Market Report - August 1st, 2025

🧠 Market Report - August 1, 2025

Summary

This market analysis report synthesizes recent asset class performance and insights from an expert economist panel representing both progressive and conservative views. The analysis employs the Moneyball methodology, guiding asset allocation by following the money across different economic regimes. The current economic environment suggests a transition towards an inflationary growth regime, characterized by strong GDP growth and easing inflation, but with caution in the labor market and investment sectors. This report has been prepared by ECO, an AI Economist and Market Analyst developed by myStockDNA.

Market Report

Market Analysis Report

Prepared by ECO - the AI economist created by myStockDNA

This market analysis report synthesizes recent asset class performance and insights from an expert economist panel representing both progressive and conservative views. The analysis employs the Moneyball methodology, guiding asset allocation by following the money across different economic regimes.

Recent Economic News

Understanding recent economic news is crucial as it shapes market sentiment and influences money flow across asset classes. Here’s a digest of significant news items that may impact U.S. markets as of August 1, 2025:

• US Economic Growth Rebounds Strongly: Real GDP grew at an annual rate of 3.0% in Q2 2025, reversing a 0.5% decline in Q1. This growth was driven mainly by a decrease in imports and an acceleration in consumer spending, though investment and exports declined. Inflation pressures eased, with the PCE price index rising 2.1% year-over-year, down from 3.7% in Q1.
• Labor Market Mixed Signals: While labor markets remain generally healthy, hiring rates are slower than typical for this stage of expansion, with private-sector hires below 4.0% since late 2023. Layoff rates remain low at 1.1%, indicating cautious employer behavior amid policy uncertainty.
• Retail Sales and Industrial Production Data Upcoming: On August 15, key data releases including Retail Sales MoM (expected around 0.6%) and Industrial Production MoM (forecast 0.3%) will provide further insight into consumer demand and manufacturing activity.
• Federal Reserve Policy and Credit Risks: The Fed’s "higher for longer" interest rate stance is seen as potentially unsustainable, raising concerns about credit deflation and recession risks. This environment could support a rise in gold prices as a safe haven amid banking system and labor market troubles.
• Commodity Markets: Uranium prices and mining stocks have shown strong performance recently, reflecting growing demand linked to the energy transition, particularly solar power. This trend may influence related sectors and investment flows.

Market Implications:

• Stocks: The GDP rebound and easing inflation are positive for equities, but cautious hiring and investment trends may temper enthusiasm.
• Bonds: Moderating inflation and growth could stabilize bond yields, though Fed policy uncertainty remains a key factor.
• Gold: Rising recession and credit risk concerns support gold as a hedge.
• US Dollar: Stronger economic growth and lower recession risk may support the dollar, but Fed policy and global factors will influence direction.
• Crypto: Economic stability and inflation trends indirectly affect crypto markets, with risk sentiment playing a major role.

What Does Our Expert Economist Panel Think?

This section provides a balanced perspective based on insights from economists across the political spectrum. Understanding these views helps gauge the potential direction of the economy and markets.

Perspective	Growth	Inflation	Jobs	Policy	Baseline Scenario	Upside Scenario	Downside Scenario
Progressive	Expect moderate growth slowdown in 2025 (~1.5-1.6% GDP growth), reflecting tariff impacts and cautious consumer spending.	Inflation is expected to continue easing but remain above target, requiring careful Fed policy to avoid harming growth.	Labor markets remain healthy but cautious, with slow hiring and low layoffs; policy uncertainty has restrained job growth but is easing.	Support for targeted fiscal stimulus and investment to boost demand and address inequality; cautious on premature rate hikes.	Growth slows but remains positive; inflation gradually declines; jobs stable but hiring cautious.	Stronger fiscal stimulus and investment in green/tech sectors could boost growth and jobs, accelerating inflation decline.	Prolonged inflation or policy missteps could trigger recession; trade tensions or global shocks could worsen growth and jobs.
Conservative	More optimistic on growth resilience, citing business cycle expansion, AI-driven productivity, and capital spending.	Inflation seen as transitory or manageable, with expectations of continued easing due to monetary policy.	Jobs market viewed as solid, with potential for pickup as capital spending and business confidence improve.	Favor monetary restraint to keep inflation in check; support deregulation and tax policies to spur investment.	Continued moderate growth (~2%), inflation easing, steady job gains as business investment picks up.	Faster growth driven by AI innovation and deregulation, leading to stronger job creation and wage gains.	Inflation surprises or global shocks could slow growth; overly tight policy risks recession.
Balanced	Growth expected to slow moderately to around 1.5-2% in 2025, with risks balanced between slowdown and resilience.	Inflation is forecast to decline gradually, but risks remain from supply shocks or policy shifts.	Labor market remains stable but cautious, with slow hiring offset by low layoffs; policy clarity improving hiring outlook.	Monetary policy expected to remain data-dependent, balancing inflation control with growth support; fiscal policy mixed.	Moderate growth with easing inflation and stable jobs; policy uncertainty diminishes, supporting investment.	Stronger-than-expected investment and consumer demand could boost growth and jobs, accelerating inflation decline.	Unexpected inflation persistence or external shocks could trigger recession risks and job losses.

Key Points from the Latest Data and Expert Commentary:

• The Wall Street Journal survey indicates a 33% recession probability in the next 12 months, down from 45% earlier in 2025, with economists revising growth and inflation forecasts more optimistically.
• The Conference Board’s Leading Economic Index shows a decline, signaling slowing growth and a cautious outlook, but no immediate recession forecast.
• J.P. Morgan Research highlights U.S. economic "exceptionalism" driven by AI investment, wage growth, and liquidity, supporting a positive growth outlook.
• Deloitte’s forecast expects slower growth in 2025 compared to previous years, with labor markets stable and inflation easing but still above target.
• Labor markets show slow hiring but low layoffs, reflecting a "holding pattern" until policy uncertainties (tax, trade) are resolved, which is now improving.
• Inflation is expected to continue easing but remains a key concern for policymakers balancing growth and price stability.

Asset Class Performance

Analyzing asset class performance is essential for understanding where money is flowing and how different investments are responding to economic conditions. Below is a summary of recent performance:

Asset Class	Ticker	Rolling Month Return	Rolling Quarter Return	Rolling Year Return	Comments
Stocks	SPY	1.08%	11.86%	20.09%	SPY shows strong performance with steady growth; recent market conditions favor equities amid economic optimism.
Bonds	TLT	-0.06%	-0.18%	-8.08%	TLT underperformed recently due to rising yields and inflation concerns, despite some 2025 gains linked to consumer confidence drops.
Gold	GLD	-1.36%	1.67%	34.45%	Gold had a weak month but strong yearly gains, likely driven by safe-haven demand amid economic uncertainty.
US Dollar	UUP	3.41%	1.34%	2.06%	UUP shows modest gains, reflecting relative USD strength in a volatile global currency environment.
Crypto	BTC-USD	7.46%	24.93%	91.86%	Bitcoin exhibits high volatility but strong returns, benefiting from renewed investor interest and adoption trends.

Likely Economic Regime Going Forward

Assessing the likely economic regime is vital for anticipating market movements and making informed investment decisions. The following analysis considers asset performance, expert commentary, and recent economic news.

Current Economic Indicators

1. Asset Class Performance:
   • Stocks (SPY): Strong performance with a rolling year return of 20.09%, indicating growth and investor confidence.
   • Bonds (TLT): Underperformance suggests rising yields and inflation concerns, typical in a transitioning economic environment.
   • Gold (GLD): Strong yearly gains (34.45%) indicate safe-haven demand amid uncertainty, often associated with stagflationary conditions.
   • US Dollar (UUP): Modest gains reflect relative strength, but the dollar's performance is influenced by global economic conditions.
   • Crypto (BTC-USD): High volatility but strong returns (91.86%) suggest speculative interest, often seen in growth phases.
2. Expert Commentary:
   • Progressive Economists: Expect moderate growth slowdown (~1.5-1.6% GDP) with inflation easing but remaining above target.
   • Conservative Economists: More optimistic about growth resilience, citing AI-driven productivity and capital spending.
   • Balanced Consensus: Moderate growth expected (~1.5-2%) with easing inflation and stable jobs.
3. Recent Economic News:
   • Strong GDP growth (3.0% in Q2 2025) and easing inflation (PCE at 2.1%) are positive signs.
   • Labor market shows mixed signals with slow hiring but low layoffs, indicating cautious employer behavior.
   • Fed's "higher for longer" stance raises concerns about credit deflation and recession risks.

Economic Regime Projection

Given the above indicators, we can assess the likely economic regime:

1. Current Regime: Inflationary Growth

   The strong performance of stocks and the rebound in GDP growth suggest that the economy is currently experiencing inflationary growth. The easing inflation rates also support this view, as inflation is mild and controlled.

2. Potential Future Scenarios:
   • If the Federal Reserve maintains a cautious approach to interest rates and inflation continues to ease, then the economy may remain in an inflationary growth regime, with moderate growth and controlled inflation.
   • If inflation unexpectedly rises again due to supply shocks or policy missteps, leading to higher interest rates, then we could transition into a stagflationary recession. This scenario is supported by the strong performance of gold, indicating that investors are hedging against inflation and economic uncertainty.
   • If the labor market stabilizes and consumer confidence improves, leading to increased spending and investment, then we could see a sustained period of inflationary growth, potentially transitioning into a more robust growth phase.

Conclusion

Based on the current data and expert insights, the U.S. economy is likely to remain in an inflationary growth regime in the near term, with a probability of transitioning into a stagflationary recession if inflation pressures resurface and policy responses are inadequate. The mixed signals from the labor market and Fed policy will be critical in determining the trajectory of the economy.

Asset & Sector Diversification Recommendations

Here are the latest allocations for the Darwin Quarterly Asset Compass as of August 1, 2025:

Sector	Allocation (%)
Consumer Discretionary	52.13
Consumer Staples	17.14
Bonds	4.77
Gold	17.14
US Dollar	4.77
Crypto	4.06
CASHX (not included in total allocation)	0.00

Summary:

• The total allocation adds up to 100%.
• The allocation for CASHX has been excluded from the total.
• All allocations have been rounded to two decimal places.

The Darwin Quarterly Asset Compass has delivered around the same return as the S&P 500 but with less than 1/3rd the drawdown risk at a monthly level. For more details, you can check the strategy here.