August 2025 Market Update

The American economy is approaching an uncomfortable environment. While the government continues to spend 6.4% deficit/GDP allocated to areas such as ai and semiconductors, the technology sector has remained unburdened by elevated interest rates, while other sectors of the economy have and are beginning to struggle.

Through a large federal deficit, political and corporate leaders continue their attempt at keeping longer term inflation expectations elevated so that banks continue to have confidence in the economy and more importantly, continue to lend to support employment. If inflation were to fall below the Feds target 2%, the banking system would likely lose confidence in the economy and quickly refrain from lending, causing unemployment to rise. President Trump would like the Fed to quickly and bigly cut interest rates so that inflation expectations remain elevated and the banks continue to lend money to support employment. The President knows the economy is weakening.

America’s political and corporate leaders are calling for lower interest rates from the Fed because the leading economic data the experts are examining strongly suggests it. Experts see housing beginning to roll over, the infamous Wharton School of Finance, Professor Jeremy Siegel, stated on CNBC last week that the boom that began in housing in 2020 is ending. Below is a chart of total unit building permits, a high quality leading economic indicator. Permits for building are making new lows in the current business cycle, suggesting the current business cycle, which began in 2020, is coming to an end.

Many investors are perplexed by the current state of the economy and markets, and for good reasons. On one hand the S&P 500 is hitting new all-time highs, but on the other, many economy stocks have been suffering since 2022, and the average working American cannot afford a home or automobile. The American economy is watching its 401K balances rise while the reality of owning and home with a yard move further and further away.

The government is essentially crowding out its own citizens. The government is stimulating S&P 500 technology earnings through war-time deficit spending somewhat allocated to Ai and semiconductor development, which is keeping the S&P 500 stock market index hitting new highs, while simultaneously calling for massive interest rates cuts, which is keeping inflation expectations elevated, preventing banks from stopping lending and leading to an employment recession.

The S&P 500 has essentially turned into a taxpayer subsidized stock market index, upheld by the government’s expansion of debt, which may be the reason it has underperformed gold, since 2005.

S&P 500 Priced In Gold

Whether Powell is too late or not, political and corporate leaders will not be successful in trying to solve a debt problem with more debt and a promise for growth.

The President calling for a 3% percentage point drop in interest rates suggests there may be some smoke out there, and where there’s smoke there’s fire. The President knows something about the economy he hopes the Fed gets in front of.

Our recommendation is to position portfolios to endure a recession, in a defensive manor, risk off and in cash, T-bills, money market funds, short to mid-term 1-10 year U.S. treasury bonds and 10-30 year U.S. treasury bonds at positive carry, 10-year minus 2-year yield curve re-steepening, 10-year minus 3-month yield curve re-steepening, Short USDJPY from 153, and select low duration U.S. equities.

Getting paid to wait for growth assets to be priced at discounts, while being positioned to benefit from bond price appreciation as interest rates decline from downward economic pressure, continues to be a profitable and rewarding strategy. We remain patient and focused on managing risk through 2025.

Disclosure: Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results. This letter is not intended to be relied upon as forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date noted and may change as subsequent conditions vary. The information and opinions contained in this letter are derived from proprietary and nonproprietary sources deemed by Macrovex Capital, LLC to be reliable. The letter may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projection, and forecasts. There is no guarantee that any forecast made will materialize. Reliance upon the information in this letter is at the sole discretion of the reader. Please consult with a Macrovex Capital, LLC financial advisor to ensure that any contemplated transaction in any securities or investment strategy aligns with your overall investment goals, objectives, and tolerance for risk. Additional information about Macrovex Capital, LLC is available in its current disclosure documents, Form ADV and Form ADV Part 2A Brochure, which are accessible online via the SEC’s investment Adviser Public Disclosure (IAPD) database at www.adviserinfo.sec.gov, using CRD #300692. Macrovex Capital, LLC is neither an attorney nor an accountant, and no portion of this content should be interpreted as legal, accounting or tax advice