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Market Crossroads: Fed, AI & Tariffs · The SPY Trader

• 0:00
  Welcome back to Spy Trader , your daily dive into the market's currents !
• 0:04
  I'm your host , Market Maverick Mike , and it's 6 am on Friday , August 29th , 2025 , Pacific Time .
• 0:12
  We've got a lot to unpack today as the market continues its fascinating dance between robust growth and underlying caution .
• 0:20
  So grab your coffee , let's get trading!First up , a quick market rundown .
• 0:26
  Our major US stock indices are flashing green yeartodate , with the Dow Jones Industrial Average hitting a new alltime high of 45,631.74 just last week on August 22nd .
• 0:41
  The S&P 500 is up 13.2% and the Nasdaq Composite a solid 15.4% yeartodate .
• 0:51
  Yesterday , the S&P 500 edged up 0.3% and the Nasdaq 100 closed 0.6% higher , even as futures dipped ahead of some key inflation data .
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  Now , let's talk sectors , because it's a real tale of two cities out there .
• 1:08
  Technology , driven by that insatiable demand for Artificial Intelligence , continues to lead the charge .
• 1:16
  The sector rose over 5% in July , with giants like Meta Platforms and Alphabet significantly boosting communications , which is closely tied to tech .
• 1:27
  Utilities also showed strong performance , up nearly 5% in July , benefiting from renewable energy growth and AI's power hunger .
• 1:37
  Energy is also making a comeback , outperforming the broader market in July .
• 1:42
  On the flip side , Health Care and Consumer Staples have been notably weak , declining over 3% and 2% respectively in July .
• 1:51
  Consumer Staples , usually our defensive play , is getting squeezed by inflationary tariffs and a shift towards growth stocks .
• 2:00
  Financially , while the sector has done well this year , there's a whisper that longterm earnings growth might be overestimated .
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  The big news driving sentiment this week is the Federal Reserve .
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  Chair Jerome Powell hinted at a potential interest rate cut at the upcoming September meeting .
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  Market watchers are now pricing in an 80% to 87% chance of a September cut , with two quarterpoint reductions expected by yearend .
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  This comes alongside the Fed's new ' flexible inflation targeting ' framework .
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  Our current federal funds rate is holding steady at 4.25% to 4.50%.Another significant factor is the ongoing US tariffs .
• 2:43
  These duties , from Brazilian coffee to EU goods and even copper , are creating supply chain headaches and putting pressure on corporate margins .
• 2:52
  Remember that Q1 GDP contraction ?
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  Tariffs played a part as businesses frontloaded imports .
• 2:59
  Speaking of GDP , the US economy bounced back in Q2 , growing at an annual rate of 3.3% .
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  This was a welcome rebound from Q1's 0.5% contraction , mainly thanks to a decrease in imports and an uptick in consumer spending .
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  However , inflation remains our stubborn guest .
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  The annual CPI was 2.7% for the 12 months ending July , and the Fed's preferred gauge , core PCE , rose to 2.9% yearoveryear – the highest since February .
• 3:34
  These numbers are still above the Fed's 2% target , with tariffs showing signs of contributing to that creep higher .
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  And the labor market ?
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  It's showing signs of cooling .
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  Only 73,000 nonfarm payroll jobs were added in July , falling short of expectations , and the unemployment rate ticked up slightly to 4.2% .
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  Longterm unemployment is rising , with 1.8 million people now in that category .
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  Finally , on the corporate front , while Q2 earnings were generally strong with about 80% of S&P 500 companies beating expectations , we saw some specific volatility .
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  Nvidia , for example , reported record revenue but its cautious guidance on future AI chip demand led to a 3% afterhours dip on August 27th , reminding us that even the hottest stocks can cool down .
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  Fonterra also sold its global dairy business to Lactalis for NZ$4.22 billion , and Root Inc.
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  , the insurance tech company , had strong Q2 earnings , beating estimates .
• 4:43
  Alright , let's move into our analysis and some actionable recommendations .
• 4:48
  This market is definitely a mixed bag .
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  On one hand , you have the undeniable momentum in technology and AI .
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  On the other , macroeconomic uncertainties , particularly the evolving Fed policy and the impact of tariffs , demand a cautious and diversified approach .
• 5:06
  The strong Q2 GDP looks good on paper , but if you dig deeper , that decline in imports , partly tariffdriven , flattered the numbers .
• 5:15
  Inflation stubbornly above target , coupled with a cooling labor market , tells us the Fed's job isn't done , but their pivot towards cuts is significant .
• 5:24
  So , what's a savvy Spy Trader to do ?
• 5:28
  I've got some concrete ideas for you .
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  First , for those looking for GrowthOriented Exposure , the technology sector is still where the action is , thanks to AI .
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  The Invesco QQQ Trust ( QQQ ) , which tracks the Nasdaq100 , or the Technology Select Sector SPDR Fund ( XLK ) are excellent choices to get concentrated exposure .
• 5:51
  Just be mindful of high valuations .
• 5:55
  Companies like Microsoft , Alphabet , and Meta Platforms have driven huge returns , but their current prices mean you need to be selective .
• 6:03
  While Nvidia saw a postearnings dip on cautious guidance , its longterm AI thesis remains strong , but that event underscores the need for caution even with leaders .
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  Next , let's talk Diversification and Value Opportunities .
• 6:18
  The overall market is near fair value , and many growth stocks are overvalued .
• 6:23
  This is where value investing shines .
• 6:26
  The Energy Select Sector SPDR Fund ( XLE ) looks compelling .
• 6:32
  This sector has shown resilience and is considered fundamentally undervalued .
• 6:37
  While the broader Consumer Staples sector has underperformed , some specific packagedfood companies might be trading at attractive discounts , but that requires more focused stock picking .
• 6:50
  For Industrials , the Industrial Select Sector SPDR Fund ( XLI ) has performed well yeartodate , but with expectations of decelerating economic growth , any individual stock investment in this sector needs a significant margin of safety .
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  Third , with the Federal Reserve eyeing rate cuts , Fixed Income for Stability and Income is back on the menu .
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  Lower rates generally mean higher bond prices .
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  Consider the iShares Core U.S.
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  Aggregate Bond ETF ( AGG ) or the Vanguard Total Bond Market ETF ( BND ) for diversified exposure to investmentgrade US bonds .
• 7:31
  If you believe rates will fall sharply , the iShares 20 Year Treasury Bond ETF ( TLT ) could see significant gains as longduration bonds are more sensitive to rate changes .
• 7:44
  This strategy is supported by the current environment of falling Treasury yields and rising gold prices due to increased rate cut probabilities .
• 7:52
  Finally , let's look at Alternative Investments for Diversification .
• 7:57
  SPDR Gold Shares ( GLD ) could be a smart hedge .
• 8:01
  Gold prices have already moved past 3400 dollars an ounce with the increased probability of rate cuts .
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  In an environment of economic uncertainty and a potentially weakening dollar , gold tends to shine .
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  Also , the Vanguard Real Estate ETF ( VNQ ) provides exposure to REITs .
• 8:23
  Real Estate saw an increase this past week and could benefit from lower interest rates , which reduce borrowing costs for real estate companies and potentially boost demand .
• 8:34
  To sum it up : Given the mixed signals — a strong Q2 GDP rebound that still has underlying nuances , persistent inflation above target , a cooling labor market , and the Fed signaling rate cuts amidst tariff concerns — a balanced approach is your best bet .
• 8:54
  Keep a core portfolio with broad market exposure using ETFs like Vanguard Total Stock Market ETF ( VTI ) or SPDR S&P 500 ETF Trust ( SPY ) , and then complement it with strategic allocations to the sectors and assets we just discussed .
• 9:11
  Focusing on quality companies with strong fundamentals , regardless of sector , will be your compass through any potential volatility .
• 9:19
  That's all for today's Spy Trader .
• 9:21
  Thanks for tuning in !
• 9:24
  I'm Market Maverick Mike , and I'll catch you next time .
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  Happy trading !