Market Recap - Tuesday, August 26, 2025

Stocks Climb as Investors Look Past Fed Drama and Gear Up for Nvidia and Inflation Data

Markets ended higher today in a quiet but positive session that mostly erased Monday’s dip. The Dow rose 0.30%, the S&P 500 climbed 0.41%, the Nasdaq added 0.44%, and small-cap Russell 2000 led the pack with a gain of 0.83%. Leadership came from aerospace & defense, semiconductors, auto suppliers, pharma (with Eli Lilly rallying on weight-loss drug results), and select tech and travel names. Heavily shorted stocks and popular retail trades also performed well. On the flip side, food, beverage, railroads, telecoms, and energy stocks lagged.

In bond markets, Treasury yields mostly fell as the curve steepened — the 2Y/30Y spread rose to its highest level since January 2022. A two-year note auction was well received. The US dollar edged lower, gold rose 0.5%, and oil fell 2.4%, breaking a recent four-day winning streak. Bitcoin ticked up 0.3%.

Markets continued to digest yesterday’s political bombshell: President Trump’s attempt to fire Fed Governor Lisa Cookover mortgage fraud allegations. Cook responded that Trump has no legal authority to fire her and won’t resign, with her legal team preparing a lawsuit. The Fed said it would follow court guidance. Despite the drama, market reaction was limited, with attention mostly focused on the bond curve steepening and possible long-term implications for Fed independence.

On the economic front, the Conference Board’s August consumer confidence reading came in slightly above expectations at 97.4, though inflation expectations rose and labor market sentiment weakened. Durable goods orders for July fell 2.8%, but that was better than feared, and core capital goods orders (a proxy for business investment) rebounded after June’s drop. Richmond Fed manufacturing data came in better than expected, though price pressures ticked up again. Housing data from the Case-Shiller and FHFA indexes showed slight month-over-month declines, offering some potential relief on the inflation front.

Corporate news was relatively quiet ahead of Nvidia’s earnings on Wednesday. Highlights included Eli Lilly’s positive obesity drug trial, Boeing’s $36B plane deal with Korean Air, and news that Trump Media is partnering with Crypto.com. Semtech shares jumped on strong Q2 results and upbeat guidance. On the downside, Constellation Brands was downgraded on weak beer demand, and UnitedHealth faced reports that a criminal probe into its business may be expanding.

Here’s Our Take

Today’s modest gains signal that investors are staying cautiously optimistic as they await major catalysts later in the week — most notably, Nvidia’s earnings and Friday’s core PCE inflation report. Markets have largely shrugged off Trump’s controversial move against Fed Governor Cook for now, but this could be the opening salvo in a longer-term showdown over central bank independence. That theme — fiscal dominance and political interference in monetary policy — may return with more force later in the election cycle.

While the immediate reaction was muted, expect the issue to linger in investor minds alongside rising inflation expectations and tariff risks. Meanwhile, the bond market is flashing a powerful message with a steepening yield curve, suggesting investors see rate cuts coming even amid political noise. As the macro picture remains clouded, leadership in individual sectors and stock-specific stories — like semis, defense, and obesity treatments — will likely continue to drive near-term performance.

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