The U.S. stock market is showing signs of vitality over volatility as summer fades, with the benchmark S&P 500 index up 9.5% year to date as of Aug. 25. Yet the experts over at S&P Global aren’t sure what to make of a late-summer market that’s waiting for some good news on the global economy, but not getting any rosy forecasts.
“Tariff frontrunning effects continue to complicate an assessment of underlying growth trends,” S&P Global Vice President Ken Wattret said in an Aug. 18 research note. “Our real GDP growth forecasts for India and Brazil have been lowered for 2025 and 2026, reflecting much higher U.S. tariffs than previously assumed.”
S&P Global forecasts weaker quarter-over-quarter real GDP growth rates across most regions during the second half of 2025. “This scenario reflects various headwinds, including a jump in the effective U.S. tariff rate, the unwinding of the boost from tariff frontrunning, persistently high uncertainty and still restrictive monetary conditions in many economies,” Wattret wrote.
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Meanwhile, global GDP growth looks like it’s weakening, but not collapsing. The International Monetary Fund predicts global GDP will increase by 3% in 2025, down from its 3.3% boost in 2024. The IMF also expects U.S. GDP to grow moderately, at 1.9% for the year.
Also this month, Federal Reserve Chair Jerome Powell hinted at an interest rate cut in September, and the financial markets concurred, pricing in an 86% chance of a 25-basis-point rate cut next month, according to the CME FedWatch tool. That would be good news for the stock market, which historically rallies in the aftermath of a delayed interest rate cut.
“We’re in a fascinating position right now,” says Steven Rogé, chief investment officer and CEO of R.W. Rogé & Co., a fee-only financial planning firm. “The economy’s holding up better than expected, but with tariffs and sticky inflation, it’s jogging uphill.”
President Donald Trump’s economic policies, particularly around tariffs and tax cuts, have also caused market consternation, creating both growth catalysts and inflationary pressures.
“The market is pricing in best-case scenarios while largely ignoring potential complications,” Rogé adds. “That’s not necessarily bearish, but it does suggest limited margin for error. The bigger question isn’t whether markets will correct (they always do), but whether investors will stay disciplined when they do.”
With the global economy struggling and better news at home, what will other major market-moving issues look like by Labor Day? Here’s a closer look at the most significant flash points:
— Cascading events.
— Sky-high valuations.
— Debt, not tariffs.
— Stubborn inflation.
— A shaky jobs picture.
Cascading Events
The main risk factors Rogé is watching heading into the final months of 2025 aren’t the obvious ones everyone’s discussing.
“Yes, inflation persistence and geopolitical tensions matter, but the real danger is what I call ‘confidence cascade events,'” he says. “That’s where one shock triggers a domino effect of investor panic.”
Rogé recalls how quickly sentiment shifted in March 2020, when the COVID-19 pandemic began, and during the 2008 financial crisis. “Markets can handle bad news; they struggle with uncertainty about bad news,” he notes. “The combination of high valuations, stretched investor sentiment and any unexpected economic surprise could create the perfect storm for a correction.”
Markets are already emotional and are driven by financial interests. “Add in high valuations, coupled with stretched optimism, (and that) means investors are already leaning way out over their skis,” Rogé says. “It will only take one wobble, such as a tariff shock, a weak jobs print or a geopolitical flare-up, for confidence to collapse faster than fundamentals.”
That’s why the “confidence cascade” idea is so dangerous. “The initial bad news isn’t the killer; it’s the uncertainty about how deep the hole goes that sparks a stampede for the exits,” Rogé adds.
Sky-High Valuations
The U.S. stock market currently has some of the highest-ever valuations, according to market expert Mark Hulbert, as measured by various price-to-earnings, price-to-sales and price-to-book ratios. And Steven Jon Kaplan, CEO at True Contrarian Investments, notes that the Invesco QQQ Trust ETF (ticker: QQQ) — which primarily consists of the biggest and most popular U.S. stocks — is “currently at roughly 3.5 times what it should be based upon the current and likely future earnings of those companies.”
This scenario is also evident in the dividend yield of the S&P 500, which is hovering around 1.2% as of August. “Dividend yields are low not because dividends are low, but because when you divide the total value of the dividend by the total value of the index, you get an especially low number,” Kaplan notes.
Kaplan believes that investors should be buying U.S. Treasurys and selling stocks. “That’s exactly what most of the top U.S. executives have been doing over the past year,” he says. “Warren Buffett has been doing likewise, purchasing a record amount of U.S. Treasury bills and selling more stocks during the past 12 months than he has ever done in his lifetime.”
Debt, Not Tariffs
Tariffs have taken center stage since Trump took office, but other potential market headwinds are gaining more attention.
“The aim here, as we know, is to give a boost to domestic manufacturing and reduce trade deficits, but the outcomes have been mixed so far,” says John Murillo, chief business officer at B2BBroker, a global financial technology solutions provider. “Tariffs act like taxes on imports, and those added costs are trickling down to consumers. We’re seeing price increases on everything from electronics to canned goods.”
Yet Murillo doesn’t see a market crash due to Trump’s tariffs or general economic uncertainty, which were the most frequently cited risk factors a few months ago. Instead, he says, investors should focus on the escalating national debt that’s negatively impacted by high interest rates.
“In this context, the U.S. debt-to-GDP ratio is nearing 120%, raising concerns about a bond market sell-off, and consumer sentiment at its recent reading of 58.6 … reflects heightened uncertainty about the economy,” Murillo says. “Historically, sentiment below 60 has correlated with market corrections.”
At this juncture, Murillo believes tariffs have led to nothing more than protracted, elevated volatility. “They’ve gradually and controllably increased costs for companies, and moderately impacted consumer sentiment,” he says. “There’s no drama with tariffs anymore.”
[Read: 7 Tariff-Resistant ETFs to Buy Now]
Stubborn Inflation
Inflation remains the most considerable risk for the U.S. economy because the post-COVID surge in prices was never entirely quashed.
“Given heavy debt levels in the U.S. government and parts of the consumer and corporate sectors, there’s a danger that higher inflation will drive up interest rates and borrowing costs,” says David Russell, global head of market strategy at TradeStation.
While inflation has slowed considerably from its 2022 peak, it continues to hover above the targets set by the Fed and other major central banks, even after several rounds of rate hikes. The consumer price index clocked in at 2.7% in July, and Fed’s July survey of consumer expectations projected that inflation will rise to 3.1% in the next year.
“The current inflation situation appears to have a structural nature, particularly with what we refer to as ‘sticky’ inflation: Prices for essentials such as housing, health care and food remain high, even as the overall inflation rate begins to decline,” Murillo notes.
A Shaky Jobs Picture
Jobs data continues to be a key economic indicator, and there have been signs of a slowdown in recent months. The Bureau of Labor Statistics’ employment situation report for July showed only 73,000 jobs were added last month, and sharp downward revisions were made to previous estimates for May and June. The surprisingly weak jobs report prompted Trump to fire BLS head Erika McEntarfer.
It also spooked investors, and the major market indexes took a beating on Aug. 1, when the report was released. Sustained softness in employment data could continue to weigh down stocks.
What Should Investors Do Right Now?
With economic winds swirling, U.S. investors should stay the course through year-end, market gurus say.
“The biggest mistake in chaotic markets isn’t losing money on paper, it’s panicking and making moves without a real plan, often turning temporary drops into permanent losses,” Rogé says. “The benefit of a comprehensive strategy and a trusted financial partner is that it keeps fear from running the show, turning scary headlines into background static instead of fire alarms.”
If you’ve got a chunk of change to invest today, where you invest depends entirely on when you need the money back.
“Money needed within three years belongs in high-yield savings or Treasury bills,” Rogé notes. “Money not needed for 10-plus years should go into diversified, low-cost index funds, regardless of market timing concerns.”
Where’s the sweet spot? Staying in the market regularly.
“Dollar-cost averaging is a good idea, but historically, immediate investment beats gradual deployment about 70% of the time,” Rogé says. “The key is building a system you can stick with during both bull and bear markets because in investing, consistency outlasts cleverness.”
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Update 08/26/25: This story was published at an earlier date and has been updated with new information.
