August 26, 2025: Economy Slows, Stocks Soar – A Paradox Explained

 

 

What if we told you the economy is slowing… yet investors are cheering?

Sounds backward, right? But it is happening in plain sight.

Look around. Fewer “Help Wanted” signs. Quiet shifts at your favorite restaurant. 

 

You’re not imagining it. The data says the slowdown is real:

 

  • 73,000 jobs added in July (well below expectations)1
  • 258,000 jobs erased from prior months after revisions1
  • 4.2% unemployment, the highest in two years1
  • 1.97 million continuing jobless claims, the most since late 20212
  • Weak factory data pointing to manufacturing cutbacks3

And yet, the S&P 500 keeps breaking records. It’s already up more than 10% year-to-date.

So what is going on? Let’s break it down into three big reasons that are possibly driving the market right now.

 

1) Lower rates are on the table

Lower rates make it cheaper for companies to borrow and invest. 

Imagine a seesaw. On one side: stocks. On the other hand: bonds. Lower rates tip the balance toward stocks.

That is why bad economic news can sometimes push markets higher. Investors are betting the Fed will step in.

 

2) Money is still flowing in

Years of stimulus and government spending have left plenty of cash in the system. That money has to go somewhere. Investor sentiment matters, too.

 

3) A few giants carry the market

As the chart below suggests, the “Magnificent 7” — Apple, Microsoft, Amazon, Alphabet, Nvidia, Meta, and Tesla — have powered much of this year’s rally.