Positioning for Fed Rate Cuts – Tactical Allocations
August 6, 2025
September 2025 Returns and Asset Performance
October 2, 2025
Major Asset Classes
August 2025
Performance Comparison
Introduction
August returns mark the fourth straight month of consecutive gains, resulting in high valuations and leaving prices vulnerable to drawdowns, as seen on the last day of the month. The S&P 500 index (+1.9%) saw solid corporate earnings and increased optimism surrounding Fed rate cuts. The rally had solid breadth in August with the S&P 400 Mid-Cap index (+3.4%) and the S&P 600 Small Cap index (+7.0%) coming in stronger than large caps. The US Treasury Aggregate Bond Index (+1.2%) also saw gains as did corporate issues (+1.1%). Commodities (-0.1%) were flat, though Silver (+10.0%), Platinum (+6.2%), and Gold (+5.5%) continued to outpace stocks. Finally, it’s notable that interest rate-sensitive sectors, like multi-sector REITS (+4.6%) and infrastructure projects (+2.8%), also performed well.
The following analysis reviews July returns by asset group. The visual summary aims to help investors to benchmark portfolio returns and to see emerging trends in asset allocations across markets.
Core US Indices
Rate-sensitive small-cap stocks (+7.0%) topped the headline indices in August, while tech shares in the S&P 500 Top 50 index (+1.9%) and the NASDAQ-100 Index (+1.0%) lagged behind. Private equity (+2.8%) also saw solid gains. Year-to-date, the NASDAQ-100 index (+11.9%) continues to lead the S&P 500 index (+9.8%). The broad rally in August helped the S&P 500 Equal Weight Index to gain on the annual performance of the cap weighted index.
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US Sector Indices
August returns for small-cap sectors topped the charts in August. with sector returns ranging from +5.7% to +11.4%. Among the large cap sectors, Health Care (+5.4%0 and Materials (+5.2%) were the best performers. Technology (-0.1%) and Utilities (-1.6%) both saw losses in August. Year-to-date, large-cap Industrials (+16.1%), Communication Services (+15.7%) and Technology (+13.3%0 have the best returns. Small-cap sectors continue to lag in 2025. though recent gains are impressive
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US Factor Indices
Factor portfolios are constructed to focus on the core drivers behind returns, which include company size, relative value, profitability, growth, and momentum. Multi-factor portfolios combine two or more factors. In August, most factor portfolios did well when compared to the S&P 500 index. For example, a rotation away from growth stocks was evident, benefiting small-cap (+8.6%) and large-cap (6.0%) value shares. This is also the second month that the US Momentum portfolio (+1.0%) lagged most of the factor portfolios tracked. Year-to-date, the Value portfolio (+14.8%) is now outperforming the S&P 500 Growth Index (+13.4%) and is gaining on the Momentum portfolio (+16.3%).
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US Thematic Portfolios
US thematic portfolios are portfolios that seek to capture the primary growth trends of the U.S. economy. August returns were led by Electric Vehicle shares (+8.6%), Renewable Energy (+7.3%), and Blockchain (+5.2%) shares. The Robotics/AI portfolio (-1.8%) failed to make gains in August. Since January, most of the thematic portfolios are outperforming the S&P 500 index. The top spot goes to Blockchain shares (+30.7%), followed by Renewable Energy (+27.8%) and Electric Vehicles (+22.2%).
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Developed Market Equities
International Developed Markets index (4.7%) had solid gains in August, outperforming US shares given a weak US Dollar. The best markets were Spain (+6.7%), Japan (+6.3%), and Singapore (+6.2%). Only 3 of 22 markets failed to beat US shares. The annual scoreboard is led by European countries, notably Spain (+55.4%), Austria (+51.3%), and Italy (+44.4%).
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Emerging Market Equities
The S&P Emerging Markets Index (+2.9%) also beat the S&P 500 index in August. Returns were led by Vietnam (+14.2%), Brazil (+11.1%), Peru (+10.6%). The top markets in 2025 include Vietnam (+59.3%), Poland (+54.5%), and Korea (+42.0%).
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Government Bonds
During August, the yield on the 10-year Treasury Note ranged between 4.19% and 4.35%, before settling near the lows at 4.23%. As a result, the US Aggregate Bond Index (+1.19%) saw gain in August. The US index easily outperformed the Global Aggregate Bond Index (+0.02%), with emerging market government bonds (+1.90%) putting in the best performance. Year-to-date, the USAggregate Bond Index (+5.01%) has been solid, helping diversified portfolios. In contrast, Emerging market government bonds (+9.04%) have had returns on par with US equities.
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Corporate & Infrastructure Bonds
The iBoxx Corporate Bond Index (+1.11%) was up in August, benefiting from lower yields. Global multisector REITS (+4.56%) and US multisector REILTS (+4.52%) had the best returns of corporate issues, followed by US Infrastructure Projects bonds (+2.83%). Year-to-date, the iBOXX Corporate Bond Index (+6.33%) is beating Treasuries by 133 basis points. Global Infrastructure Project bonds (+17.4%) top the performance chart, followed by Developed Market Corporate bonds (+17.27%).
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Commodities
Commodities, as measured by the S&P GS Commodity Index (-0.1%%) were basically unchanged in August, though a wide range of results by commodity can be seen. Coffee (+34.2%) again is leading the group on concerns of Vietnamese production, Feed cattle (+10.1%) also remain strong as the US inventory is the lowest since the 1950s. Lumber (-20.7%) and oats (-12.7%) were the weakest performers. Since January, Platinum (+52.8%) has been the strongest performer, followed by Silver (+38.9%), Feeder Cattle (+38.7%), and Gold (+32.1%). The commodity index (+4.5%) is lagging US stock and government bonds returns on a year-to-date basis.
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Currencies
The U.S. Dollar index (-2.7%) fell in August and is down almost 10% since the start of the year. In August the Euro was up (+2.4%) bringing the yearly change to +13.0%.
Cryptocurrencies
Benchmark Bitcoin (+6.3%) was down in August, while Solana (+19.0%) and Ethereum (+17.9%) had strong returns. Over the last eight months of 2025, Bitcoin (+16.0%) is solidly outperforming US stocks but is still trailing Gold.
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Saffron Capital LLC is a registered investment advisor that is employee-owned and Minnesota-based.
