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Market Crossroads: Tech Selloff & Rate Cut Hopes · The SPY Trader

• 0:00
  Hello and welcome back to Spy Trader , the podcast that decodes the markets so you don't have to .
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  I'm your host , Bucks Bradley , and it's 6 am on Wednesday , August 20th , 2025 , Pacific time .
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  We've got a lot to unpack this morning , as the market continues to send us some very interesting signals .
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  Let's jump straight into our market summary .
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  The U.S.
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  stock market is painting a mixed picture right now .
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  Yesterday , August 19th , the techheavy Nasdaq Composite took a notable hit , declining by 1.5% , and the broader S&P 500 followed suit , falling 0.6% .
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  Meanwhile , the Dow Jones Industrial Average managed to stay afloat , inching up just 0.02% after touching an alltime high earlier in the day .
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  This divergence tells us there's a clear selloff happening in technology stocks , even as the S&P 500 had seen three new record highs just last week .
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  Yeartodate , the S&P 500 is up 9.01% , Nasdaq 10% , and the Dow 5.3% to 3.4%.On the macroeconomic front , the U.S.
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  economy saw a rebound in the second quarter of 2025 , with real GDP growing at an annual rate of 3.0% .
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  This is a decent bounce back from the 0.5% contraction in Q1 , mainly thanks to a decrease in imports and a bump in consumer spending .
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  However , some analysts are cautioning that this figure might overstate the economy's underlying health , pointing to slow domestic demand and a significant plunge in private sector investment .
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  When it comes to inflation , the annual rate held steady at 2.7% through July .
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  The core PCE price index , which excludes volatile food and energy , showed some easing , rising 2.5% in Q2 , down from 3.5% in Q1 .
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  But , here's a twist : the Consumer Price Index , or CPI , showed core inflation jumping 3.1% last month , a faster pace than in June , suggesting that recent tariffs might be increasing consumer costs .
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  The Federal Reserve , or the Fed , held interest rates steady at 4.25% to 4.50% at their July meeting , marking the fifth consecutive hold .
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  The next big decision is set for September 17th .
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  While the market had largely expected a September rate cut , recent comments from Fed Chair Jerome Powell and that slightly disappointing inflation data have introduced some uncertainty .
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  Still , J.P.
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  Morgan Research is sticking to its guns , anticipating a 25 basis point cut in September , citing changes to the Fed's governing board and a deceleration in hiring .
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  Plus , let's not forget the political pressure from President Trump to lower those rates .
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  Speaking of hiring , the labor market showed signs of cooling in July .
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  Nonfarm payroll employment increased by a modest 73,000 jobs , showing little change since April .
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  The unemployment rate also ticked up slightly to 4.2% from 4.1% in June , which aligns with expectations and could strengthen the argument for those pushing for imminent rate cuts .
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  Manufacturing , notably , continues to shed jobs due to tariff uncertainty .
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  Now , let's talk sectors .
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  Technology has been a major drag .
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  On August 19th , the Nasdaq Composite sank largely due to big drops in megacap tech stocks .
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  Companies like Nvidia and Broadcom fell 3.5% , Meta Platforms and Tesla dropped roughly 2% , and Microsoft and Amazon each gave up about 1.5% .
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  The Technology Select Sector SPDR Fund , XLK , also declined 0.8% on August 18th .
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  Concerns about an ' AI bubble ' after comments from OpenAI CEO Sam Altman , and a potential shift of investor capital away from highgrowth tech ahead of retail earnings and the Jackson Hole symposium , are definitely weighing on the sector .
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  On the bright side , Real Estate has been outperforming , leading sector gains on August 20th , up 1.8% .
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  This strength is thanks to betterthanexpected housing data and a falling 10year Treasury yield , which makes real estate investments more attractive .
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  Healthcare also looks positive , with the Health Care Select Sector SPDR Fund , XLV , gaining 1.7% on August 18th .
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  Financials , represented by XLF , declined 1% and are seen as overvalued by some .
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  Industrials also saw a dip , with XLI down 0.5% , and analysts are advising caution due to expectations of decelerating economic growth .
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  In companyspecific news , Intel shares climbed 7% on August 19th after Japan's SoftBank Group announced a 2 billion dollar investment .
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  Palo Alto Networks , the cybersecurity company , rose 3% after reporting betterthanexpected earnings and a positive outlook .
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  UnitedHealth surged 12% on August 15th after news that Warren Buffett's Berkshire Hathaway had taken a stake .
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  On the flip side , Medtronic lost 3.13% on August 20th after announcing new board directors following a large stake by Elliott Investment Management .
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  And if you're into crypto , MicroStrategy and Coinbase Global plunged more than 7% and nearly 6% respectively on August 19th , as Bitcoin slid .
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  For Q2 2025 earnings , 80.2% of S&P 500 companies have reported earnings above analyst expectations , significantly higher than the longterm average .
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  Overall , yearoveryear earnings are expected to grow by 12.9% .
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  However , here's the kicker : this strong performance is heavily concentrated in the ' Magnificent Seven' megacap technology stocks , whose earnings are growing at an annual rate of 26% , while the remaining 493 stocks in the S&P 500 show only marginal growth .
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  This highlights a very narrow market leadership , meaning only a few big players are really moving the needle .
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  So , given this complex landscape of a slowing labor market , easing but still persistent inflation , mixed economic data , and a clear rotation away from concentrated tech leadership , what's a trader to do?Here are my concrete recommendations for you , the Spy Trader : First , maintain diversification with a tilt towards value and defensive sectors .
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  While growth stocks have delivered big gains , their valuations are high , and the recent tech selloff shows vulnerability , especially with that ' AI bubble' talk .
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  Value stocks are trading at a discount , and defensive sectors like healthcare and real estate can offer stability when things get shaky .
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  The recent outperformance of real estate and healthcare truly supports this .
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  For broad market exposure with a value tilt , consider the Vanguard Total Stock Market ETF ( VTI ) , which covers the entire U.S.
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  market , or for a more explicit value focus , the Vanguard Value ETF ( VTV ) .
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  For direct healthcare exposure , the Health Care Select Sector SPDR Fund ( XLV ) is a solid choice , and to capitalize on real estate's momentum , look at the Vanguard Real Estate ETF ( VNQ).Second , monitor fixed income for stability and potential income .
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  With expectations of potential Fed rate cuts later in the year , bond ETFs could offer stability and attractive income .
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  The market might have reacted to some inflation data , but the general sentiment still leans towards eventual rate cuts , which could boost bond prices .
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  The falling 10year Treasury yield is also a positive sign for bonds .
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  For core fixed income , consider the iShares Core U.S.
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  Aggregate Bond ETF ( AGG ) or the Vanguard Total Bond Market ETF ( BND ) for broad diversification across U.S.
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  investmentgrade bonds .
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  Third , exercise caution in highgrowth technology stocks .
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  While we've seen specific companies like Intel and Palo Alto Networks make gains on unique news , the overall tech sector has shown weakness and is very sensitive to interest rates and valuation concerns .
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  The ' Magnificent Seven ' have driven a lot of the market's performance , but this concentration also presents a significant risk .
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  If you have substantial exposure to largecap tech , consider trimming positions in heavily weighted individual stocks that have seen immense gains , like Nvidia ( NVDA ) , especially given its recent sharp drop and the ' AI bubble' comments .
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  If you still want tech exposure , a more diversified tech ETF like the Technology Select Sector SPDR Fund ( XLK ) is generally preferable over individual highflying stocks , but be aware of its recent underperformance .
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  And finally , consider international diversification for broader exposure .
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  Given the U.S.
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  market's concentrated gains and ongoing trade policy uncertainties due to tariffs , diversifying geographically can help mitigate singlecountry risk and potentially capture growth in other developed or emerging markets .
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  For exposure to nonU.S.
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  developed countries , the Vanguard FTSE Developed Markets ETF ( VEA ) is a good option .
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  If you're looking for potentially higher growth , though with higher volatility , in emerging economies , the Vanguard FTSE Emerging Markets ETF ( VWO ) might fit .
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  For a single fund solution that covers both developed and emerging markets outside the U.S.
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  , the Vanguard Total International Stock ETF ( VXUS ) is a great choice .
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  A couple of key things to watch : keep a very close eye on Federal Reserve Chair Jerome Powell's comments at the upcoming Jackson Hole symposium , set for August 21st to 23rd .
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  His remarks could significantly impact market direction .
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  Also , continue to monitor the impact of U.S.
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  trade policies and tariffs on both inflation and corporate earnings .
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  To sum it all up , the U.S.
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  stock market is at a critical juncture .
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  We're balancing robust Q2 GDP growth , even with some underlying weaknesses , against persistent inflation , a slowing labor market , and ongoing uncertainty about the Fed's next move .
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  A defensive and diversified strategy , with a keen eye on value and less volatile sectors , appears to be the most prudent approach in the near term .
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  That's all for today's Spy Trader .
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  Thanks for tuning in , and remember to trade smart !