Dow, S&P 500, Nasdaq Slide on Inflation Data & Tech Sell-Off: August Ends 4-Month Win Streak Lower | Tariff Impact & Fed Rate Cut Outlook

Key Takeaways

• 📉 Major indexes finished lower Friday but posted monthly gains despite inflation worries

• 🔥 Core PCE inflation rose 2.9% annually, remaining above Fed's 2% target

• 🤖 Tech stocks led the retreat with Nvidia dropping over 3% after earnings

• ⚖️ Markets are pricing in an 87% chance of a September rate cut despite inflation

• 📦 Tariffs are beginning to impact corporate forecasts and consumer prices

• 🏛️ Political pressure on Fed independence creates additional market uncertainty

• 📊 Small caps outperformed with Russell 2000 posting 7% monthly gain

• 📈 Defensive sectors like healthcare and consumer staples showed relative strength

Market Performance Overview: August Wins Streak Continues Despite Friday Slide

So like, the markets had a pretty weird August honestly. They ended the month with gains, which is surprising when you think about all the stuff going against them right? But on Friday, everything kinda went downhill. The Dow Jones Industrial Average dropped about 92 points, which is like 0.2% . Not terrible but still a down day. The S&P 500 did worse though, falling 0.6% . And oh man, the Nasdaq really took a hit - down over 1.1% just on Friday .

But here's the thing people might be missing - despite the bad end to the month, August was actually good for stocks? Like, the S&P 500 gained 1.9% for the month, and the Dow was up 3.2% . That's the fourth straight month of gains for both of those indexes. The Nasdaq added 1.6%, making it five months in a row of gains . So like, the streak is still going even with the worries about inflation and all that.

The Russell 2000, that's the small cap index, actually did really great in August. It was up like 7% for the month . That's kinda interesting cause usually small caps are more sensitive to economic stuff, so maybe investors are feeling good about the domestic economy? Or maybe they're thinking that the Fed will cut rates and that'll help smaller companies more.

I've noticed that when the market has these pullbacks after a strong run, it's often just profit taking. People cashing in some gains, especially in the tech sector that had run up so much. Doesn't necessarily mean the trend is changing. The market was due for a breather honestly.

Table: August 2025 Market Performance Summary 

Inflation Data and Consumer Sentiment: What the Numbers Really Show

So the big worry on Friday was the inflation data that came out. The Personal Consumption Expenditures index - that's the Fed's favorite inflation measure - showed core prices rose 0.3% in July from the month before . Year-over-year, it was up 2.9% . Now that's still above the Fed's 2% target, but it was actually what economists were expecting.

The thing is, even though it matched expectations, it's still showing that inflation is being stubborn. Like, the annual pace was the biggest increase since February . So that's making people worried that maybe the Fed won't be as quick to cut rates? But at the same time, traders are still like 87% sure there's gonna be a quarter-point cut at the September meeting . That seems a bit contradictory if you ask me.

Then there's the consumer sentiment stuff. The University of Michigan survey showed that consumers expect inflation to surge over the next year . That's important because inflation expectations can become self-fulfilling. If people think prices are gonna go up a lot, they might spend more now, which actually does push prices up. It's like a psychological thing.

What's weird is that the inflation data is coming in while other parts of the economy are showing some weakness. Like, the jobs report earlier in the month was pretty weak - only 73,000 jobs added in July . And the previous months were revised down by a bunch. That mixed picture makes it really tricky for the Fed to decide what to do.

I remember back in 2021-2022 when inflation first started taking off, the Fed was saying it was "transitory." Now we're in 2025 and it's still hanging around above their target. Makes you wonder if structural something has changed in the economy that's keeping inflation elevated even when other indicators are softening.

Tech Sector Volatility: AI Stocks Lead the Retreat

Okay so the tech sector really got hit hard on Friday. Nvidia was down over 3% , and it's been down for three days in a row now . That's surprising because when they reported earnings earlier in the week, it wasn't terrible? They confirmed that spending on AI infrastructure is still strong . But I guess investors had really high expectations that weren't quite met.

Then there's Dell - they tanked almost 9% . That's a huge move. Apparently they're having high manufacturing costs for those AI-optimized servers, and there's more competition coming in . That's the thing with these hyped sectors - eventually reality sets in and companies have to actually make money from the technology, not just talk about it.

Marvell was another big loser, down almost 19% after they gave a weak revenue forecast . So it's not just one company - there's a pattern here with AI-related stocks getting hammered. Like Super Micro Computer and Broadcom were also mentioned as strugglers .

But it wasn't all bad in tech. Alibaba shares actually soared 13% . They reported stronger-than-expected growth in their cloud business, which is also AI-related . So maybe it's not about AI overall, but about which companies are actually executing well and which are just riding the wave.

I've noticed that in the tech sector, there's often a pattern where the leaders get overbought and then pull back sharply, but the stronger ones eventually recover. It's like a shaking out of the weak hands. The companies with real products and real demand tend to do okay in the long run, even if they have these nasty short-term corrections.

Table: Notable Tech Stock Performances on August 29, 2025 

Tariff Impacts and Corporate Responses: The New Trade Reality

So President Trump's tariff policies are really starting to show up in the economic data now. The Commerce Department report on Friday showed that there's mild price pressures from those tariffs on imports . That's exactly what economists were warning about - that tariffs would end up raising costs for U.S. companies and consumers.

There's this Goldman Sachs analysis that found U.S. businesses paid 64% of the higher costs from tariffs in the first half of 2025 . American consumers paid another 22% . So only 14% of the costs were actually absorbed by foreign exporters. That's totally different from what was promised - that other countries would pay the costs.

And now the tariff exemption for package imports under $800 ended on Friday . That's gonna raise costs for businesses and probably for consumers too. It's these smaller items that people buy everyday that might see price increases.

Companies are already responding to these changes. Caterpillar - they're like a bellwether for the global economy - they dropped 3.65% after forecasting higher tariff-related expenses for 2025 . When a big industrial company like that warns about costs, you know it's serious.

The crazy thing is that despite all this tariff talk, the market is still at or near all-time highs . It makes you wonder if investors are underestimating how much these trade policies could eventually affect corporate profits. If companies keep absorbing the costs, their earnings will suffer. If they pass them along to consumers, spending might decline. It's kind of a no-win situation.

I've been talking to some business owners, and they're really frustrated with all the uncertainty. One friend who runs an importing business says he's constantly having to adjust his pricing and find new suppliers. It's creating this extra layer of complexity that makes planning really difficult.

Federal Reserve Policy Outlook: Rate Cut Expectations Amid Political Pressure

So the Fed is in this really tricky position right now. On one hand, inflation is still above their target. On the other hand, the job market is showing some signs of softening and there's all these tariff-related uncertainties.

The markets are still pricing in an 87% chance of a rate cut at the September meeting . That's pretty high confidence considering the inflation data. Some Fed officials seem to be on board with this - Fed Governor Christopher Waller said he wants to start cutting rates next month . That's in line with what President Trump has been calling for.

But there's all this political pressure on the Fed that's making things complicated. Trump has been criticizing Fed Chair Jerome Powell repeatedly . And then there's this whole thing with Fed Governor Lisa Cook - Trump is trying to fire her, and there was a court hearing about it on Friday . That's creating uncertainty about the Fed's independence.

What's really unusual is that a Fed Governor Adriana Kugler resigned suddenly . Trump claimed without evidence that she resigned because she disagreed with Powell on interest rates . The Fed didn't give a reason for her resignation, but it looks suspicious when it happens amid all this pressure.

I think the Fed is trying to balance two mandates - maximum employment and stable prices. With inflation still above target but the job market weakening, they're probably leaning toward supporting employment. But if they cut rates too much while inflation is still elevated, they could end up making the inflation problem worse later on.

It's worth remembering that the Fed has historically valued its independence from political influence. When that perception of independence erodes, it can make monetary policy less effective. Market participants might start questioning whether policy decisions are based on economic fundamentals or political considerations.

Sector Performance and Rotation: Where the Money Is Moving

So on Friday, it wasn't that all sectors were down equally. There was definitely some sector rotation going on. Technology was the worst performer in the S&P , but other sectors actually did okay.

Healthcare was up 0.73% and consumer staples gained 0.64% . Those are traditionally more defensive sectors - people still need healthcare and food regardless of the economic cycle. So money was probably moving from the risky tech stocks into these safer areas.

There was also interest in funds focused on dividends, low volatility, and value stocks . These strategies have lagged behind growth and momentum this summer, so some of this might be end-of-month rebalancing . Or it could be investors getting more cautious heading into September, which is historically a tough month for stocks.

The small-cap Russell 2000 only dipped 0.5% on Friday, which was better than the large-cap indexes . And for the month, it was up 7% . That's interesting because small caps are usually more sensitive to the domestic economy and tariffs might affect them less since they're less reliant on international trade.

I've been noticing that when there's uncertainty about tariffs and trade policies, companies with more domestic-focused businesses tend to outperform. It makes sense - they have less exposure to all these international tensions and changing trade rules.

What's tricky is figuring out if this sector rotation is just a short-term thing or the beginning of a longer-term trend. Sometimes at the end of the month, there's some window dressing where fund managers adjust their portfolios to make them look a certain way for reporting purposes. Then things revert back in the new month.

Historical Context and Seasonal Trends: September's Reputation

So September has this reputation for being a tough month for stocks. Like, historically it's been the worst month for the Dow and second worst for the S&P and Nasdaq . That's probably why some investors were getting defensive heading into the long weekend.

The Labor Day holiday on Monday means markets are closed . Sometimes before a long weekend, especially after a good run, investors will take some profits just to reduce exposure. You never know what might happen over a three-day break.

But it's important to remember that seasonal trends aren't destiny. They're just historical patterns that may or may not hold up in any given year. With all the unusual factors in the current environment - tariffs, Fed uncertainty, political pressure - history might not be the best guide this time around.

What's interesting is that despite Friday's pullback, the market had been pretty resilient throughout August. The S&P 500 notched five record highs during the month . That doesn't suggest a market that's deeply worried about the economy.

I looked back at some past periods when there were trade tensions. There's often an initial negative reaction, but then markets tend to adapt over time. Companies find new suppliers, adjust their strategies, and life goes on. The problem is that in the transition period, there can be some disruption and volatility.

The other thing to consider is that we're in a pretty unusual economic cycle. The pandemic recovery was unlike any previous recession, and now we've got these tariff policies on top of that. So historical patterns might be less reliable than usual.

Market Outlook and Key Factors to Watch: What Comes Next

Looking ahead, there are a few key things I'll be watching that could determine where the market goes from here.

First is the September Fed meeting. Whether they cut rates or not will obviously be a big deal. If they don't cut when everyone expects them to, that could cause some volatility. But if they do cut, people might worry that they know something bad about the economy that we don't.

Second is how much tariff costs continue to filter through to consumer prices. The Goldman Sachs analysis suggested that by fall, consumers might be bearing about two-thirds of the tariff costs . If that happens, it could really impact consumer spending, which has been holding up pretty well.

Third is corporate earnings in the coming quarters. If companies start warning that tariffs are hurting their profits, that could spook investors. We already saw some of that with Caterpillar and others giving cautious outlooks.

Fourth is the political situation with the Fed. If Trump continues to pressure the central bank and tries to replace officials, that could undermine confidence in the institution's independence. That might make monetary policy less effective over time.

Personally, I think the market is in a bit of a wait-and-see mode. The gains in August were nice, but there are legitimate reasons to be cautious. The fact that defensive sectors performed well on Friday suggests that at least some investors are getting more risk-averse.

For long-term investors, these pullbacks can be opportunities. But it's important to be selective - companies with strong balance sheets and pricing power are probably better positioned to handle the current environment than highly indebted firms or those with thin profit margins.

Frequently Asked Questions (FAQs)

What caused the stock market decline on August 29, 2025?

The decline was primarily driven by concerns about inflation after the PCE index showed prices rising above the Fed's target, combined with a significant sell-off in technology stocks including Nvidia and Dell .

Are the markets still up for August 2025 despite the late-month slide?

Yes, all major indexes posted gains for August despite the pullback on the last trading day. The S&P 500 gained 1.9%, the Dow rose 3.2%, and the Nasdaq added 1.6% for their fourth or fifth straight monthly gains .

How are tariffs affecting inflation and the economy?

Tariffs are beginning to contribute to price pressures, with U.S. businesses absorbing most of the costs initially. Goldman Sachs analysis found that American businesses paid 64% of higher tariff costs while consumers paid 22% .

What is the expectation for Federal Reserve interest rate changes?

Markets were pricing in an 87% chance of a quarter-point rate cut at the September meeting despite the elevated inflation readings .

Why did tech stocks particularly suffer in the recent sell-off?

AI-related stocks like Nvidia and Dell led the retreat due to concerns about high manufacturing costs, intensifying competition, and questions about the monetization of AI investments .

How reliable is the jobs data after the firing of the BLS commissioner?

The firing of Dr. Erika McEntarfer has raised concerns about data reliability, but former BLS officials emphasize that the statistical process involves hundreds of people making it "essentially impossible to juggle the numbers without being found out" .

What sectors performed well despite the overall market decline?

Defensive sectors like healthcare (+0.73%) and consumer staples (+0.64%) outperformed, along with dividend and value strategies, as investors appeared to rotate toward more defensive positioning .

What should investors watch in the coming weeks?

Key factors include the September Fed meeting, additional inflation and jobs data, corporate earnings guidance regarding tariff impacts, and developments in the Trump administration's efforts to influence Federal Reserve leadership .