Market Recap - Monday, August 25, 2025
Stocks Drift Lower After Friday’s Rally
U.S. stocks gave back some ground today, slipping after Friday’s big gains as investors took a breather ahead of key economic data later this week. The Dow fell 0.77%, the S&P 500 dropped 0.43%, and the Nasdaq eased 0.22%. Small caps lagged again, with the Russell 2000 down 0.96%. The quiet session lacked major headlines, but caution returned amid renewed worries about tariffs, the Fed’s independence, and AI overexuberance.
The pullback was broad, with weakness in railroads (CSX), beverage stocks (Keurig Dr Pepper), furniture retailers (due to new tariff talk), chemicals, pharma, airlines, and cybersecurity. On the flip side, energy stocks, casinos, semiconductors, Chinese tech, and retail favorites like Tesla and Nvidia saw solid gains. Treasury yields rose slightly at the short end, reversing some of Friday’s steepening move, and the dollar jumped 0.8%. Gold was flat, while Bitcoin sank nearly 5% to a 6-week low. Oil prices climbed 1.6%.
Markets digested more M&A news — Verint was acquired by Thoma Bravo, Crescent Energy announced a deal to buy Vital Energy, and Keurig Dr Pepper confirmed an $18B deal for Dutch coffee giant JDE Peet’s. But the spotlight was on President Trump’s surprise announcement to remove Fed Governor Lisa Cook, citing misconduct, stoking fears of increased political pressure on the central bank. Trump also launched a new tariff investigation into furniture imports, sending shares of home retailers like RH and Williams-Sonoma sharply lower.
Economic data was mixed: July new home sales came in roughly in line with expectations, while the Dallas Fed manufacturing index unexpectedly dipped back into contraction territory. More data is coming this week, including durable goods orders, revised Q2 GDP, consumer confidence, and Friday’s key inflation reading (PCE). Markets are still pricing in about 50 basis points of rate cuts for the rest of 2025, with odds of a September cut hovering around 85%.
Here’s Our Take
After Friday’s big rally, markets paused to reassess. While investors welcomed Powell’s more dovish tone at Jackson Hole, today’s session served as a reminder that many risks still loom. Tariff uncertainty is back in the spotlight, especially after Trump’s latest probe into furniture imports and threats of steep duties on countries with digital taxes. The surprise firing of Fed Governor Lisa Cook added to concerns about political interference at the central bank, which could complicate future rate decisions. On top of that, AI enthusiasm has been high, but questions around monetization and capital spending are starting to creep in — especially ahead of Nvidia’s earnings this week.
For now, investors seem to be rotating within the market — favoring rate-sensitive and cyclical names — but nervous about big-picture risks like inflation, Fed credibility, and geopolitics. While recent economic data shows some softening, it hasn’t deteriorated enough to force the Fed’s hand just yet. The rest of the week could bring more clarity, especially with inflation, GDP revisions, and consumer spending on deck. Until then, expect more choppy trading, with an eye on the Fed, tariffs, and the AI trade.
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