Market Commentary - August 2025
Market Commentary - August 2025
Overview
Geopolitical and monetary policy developments are shaping U.S. market sentiment. The Trump-Putin summit in Alaska failed to yield a Ukraine ceasefire but hinted at future trilateral talks. Oil markets reacted cautiously: Brent fell 10% since July 30 to $66, while WTI dropped to $62. Treasury Secretary Bessent warned of “very severe consequences” if diplomacy fails, including secondary sanctions on India and China, which could disrupt global energy flows.
Meanwhile, tariffs continue to pressure inflation and growth. The effective U.S. tariff rate surged to 15.8%, up from 2.3% in late 2024, with expectations it could reach 18–20%. Sectoral tariffs—35% on Canada, 30% on South Africa—are weighing on manufacturing and consumer sentiment. J.P. Morgan estimates these hikes could add 0.2–0.3 percentage points to PCE inflation, complicating the Fed’s rate path.
With Fed Chair Jerome Powell signaling a shift in the Fed’s policy framework and opening the door to potential rate cuts, investor attention now turns to the September FOMC meeting. Powell emphasized a “data-dependent” approach, citing downside risks to employment while maintaining vigilance on inflation—particularly from tariffs and structural shifts in trade and immigration.
Markets responded positively, with major indices rallying and rate cut expectations surging. Tech, REITs, and small caps led the charge, buoyed by the prospect of looser monetary conditions. However, Powell’s caution around tariff-driven inflation and sticky wage pressures suggests the Fed may proceed incrementally, avoiding premature easing that could reignite price instability.
Investors should prepare for sector rotation and use short-term volatility to reposition toward long-term growth themes—especially in areas like energy infrastructure, semiconductors, and data centers, which stand to benefit from lower capital costs and structural transformation. With the Fed balancing its dual mandate amid evolving macro risks, strategic agility will be key in navigating the months ahead.
Tariff Intensity and Geopolitical Relations
In August 2025, President Donald Trump intensified his use of tariffs as a geopolitical tool, targeting nations that continue to engage economically with Russia—specifically through oil imports. Namely, effective August 27, Trump imposed an additional 25% tariff on imports from India—bringing its total tariff burden to 50%, the highest of any trading US partner. India is the second largest buyer of Russian oil, behind China, and has continued engaging with Russia, citing national economic priorities and the need to stabilize domestic fuel prices. The White House frames these tariffs as part of a broader emergency response to Russian aggression and a means of pressuring Russian President Vladimir Putin into peace talks regarding the conflict in Ukraine.
Notably, China has avoided similar penalties. President Trump cited “progress” made with Putin during their August 15 summit in Anchorage, Alaska. However, the summit itself yielded no concrete outcomes. Additional tariffs would have likely jeopardized the existing 90-day pause on higher tariffs negotiated between the U.S. and China. This comes at a time when U.S. retailers often increase their inventories to prepare for key end-of-year holidays.
From a market perspective, these tariffs inject fresh uncertainty into global trade dynamics. The trade escalation with India could significantly strain global supply chains and compress margins for U.S. companies that rely on India's low-cost manufacturing base—particularly in sectors like pharmaceuticals, textiles, and electronics. For instance, nearly 50% of all generic medicines consumed in the U.S. are manufactured in India. Now, with India the new target of Trump’s Trade War, companies that recently shifted production to India from China are left scrambling to reassess their supply strategies and find alternatives. Exemptions for semiconductors and cellphones have temporarily shielded certain suppliers, but they also raise questions whether exemptions for other vital industries will be granted.
Markets are now grappling with the selective nature of these exemptions. The possibility that exemptions may be politically contingent rather than sector-driven adds a layer of unpredictability for importers and investors alike. As trade policy continues to intersect with foreign affairs, tariff risk remains a key variable heading into Q4.
Private Equity – Cautious Optimism Amid a Tough Backdrop
Private equity is still contending with a muted 2025. Exit volumes through IPOs and M&A remain soft, forcing managers to rely more heavily on continuation funds and NAV-based lending to return cash to investors. While these tools provide near-term liquidity, they have drawn greater regulatory scrutiny and heightened debate over transparency. At the same time, fundraising has slowed down nearly 30% year-over-year, and the first half of 2025 saw the lowest number of fund closings in four years. However, capital is concentrating on established managers, particularly those raising infrastructure mega funds, suggesting investors are still confident in the long-term case for the asset class.
Despite these headwinds, there are pockets of resilience. Certain sectors—such as technology, healthcare, and services—continue to see healthy multiples and steady deal flow. Europe, while still lagging late-2024 levels, posted a modest increase in deal activity compared to last year, with industrials and healthcare driving momentum. The secondary market has also emerged as a bright spot, with record transaction volumes creating new avenues for both general partners and limited partners to manage liquidity. Looking forward, the combination of more disciplined valuations and a potential shift toward lower interest rates could support renewed activity in the latter half of 2025.
Private Credit – Robust Growth with Heightened Scrutiny
Private credit remains one of the fastest-growing corners of the market in 2025. Global assets under management have swelled toward $3 trillion as investors seek yield and borrowers turn to non-bank lenders in the wake of stricter banking regulations. Direct lending to middle-market companies in technology, healthcare, and infrastructure continues to expand, while institutions such as pensions and insurers increasingly treat private credit as a core income allocation. Even retail investors are gaining exposure through vehicles like business development companies and private credit ETFs, marking the asset class’s shift into the mainstream.
Yet rapid growth has also brought concerns. Competitive pressure among lenders is driving spreads tighter and eroding underwriting standards. Covenant-lite structures are increasingly common, and the use of payment-in-kind interest has risen, raising questions about whether investors are being adequately compensated for the risks. The real test looms in 2026–27, when a large wave of corporate debt will need refinancing. This creates both opportunity—private credit funds could deploy significant capital at attractive yields—and risk, as weaker borrowers may struggle to roll over obligations. For now, appetite remains strong, but disciplined manager selection and rigorous credit analysis are critical to navigating the next phase of growth.
The Shift in Global Capital: A New Normal for U.S. Real Estate
A significant development in the U.S. real estate market has been the re-emergence of foreign capital. In the last year, foreign buyers poured $56 billion into U.S. residential real estate, marking a 44% jump in sales and the first annual increase in foreign purchases since 2017. This resurgence is driven by the U.S. market's perceived stability, robust legal protections, and a lack of stamp duty taxes that exist in other countries.
The Profile and Impact of the International Buyer
A defining characteristic of this new wave of foreign investment is the high percentage of all-cash transactions. Nearly half (47%) of all international buyers paid entirely in cash, a rate almost double that of domestic buyers. Most of this capital came from buyers from China (15%), Canada (14%), and Mexico (8%), with Florida, California, and Texas being the top destinations.
The prevalence of all-cash foreign buyers creates a two-tiered system in the U.S. residential market. Cash buyers are entirely unaffected by the high mortgage rates that sideline the majority of domestic, financed buyers. This provides a key explanation for the market's central paradox: why prices are not falling despite a widespread affordability crisis and low sales volume. The surge of foreign capital acts as a parallel market force, providing a liquidity backstop and reinforcing price floors. This dynamic has a disproportionate impact on domestic buyers who rely on financing, creating a new, more intense form of competition, especially in key coastal and Sunbelt markets.
Strategies for Domestic Investors
To compete in this environment, domestic investors must leverage their inherent advantages over foreign buyers. This includes building local relationships that generate off-market deals, using creative offers like seller financing or lease options, and ensuring speedy and consistent closings. Furthermore, a strategic approach for domestic investors is to focus on emerging second-tier cities or suburban areas that foreign investors, who tend to target major metropolitan markets, often overlook.
The International Buyer Profile in the U.S. (April 2024 - March 2025)
