CWS Market Review – August 12, 2025

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Stocks Surge to All-Time High on Mild CPI Report

Last Friday, the stock market got a shock when the monthly jobs report came in lower than expected. The previous months’ data was also revised lower. President Trump was so angry that he fired the head of the Bureau of Labor Statistics.

On Friday, August 1, the stock market took a 1.6% hit. Since then, the market has changed its outlook for the Federal Reserve. Traders now expect a few rate cuts from the Fed before the end of the year. Investors liked that news and the market gradually made back most of what it lost. Last Friday, the S&P 500 closed within 1/200th of 1% of an all-time high.

This morning, the stock market got its next big test when the inflation report for July was released. The news showed a mostly benign report which gives a green light for the Fed to lower interest rates.

The stock market celebrated and closed at a new all-time high. In 18 weeks, the S&P 500 has added nearly 30%. But there’s an odd fact about this rally. It’s been almost entirely centered on riskier stocks. Conservative stocks have largely gone nowhere.

I’ll touch on that in a bit, but first, let’s take a closer look at this morning’s report. The CPI report said that consumer prices rose by 0.2% last month which matched Wall Street’s consensus. Over the last year, consumer prices have increased by 2.7% which is still above the Fed’s target rate for 2%. Today’s report is also noteworthy because it’s the first time we’ve seen the effect of the tariff policies.

If we look at the core rate, which doesn’t count food or energy prices, then the CPI rose by 0.3% last month. That was also in line with forecasts. It was also the largest increase since January. Over the last year, core CPI is up by 3.1%.

Shelter costs, which are a large part of CPI, rose by 0.2% in July while food prices were flat and energy prices fell by 1.1%.

Tariffs did appear to show up in several categories.

For instance, household furnishings and supplies showed a 0.7% increase after rising 1% in June. However, apparel prices were up just 0.1% and core commodity prices increased just 0.2%. Canned fruits and vegetables, which generally are imported and also sensitive to tariffs, were flat.

Twelve-month headline inflation has increased over the last three months, but not by much (2.3% to 2.7%). Overall inflation has been well-behaved. I suspect that, post Covid, the resting rate of inflation is probably close to 3%. By that, I mean that all things being equal, the inflation rate will mostly hover around 3%. Before Covid, that rate was around 2%.

Here’s a look at the Fed funds rate (in red) along with the core rate of inflation (in blue). In simple terms, the blue line ain’t moving up so the red line is coming down.

Inflation at 3% is higher than the Fed said it wants, but I don’t view it as a major problem and I certainly don’t think it’s worth damaging the labor market for an extra 1%.

The futures market sees an active Fed for the rest of this year, and it’s hard to disagree. Traders now see a 94% chance of the Fed cutting rates next month. Remember, there are already two votes at the Fed for lower rates.

After September, traders see a 64% chance of another cut in October. In December, traders narrowly see a third rate cut. If that’s correct, it will bring the target range for the Fed funds rate to 3.5% to 3.75%.

Tuesday’s trading was unique because investors poured into riskier assets and ignored safer assets. For example, the S&P 500 High Beta ETF (SPHB) increased by 3% on Tuesday. Meanwhile, S&P 500 Low Vol ETF (SPLV) was mostly flat. That’s an unusually large spread.

This is part of a larger trend that started in April. High Beta stocks have demolished Low Vol stocks. I don’t know how much longer this trend can last.

Interestingly, many travel-related stocks were very strong today. Delta Air Lines (DAL) and United Airlines (UAL) were some of the best performers in the S&P 500 today. Southwest Airlines (LUV) and Expedia (EXPE) both had very good days today.

Also today, Perplexity offered to buy Google’s Chrome browser for $34.5 billion. Last year, the Justice Department suggested that Google divest itself of Chrome. Technically, Chrome is worth more than Perplexity, but they should have little trouble raising the money to close the deal.

Hawkins: Up 180-Fold Since 1992

Fourteen months ago, I told you in this newsletter about little Hawkins Inc. (HWKN) of Roseville, Minnesota. Hawkins is one of those small- to mid-cap industrial stocks that I love. The company describes itself as “a leading specialty chemical and ingredients company.”

Snoresville, right? No, Hawkins isn’t the most exciting business, but it’s an important one, and it’s something people need. Hawkins “formulates, distributes, blends, and manufactures products for its Industrial, Water Treatment, and Health & Nutrition customers.”

Since I told you about Hawkins last year, the stock has more than doubled.

Hawkins has been around since 1938. The company has 64 facilities across 28 states. Hawkins has about 1,100 employees and last year, it generated revenue of $974 million.

Now for the best part. Since 1992, Hawkins is up by more than 180-fold. The S&P 500 looks like a flat line in comparison. Hawkins has also raised its dividend fairly consistently for nearly 40 years. In fact, it just raised it again by 6%.

Hawkins used to have a practice of announcing 10% or 15% stock dividends each year. These tended to be in line with the stock’s long-term performance. As a result, the nominal share price didn’t move much. That might you lead you to believe that the stock hasn’t done well, but it’s been a huge winner. Despite all its success, still only three Wall Street analysts bother following Hawkins.

That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on August 12th, 2025 at 6:12 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.