Italian Bonds and the safety of German Bunds, without neglecting Corporate Bonds. 

There are three main headline risks to what is otherwise a constructive view for 2025: i) the US economy falling into a recession or revenue/earnings not matching forecasts; ii) any damage to the economy and trade done from Trumponomics, tariffs, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); and iv) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan managed to reach new highs last week, also thanks to the trade agreement with the US. The devaluation of the JPY brought new shine to the local stock market, which has a more palatable valuation than its US counterpart. You still have to deal with a hawkish BOJ – although I would think that they would prefer to hold off hiking, given the current environment. But sooner or later, they will hike, as there is evidence of inflation in the country. I am now more positive on the country, although I would still hedge the JPY.

Portfolios

Finally, I want to introduce three portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 18.6% in about 1 3/4 years, with a Sharpe Ratio of 1.0

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 21.0% in about 1 3/4 years, with a Sharpe Ratio of 0.7. Obviously, the devaluation of the USD had a big impact as all stocks are priced in EUR.

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 45.1% in about 1 1/2 years and has outperformed the FTSE MIB Index by 1415+ bp in this timeframe, with a Sharpe Ratio of 1.7

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply for more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.