August Rally Boosts Small-Caps and International Stocks
Market Recap for the Week of August 31, 2025
Trading for the month of August has wrapped up, and we are heading into a three-day weekend for the markets. For the month, U.S. large-cap stocks gained just over 2%, as measured by the S&P 500. Small-cap stocks, which have struggled all year, posted a phenomenal August, gaining roughly 7% (as measured by the S&P 600). International stocks also had a strong month, doubling the performance of U.S. stocks over the same period.
Ranking these three asset classes year-to-date, international stocks have delivered the strongest performance with returns of over 20%. Large-cap U.S. stocks have returned a little less than half of that, with about a 10% YTD gain. Despite the August rally, small-cap stocks have only gained about 3% so far this year.
If interest rate cuts are truly on the table for September, that could provide the fuel small-cap stocks need to continue their momentum. As of now, market participants are pricing in an 87% chance of a 25-basis-point rate cut in September. One month ago, the odds were only 65%, so expectations for lower rates have certainly increased.
“Small-cap and international stocks led the August rally, while expectations for a September rate cut continue to rise.”
Chart of The Week
Inflation measures the general rise in the average price level of goods and services that we consume. While the headline inflation number is closely tracked, it can be broken down into a number of different components. This week’s chart, from Apollo Asset Management, highlights goods inflation versus services inflation.
Notice that goods inflation has been trending upward after a period in negative territory. This recent uptick is likely driven by the increase in tariffs. The key question for the economy is what will happen with services inflation. Looking at the chart, services inflation tends to lag goods inflation, which could signal that overall inflation may rise in the coming months.Our chart of the week, from JPMorgan’s Guide to the Markets, illustrates a simple but powerful point. It shows the historical real (inflation-adjusted) returns of small-cap stocks, large-cap stocks, corporate bonds, and cash—demonstrating the purchasing power one would have after investing $10,000 in each asset class. Unsurprisingly, both large- and small-cap stocks delivered significant gains over this long-term horizon.
Many investors today continue to hold cash, wary of a potential market downturn. While no one can predict with certainty whether a correction will occur in the next few years, history strongly suggests that cash is very likely to underperform stocks over the next 30 years.
The commentary in this blog is for informational purposes only and should not be taken as personalized investment advice
Source: https://www.apolloacademy.com/the-daily-spark/
