Weekly Market Review: August 18-24, 2025

Market Overview

The stock market is demonstrating resilience in the face of ongoing sector rotations and macroeconomic uncertainties. The S&P 500 has sustained its upward momentum, propelled by robust earnings surprises from 82% of reporting companies, even as potential tariffs and inflationary pressures raise concerns. Small-cap stocks have spearheaded recent gains, advancing 2.8% over the past week, while the broader market exhibits a V-shaped rebound in earnings revisions, indicating no imminent recession. Nevertheless, market concentration is notably elevated, with the Magnificent Seven stocks matching the combined market capitalization of the bottom 433 constituents in the S&P 500, prompting questions about long-term sustainability.

Inflation stands at a manageable 2.7% year-over-year, though producer price index has risen to 3.3%, driven largely by services, which sustains expectations for a Federal Reserve rate cut in September at 92.8% probability. On balance, market momentum leans toward a risk-on environment, bolstered by artificial intelligence tailwinds in technology sectors, albeit with potential short-term volatility due to typical August seasonality.

Focus on the Magnificent Seven Stocks

The Magnificent Seven—comprising Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA)—persist in their market dominance, tempered by emerging signs of rotation and increased volatility. As a group, their earnings growth is projected to moderate to 17% in 2025 from previous peaks, yet momentum fueled by AI advancements endures. Nvidia has achieved record highs, commanding an 8.2% weighting in the S&P 500—over three times that of the entire energy sector.

Apple and Tesla present compelling valuations currently, enhanced by AI integrations that fortify their resilience. Amazon and Alphabet remain entrenched in competitive dynamics, whereas Meta and Microsoft capitalize on advertising revenues and cloud computing leadership, respectively. Tesla may experience a catch-up rally within broader market movements, notwithstanding options flow trends showing call selling and put buying across the group. Analysts observe that while the Magnificent Seven are not overvalued in light of their growth prospects, the remainder of the market may be, positioning Nvidia and Microsoft as premier selections for sustained AI exposure.

Upcoming Week Outlook: Key Events and What Investors Should Watch

The forthcoming week from August 18 to 24, 2025, features a series of critical data releases poised to influence market sentiment, especially concerning economic growth, inflation trends, and monetary policy implications—factors particularly relevant to the rate-sensitive Magnificent Seven stocks. Investors are advised to monitor these developments closely for potential shifts in market dynamics.

Monday, August 18

Key events include the US NAHB Housing Market Index at 2:00 PM ET, the Euro Area Balance of Trade at 9:00 AM GMT, and China's FDI (YTD) year-over-year figures. Housing indicators may provide insights into consumer confidence and spending power, while subdued Chinese foreign direct investment could exert pressure on global growth expectations, potentially impacting supply chains for Nvidia and Tesla.

Tuesday, August 19

Notable releases encompass Canada's Inflation Rate year-over-year at 12:30 PM ET, US Building Permits and Housing Starts at 12:30 PM ET, and a speech by Federal Reserve Governor Bowman at 6:10 PM ET. Inflation data could solidify anticipations for rate reductions, and Bowman's remarks may offer clues on September policy actions, with dovish signals likely to uplift technology sectors.

Wednesday, August 20

Events feature the UK Inflation Rate year-over-year at 6:00 AM GMT, the Euro Area Core Inflation year-over-year final reading at 9:00 AM GMT, and China's Loan Prime Rate at 1:15 AM GMT. Persistent inflation in the UK and Euro Area might moderate expectations for global rate easing, whereas stable Chinese rates could support emerging market stability.

Thursday, August 21

Flash PMI data for the US, Euro Area, UK, and Japan will be released at various times, alongside US Existing Home Sales at 10:00 AM ET. These PMIs serve as early gauges of manufacturing and services activity, where robust US figures could drive S&P 500 advances and benefit Magnificent Seven leaders, but softer readings in Europe or the UK might amplify recession concerns and prompt defensive rotations.

Friday, August 22

The agenda includes US New Home Sales at 10:00 AM ET and Japan's Inflation Rate year-over-year from the prior day at 11:30 PM GMT. Housing sales data may shape interest rate outlooks, while Japanese inflation could affect yen carry trade dynamics and broader global liquidity conditions.

What Investors Should Look Out For

Thursday's flash PMI releases stand out as the week's pivotal indicators, delivering essential insights into manufacturing and services sectors. A strong US PMI reading could accelerate S&P 500 gains, favoring AI frontrunners such as Nvidia and Microsoft, whereas weaknesses in Euro Area or UK data might intensify fears of economic slowdown. Investors should scrutinize inflation metrics from Canada, the UK, and the Euro Area for emerging global patterns; unexpected upward surprises could postpone rate cuts, thereby straining highly valued Magnificent Seven stocks, with Federal Reserve Governor Bowman's speech providing critical guidance where accommodative commentary would bolster risk assets.

Attention to China and Asia is warranted, as foreign direct investment and loan prime rate outcomes may signal demand stabilization, benefiting Apple and Tesla's regional exposures. Sector rotations merit close observation, particularly if small caps sustain their 2.8% weekly outperformance, which could signify a widening rally beyond the Magnificent Seven, though focused options flows like put purchases on the group advise prudence. Broader risks include seasonal August softness in post-election periods and a steepening yield curve—with two-year yields at 3.76% and ten-year at 4.93%—potentially inducing retracements; vigilance on the VIX at 15.09 and insider trading ratios will aid in gauging sentiment. Absent major earnings from the Magnificent Seven, macroeconomic data will dominate, urging positions that account for volatility while leveraging AI themes as a safeguard.

Conclusion

Amid deflationary influences from artificial intelligence and impending rate reductions, the market maintains a bullish stance, though the ensuing week's data will challenge its durability. Investors are encouraged to broaden portfolios beyond the Magnificent Seven while monitoring PMI and inflation indicators for optimal entry opportunities.

Disclaimer: This content is for informational purposes only and does not constitute financial advice. Investments involve risk, and past performance is not indicative of future results. Please consult a qualified financial advisor before making any investment decisions.