The big question, why? While I can't give you definitive answers, I think it has been a combination of things. First, the U.S. administration has adopted flexibility in its deadlines as a negotiating strategy, extending tariff deadlines to facilitate agreements that are significantly more favorable than the initially imposed. For example, Japan faced a 25% tariff to take effect August 1st. Instead, a "Massive Deal" as President Trump put it, will now have goods taxed at 15%. However, Japan needs to start importing more U.S. goods and invest $550 billion in the U.S. economy to come clean in the agreement. (https://abcnews.go.com/Business/trumps-trade-agreement-japan/story?id=123991644). More recently, the U.S. also signed a deal with the E.U. to impose a 15% tariff.

Secondly, there is evidence suggesting that the U.S. economy remains in expansion as of July 27th, 2025. Economic forecasts indicate a continued growth trajectory with real GDP expected to grow by approximately 0.8% year-over-year by the end of 2025, reflecting ongoing economic expansion despite some slowdown compared to previous years. The recent passage of significant fiscal legislation, like the "One Big Beautiful Bill", has reduced policy uncertainty by extending critical tax provisions, which is expected to avoid a fiscal cliff and support economic stability (https://www.ey.com/en_us/insights/strategy/macroeconomics/us-economic-outlook). Additionally, steady job growth, as highlighted by upcoming jobs reports and steady non-farm payroll numbers, coupled with corporate earnings growth, further reinforce the view that the economy is not in recession but continuing to expand (https://www.cnn.com/2025/07/27/economy/economy-trump-trade-fed-earnings),(https://economictimes.indiatimes.com/news/international/us/us-economy-news-trump-economy-2025-fed-decision-jobs-report-us-economy-update-july-2025-inflation-trade-policy/articleshow/122953606.cms). Analysts also point to the moderation of inflation and a resilient consumer sector, despite ongoing challenges, as indicators consistent with an economy in expansion (https://economictimes.indiatimes.com/news/international/us/us-economy-news-trump-economy-2025-fed-decision-jobs-report-us-economy-update-july-2025-inflation-trade-policy/articleshow/122953606.cms),(https://www.fanniemae.com/data-and-insights/forecast/economic-developments-july-2025).

Thirdly, I think that the international security landscape and geopolitical risks have shown signs of abating as NATO members have reached a significant consensus to substantially increase their defense spending to 5% of GDP over the medium to long term. This collective commitment marks a decisive shift in the alliance’s strategic posture, aimed at strengthening deterrence and enhancing the capacity to respond to emerging threats. This enhancement in defense spending is expected to lead to significant modernization of military equipment, improvements in readiness and rapid deployment capacities, expanded cooperation in intelligence and cybersecurity efforts among members.

By committing to this higher level of investment, NATO seeks to project strength and solidarity, sending a clear message of unity and preparedness to potential adversaries; like Russia, North Korea and China. Moreover, the boost in defense expenditures contributes to lowering the geopolitical risk premium in global markets. When investors perceive heightened geopolitical tensions, financial volatility tends to rise, affecting international trade and investment decisions. NATO’s collective action to address defense preparedness mitigates these concerns by fostering a more secure environment, which in turn supports economic stability and growth.

Lastly, crude oil prices have declined more sharply than many analysts initially anticipated, driven primarily by steadily rising production levels in the United States coupled with the Organization of the Petroleum Exporting Countries' (OPEC) gradual rollback of voluntary supply cuts. These combined factors have significantly shifted the balance of supply and demand in the global oil market, contributing to a notable easing of energy costs worldwide.

The United States has seen a consistent increase in crude oil production, bolstered by technological advancements and investment in shale extraction. This has enabled producers to ramp up output efficiently. This sustained growth in U.S. oil supply has added substantial volumes to the global market, exerting downward pressure on prices. At the same time, the OPEC has begun systematically easing its earlier voluntary production constraints. Having initially imposed cuts to stabilize and support prices amid global uncertainties, the OPEC’s recent decisions to scale back these limits signal confidence in market conditions but also contribute to increased availability of crude.

The impact of these developments on oil prices has been significant. For example, West Texas Intermediate (WTI) crude closed June at $65.11 per barrel, reflecting a decline of approximately 24% compared to the corresponding period last year. This drop in energy prices presents broad implications for the global economy, especially in terms of inflation and consumer sentiment. Lower energy costs directly alleviate inflationary pressures, as fuel expenses are a key component in overall price levels. When crude prices fall, transportation and production costs tend to decrease, leading to more moderate increases in goods and services across the economy. This dynamic helps central banks in their efforts to contain inflation and stabilize purchasing power. Moreover, the decline in fuel prices has a direct and tangible benefit for consumers. Reduced costs at the gas pump and in home heating translate to less financial strain on household budgets. This can increase disposable income, encouraging greater consumer spending and boosting confidence in personal financial outlooks. As energy expenses become more manageable, consumers are better positioned to sustain consumption, which is critical for ongoing economic growth.

In summary, based on my thesis above, market participants had been predominantly focused on negative factors (and me) and failed to anticipate positive outcomes as the actual developments have consistently surpassed expectations. As a result, this divergence has driven the market upwards. While I'm ecstatic about this, August tends to snuff out candles. Historically, August ranks as one of the worst months for stocks, with the Dow Jones Industrial Average posting an average loss of about 1.1% during August over the past several decades. The Stock Trader's Almanac’s data highlights a recurring seasonal pattern often referred to as the "August Doldrums," where trading volumes decline and market volatility tends to increase, leading to generally subdued or negative returns (https://www.stocktradersalmanac.com/Newsletter/0824.aspx), (https://money.com/august-september-worst-month-stock-market/). Analysts attribute this weakness to various factors, including reduced investor activity during summer vacations and heightened uncertainty around economic and geopolitical events that often unfold during this period. As a result, many traders approach August with increased caution, sometimes adjusting their portfolios in anticipation of potential volatility but according to my thesis above, maybe, just maybe… we'll be okay next month!