July 2025 Market Chartbook

Sean Gross, CFP®, AIF®

Co-Founder & CEO

Click here to view our July 2025 Market Chartbook.

July 2025 Market Review: Record Highs During a Turbulent Month

Sean Gross, CFP®, AIF®

Co-Founder & CEO

July witnessed the S&P 500 achieving ten fresh all-time highs, driven by robust corporate earnings results, steady economic indicators, and newly negotiated trade agreements before the tariff implementation deadline. The index recorded six straight record closing levels during the month's latter half, contributing to a 7.8% year-to-date advance for the S&P 500.

Nevertheless, market volatility and economic uncertainty emerged toward month-end. The July 31 tariff rate announcement has sparked worries about increased consumer costs. Furthermore, July's employment report disclosed that labor market conditions have been significantly weaker over the preceding three months than initially reported.

Given this backdrop, investors should maintain composure as markets respond to fresh trade policies and economic information. Recent months demonstrate how rapidly conditions can shift, reinforcing that a flexible, long-term investment approach remains the most effective strategy for reaching financial objectives.

Primary Market and Economic Developments

• July returns showed the S&P 500 advancing 2.2%, the Dow Jones Industrial Average climbing 0.1%, and the Nasdaq increasing 3.7%. For the year, the S&P 500 has gained 7.8%, the Dow has risen 3.7%, and the Nasdaq has advanced 9.4%.

• The Bloomberg U.S. Aggregate Bond Index fell 0.3% during July. The 10-year Treasury yield increased modestly to close the month at 4.38%.

• Global equities showed mixed results with the MSCI EAFE developed markets index dropping 1.5% while the MSCI EM emerging markets index climbed 1.7%.

• Second quarter GDP expanded at a 3.0% annualized pace, primarily due to renewed business investment activity and import changes related to tariff policies.

• The U.S. dollar index recovered from June's 96.88 close to finish July at 99.97, though it remains significantly lower for the year.

• Bitcoin reached a record high of $120,198 mid-month before concluding July at $116,491.

• Gold prices stayed elevated but remained below recent peaks, finishing the month at $3,293.

• Copper hit record levels due to specific tariffs but subsequently experienced its largest single-day decline of 22%.

• The Consumer Price Index increased 2.7% year-over-year in June, matching economist forecasts.

• July job creation totaled just 73,000 positions. Substantial downward adjustments to May and June data revealed the economy performed much worse than initially calculated. The unemployment rate held steady at 4.2%.

Equity markets achieved fresh record levels

 

The second quarter earnings reporting period that began in July continues delivering positive results, propelling markets to new heights. Although numerous companies have noted some tariff-related impacts, the effects have not been uniformly negative. Among the more than one-third of S&P 500 companies that have reported, 80% delivered earnings-per-share beats. The combined earnings growth rate now stands at 6.4% annually, which trails recent quarters but exceeds Wall Street analyst projections[1].

Artificial intelligence optimism boosted several Magnificent 7 names. Microsoft and Meta both delivered stronger-than-anticipated earnings while making substantial AI infrastructure investments. Consequently, Microsoft became the second company ever to achieve a market value exceeding $4 trillion, joining NVIDIA. Conversely, Tesla posted underwhelming second quarter results, pressuring its share price.

Although technology shares have experienced mixed performance in 2025, the Information Technology sector has gained over 13% year-to-date, trailing only Industrials which has returned more than 15% thus far in 2025. Health Care and Consumer Discretionary stocks have underperformed and remain negative for the year.

Fixed income markets saw relatively subdued activity, with bonds declining modestly overall. The Federal Reserve maintained rates in the 4.25% to 4.50% range for the fifth consecutive meeting, balancing tariff-related inflation concerns with economic growth considerations. Notably, two Fed governors opposed the decision for the first time since 1993, favoring a quarter-point reduction. This follows ongoing public disagreement between President Trump and Fed Chair Powell as the administration continues pressing for lower interest rates.

Post-meeting data revealed weakening employment conditions in July, with only 73,000 jobs created. Earlier reports received downward revisions, indicating 258,000 fewer positions were added in May and June than originally stated. The three-month average now equals merely 35,000 new monthly jobs, well below historical norms. This development suggests the Fed may need to prioritize the employment component of its dual mandate, raising the likelihood of rate reductions potentially starting in September.

Market participants monitor new trade agreements and tariff developments

Throughout July, the White House announced multiple new trade agreements, including arrangements with the European Union, Japan, and South Korea. Negotiations with China remain ongoing. These agreements prevent the worst-case outcomes many investors anticipated in April, though numerous other nations still face potentially elevated rates as negotiation deadlines approach. On July 31, President Trump signed an executive order establishing new tariff rates for various trading partners, effective August 7 (replacing the previous August 1 deadline), as illustrated in the accompanying chart.

According to Yale Budget Lab estimates as of July 23, consumers now face an overall effective tariff rate of 20.2%, the highest level since 1911. Thus far, companies appear to have absorbed much of this additional cost rather than transferring it to consumers. Whether this pattern continues depends on final tariff levels and companies' adaptive capabilities.

Congress enacted significant tax and cryptocurrency legislation

Bitcoin achieved new peaks in July as Congress evaluated fresh cryptocurrency regulation. The administration's perceived support for broader cryptocurrency adoption has generated Bitcoin gains in 2025. Additionally, the GENIUS Act, now signed into law, addresses stablecoins typically linked to the U.S. dollar.

On July 4, President Trump enacted comprehensive tax and spending legislation making numerous Tax Cuts and Jobs Act provisions permanent, including existing tax rates and brackets. The bill enhances investor certainty by preserving the current low-tax framework but raises questions about the growing national debt's sustainability.

The Congressional Budget Office (CBO) projects the legislation will increase the national debt by over $3 trillion during the next decade. While the bill included spending reductions to major programs, these were exceeded by tax revenue decreases. However, it should be noted that the CBO has a well-documented history of issuing wildly inaccurate forecasts which tend to overestimate the cost of tax cuts and underestimate the cost of spending programs.[2]

The permanent status of many tax modifications eliminates uncertainty that has influenced long-term financial planning, given that several TCJA provisions were set to expire this year. This development could support business investment and consumer expenditure in the near term.

The bottom line? Markets established numerous records during a volatile month featuring tariff uncertainty, new tax legislation, and earnings reports. Entering August, trade agreements and earnings results will likely continue capturing investor attention.

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[1]https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_072525.pdf  

[2] Dublois, H., & Carlsen, T. (2024, August 19). Scoring CBO’s Scores: Ten of the Worst CBO Blunders of the  21st Century So Far. Foundation for Government Accountability™. https://thefga.org/research/scoring-  cbos-scores-ten-of-the-worst-cbo-blunders/

Corporate Earnings Insights During Trade Policy Changes

Sean Gross, CFP®, AIF®

Co-Founder & CEO

Corporate earnings reports typically offer valuable insights into business performance, but this earnings season holds particular significance given ongoing trade policy developments. Despite reaching record highs in major stock indices amid stabilizing trade relations, questions remain about how tariffs may impact both consumers and businesses. Encouragingly, new trade agreements continue to emerge while companies report results that surpass analyst projections.

Recent data indicates that consumer spending patterns remain robust and corporate profit growth keeps outpacing forecasts. The Yale Budget Lab reports that consumers currently face an average effective tariff rate of 20.2% as of July 23, marking the highest level recorded since 1911.[1]

The absence of this impact in consumer spending patterns indicates that many companies are absorbing tariff costs rather than immediately transferring them to customers. This approach appears feasible due to strong earnings performance and robust profit margins across many sectors.

Current results show that among the more than one-third of S&P 500 companies that have disclosed second-quarter earnings, 80% delivered positive earnings-per-share surprises, with the blended earnings growth rate of 6.4% surpassing the anticipated 4.9%, per FactSet data.[2]

Although this growth rate trails recent quarters, it indicates that an "earnings recession" – characterized by steep profit declines like those seen in 2020 or 2022 – appears less probable than initially anticipated.

Understanding tariff mechanics helps explain their potential appearance in financial results. While governments collect tariffs as revenue, the actual burden falls either on U.S. exporters or domestic consumers and businesses through elevated prices. The distribution between these groups depends largely on their respective "pricing power."

Consider rare earth metals essential for electronic devices – the U.S. imports nearly all of these materials. Given limited alternative sources, tariffs would likely be transferred directly to consumers. This explains why the administration has pursued agreements to expand rare earth metal imports from China and why domestic production has gained increased attention.

Conversely, the automotive sector operates in a highly competitive environment with numerous domestic manufacturers and countries seeking U.S. market access. When tariffs target vehicles from specific countries, those manufacturers might absorb portions of the costs to maintain competitiveness against other nations' products and domestic alternatives.

Short-term tariff effects therefore depend on industry competitiveness and available alternatives for consumers and businesses. Over longer periods, supply chains can adjust to new circumstances and currency values may shift accordingly.

Consequently, tariff impacts on earnings and corporate responses differ significantly across industries. General Motors reported $1.1 billion in tariff-related profit losses during the second quarter, with margins declining from 9% to 6.1%.[3] Meanwhile, Cleveland-Cliffs, a U.S. flat-rolled steel producer, announced second-quarter results exceeding expectations, benefiting from tariffs that reduced steel imports.[4]

The chart above demonstrates how earnings expectations vary considerably across sectors, partially reflecting trade policy impacts. Understanding tariffs' complete corporate effects may require several quarters, particularly as new trade agreements continue emerging.

Multiple countries have established new arrangements, some featuring substantially lower tariffs than those initially declared April 2. Recent announcements indicate the European Union and Japan will face 15% tariffs on U.S. exports, while Indonesia and the Philippines will encounter 19% tariffs. Discussions with China remain active following earlier trade truce developments.

Financial markets have sustained their climb to new peaks as companies report earnings beats and additional trade agreements are finalized. The chart above shows the S&P 500 achieving over a dozen record highs this year, with most occurring within the past month. The Nasdaq has similarly reached historic levels, surpassing its previous December peak, while the Dow approaches record territory. Though current market levels may concern some investors, major indices frequently establish multiple new highs annually during expansion periods.

While markets perform well, concerns about tariffs' economic impact remain. Various economic projections, including Federal Reserve forecasts, suggest inflation may run slightly higher with somewhat slower growth. Industry impacts will vary based on input costs, with import-heavy sectors potentially facing compressed profit margins. However, these projections must be balanced against domestic investment benefits and companies' potential to adapt through innovation and improved efficiency.

Although tariffs have reached historically elevated levels, predictability matters more, as stable business environments enable companies to adapt operations and supply chains more effectively. Looking ahead, the current Wall Street consensus projects S&P 500 earnings growing at a 9.5% annual rate. These forecasts anticipate accelerating growth over the next two years as global trade stabilizes, though significant changes could occur in the interim.

Stock market performance typically aligns with corporate earnings over extended periods. The accompanying chart demonstrates that while S&P 500 prices and earnings don't match perfectly, they follow similar broad patterns. Economic growth drives earnings higher, which subsequently elevates stock prices. Therefore, while the economy and stock market aren't identical, they remain closely connected through corporate performance.

This relationship explains how tariff impacts on profits can affect investors. Market valuation as "cheap" or "expensive" depends not solely on stock prices but also on corporate results. The price-to-earnings ratio represents simply a stock or index price divided by an earnings measure, such as projected twelve-month earnings.

This means that even with unchanged prices, rising earnings improve market attractiveness, and the reverse holds true. The current S&P 500 price-to-earnings ratio stands at 22.2x, significantly above the historical average of 15.8x and approaching the dot-com bubble peak of 24.5x. While current earnings trends appear positive, continued market attractiveness will depend on economic growth and earnings performance.

The bottom line? This earnings season may offer valuable insights into tariff effects on consumers and businesses. For investors, comprehending these developments while maintaining focus on long-term planning remains the optimal approach to achieving financial objectives.

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[1] https://budgetlab.yale.edu/research/state-us-tariffs-july-23-2025

[2] https://insight.factset.com/topic/earnings

[3] https://investor.gm.com/static-files/eaf4a73f-ef85-4134-8533-902e6a9a8177

[4] https://www.clevelandcliffs.com/investors/news-events/press-releases/detail/678/cleveland-cliffs-reports-second-quarter-2025-results

Understanding Federal Reserve Independence and Its Impact on Investors

Sean Gross, CFP®, AIF®

Co-Founder & CEO

The relationship between political leadership and the Federal Reserve has recently sparked renewed debate about central bank independence. This tension arises from fundamentally different objectives and timeframes that guide elected officials versus monetary policymakers.

Political leaders typically favor accommodative monetary conditions to stimulate economic activity and support government financing needs. Meanwhile, the Federal Reserve must balance multiple considerations including price stability and financial system health, often requiring decisions that extend beyond electoral cycles.

While the Fed has faced criticism throughout its history, with numerous volumes documenting both achievements and missteps of various chairpersons, central bank independence has remained a cornerstone of the financial system for generations. Current discussions often focus on legal questions surrounding presidential authority over Fed leadership, procedural aspects of potential changes, and speculation about future appointments.

For investors, the critical consideration is whether monetary policy continues to serve economic stability effectively. Given that Jerome Powell's tenure as Fed Chair concludes by May 2026, regardless of any administrative actions, what factors should investors monitor regarding future Fed policy?

Central bank autonomy has transformed over decades

The chart illustrates nine Federal Reserve chairs appointed since 1948, with nearly all serving across administrations from different political parties, including reappointments by successive presidents. Jerome Powell exemplifies this pattern, initially nominated by President Trump in 2017 and later reconfirmed under President Biden. The data demonstrates consistent economic expansion under Fed leadership regardless of the nominating party.

Central bank independence represents a concept often assumed rather than examined, making its historical development worth understanding. As the nation's monetary authority, the Fed establishes interest rate policy and maintains financial system oversight. Independence enables decision-making free from political considerations, focusing solely on economic and financial stability.

This autonomy evolved gradually over time. The Federal Reserve emerged not from constitutional mandate but through Congressional legislation via the Federal Reserve Act of 1913. The Fed's dual mandate has similarly developed historically and is commonly understood as maintaining full employment while targeting 2% inflation. Contemporary monetary policy therefore reflects lessons learned from past economic disruptions including recessions and inflationary episodes.

After the Great Depression, the Banking Act of 1935 reorganized the Fed, concentrating authority within the Board of Governors and excluding the Treasury Secretary to minimize political interference. During World War II, the Fed temporarily subordinated independence by maintaining low rates to support wartime financing. The 1951 Treasury-Fed Accord restored autonomy by eliminating the obligation to support government bond pricing, widely viewed as reestablishing central bank independence.

Current inflation and policy dynamics present ongoing challenges 
Today's environment bears resemblance to the 1970s and early 1980s period. Before the 1972 election, President Nixon pressed for accommodative monetary policy to support his reelection prospects. Fed Chair Arthur Burns, previously Nixon's economic advisor, complied by easing policy, which economists believe contributed to the subsequent decade's inflationary pressures.1

Paul Volcker's leadership in the early 1980s finally contained inflation through recession-inducing policies. Though most economists credit this approach with ending the era's "stagflation," it generated significant political friction. Volcker's memoirs describe pressure from the Reagan administration against rate increases before elections.2

Current economic conditions mirror aspects of the 1970s, with policymakers balancing elevated rates to secure inflation progress against lower rates to support growth. While inflation has moved closer to the Fed's 2% objective, headline CPI remains at 2.7% with core inflation at 2.9% in recent data. The Fed maintains a cautious stance regarding potential inflationary effects from tariff policies.

The money supply chart above illustrates this challenge. Typically growing steadily to support stable expansion and inflation, the money supply serves as a crisis response tool, as demonstrated in 2020. Recent years have seen flat money supply growth as policymakers prioritized inflation control, potentially creating tension with some political preferences.

Further rate reductions remain anticipated
 
Beyond political considerations, the Fed is projected to implement additional rate cuts this year. Policy has remained unchanged following several reductions in late 2024, reflecting uncertainty about tariff implications. Fed policy fundamentally aims to support sustainable long-term growth patterns. During economic expansion, the Fed prevents overheating – often described as "removing the punch bowl." During weakness, lower rates may stimulate recovery.

This calibration proves challenging even under optimal conditions. Retrospectively, the Fed frequently faces criticism for being "behind the curve." Alan Greenspan, who led the Fed for nearly two decades, failed to address the housing bubble developing during his final years. More recently, critics argue the Fed responded too slowly to clear inflationary signals in 2022.

Rather than debating past Fed decisions, investors should focus on responding appropriately to current conditions within long-term frameworks. Historical evidence shows that leadership transitions and policy shifts create uncertainty, yet markets have generally performed well despite these challenges.

The bottom line? Markets and the economy have thrived under diverse monetary policy and political conditions. Maintaining flexible, long-term investment strategies capable of navigating uncertainty remains the most effective approach to achieving financial objectives.


1 https://www.aeaweb.org/articles?id=10.1257/jep.20.4.177 

2 Volcker, P. A. (2018). Keeping At It: The Quest for Sound Money and Good Government

Guest Article: How Keynesians Got The U.S. Economy Wrong…Again

We are delighted to share, with permission, the following article from highly esteemed economist Daniel Lacalle, PhD.1

July 13, 2025

In the past six months, a chorus of analysts and commentators warned of an impending collapse of the US economy. Many predicted that persistent inflation, high interest rates, and ballooning government deficits would drag growth to a halt and trigger a recession.

However, the data tell a different story: the United States demonstrates economic strength, fiscal control, and improving inflation expectations.

Rising Growth Estimates Defy the Pessimists

At the start of 2025, forecasts painted a gloomy picture. The first quarter saw a contraction in GDP, with the US economy shrinking by 0.5%. However, this decline resulted from lower government spending and higher imports, while the private sector continued to strengthen. Soon afterward, the narrative shifted. By mid-year, leading economic models and analysts began revising their growth estimates upward. Trading Economics, for example, projected a robust 3.5% GDP growth rate for the second quarter, a sharp reversal from earlier pessimism. The Atlanta Fed’s GDPNow model reflected a similar positive change, estimating 2.6% growth for Q2 as of July 9. Additionally, consensus estimates rose to 2.1% for the second quarter, up from 1.3% previously, while inflation estimates declined.

This turnaround has been fueled by several factors:

• American households continued to spend, especially as wage growth outpaced inflation.
• Fixed investment rose by 7.6% in early 2025, the strongest pace since mid-2023.
• Businesses front-loaded imports ahead of new tariffs, boosting economic activity, and subsequent revisions showed positive exports and normalized imports.

These widespread upward revisions have caught many commentators by surprise and forced a re-evaluation of earlier bearish calls.

Inflation Expectations Are Falling

Another area where analysts misjudged the economy is inflation. After years of elevated price pressures, many expected inflation expectations to remain stubbornly high. Instead, recent data show a clear downward trend: consumer price inflation has declined on a one-, three-, and six-month basis. US consumer inflation expectations for the year ahead fell to 3% in June 2025, down from 3.2% in May—the lowest level in five months. Three-year and five-year inflation expectations also edged down to 3.0% and 2.6%, respectively.

Energy costs have declined significantly, with gasoline prices falling by 12% year-over-year in May and fuel oil prices dropping by 8.6%. Shelter inflation—a key driver of overall CPI—has also eased, with the rate dropping to 3.9% in May from 4% in April. Monthly price increases have been modest, with the CPI rising just 0.1% in May and forecasts for June suggesting a 0.23% monthly increase, keeping inflation at the lowest level in five years and, according to Truflation, running at a 1.7% annualized rate in June.

The broad-based decline in inflation expectations reflects the strength of the US supply chain, a slowdown in housing costs, and a decline in essential food prices.

The June Budget Surplus: A Fiscal Surprise

Perhaps the most dramatic evidence that analysts underestimated the US economy came in June, when the federal government posted a budget surplus of over $27 billion—the first monthly surplus since 2017. Consensus had widely expected a deficit of more than $40 billion.

The surplus was driven by two key factors:

• A sharp reduction in spending, as government expenditures fell by $187 billion in June due to aggressive cost-cutting measures and a reduction in the size of the federal workforce.
• Customs duties soared to $27 billion in June, up from $23 billion in May and more than quadruple the level from a year earlier.

Receipts rose by 13% compared to the previous June, while expenditures dropped by 7%.

Spending Cuts and Fiscal Restraint

The fiscal turnaround has also been powered by a significant reduction in non-defense discretionary spending. President Trump’s 2026 budget proposal slashed non-defense outlays by $163 billion, or 23% from the previous year, bringing spending to its lowest level since 2017.

While the broader federal deficit remains large—over $1.34 trillion for the year to date—it is mostly a legacy of the previous administration’s policies and is expected to fall significantly for the year. The lower deficit in May, along with strong April and June surpluses and spending cuts, has provided positive breathing room and challenged the narrative of runaway fiscal irresponsibility.

A Lesson in Humility

The events of 2025 remind us of the risks of Keynesian economic forecasting and the fallacy of ceteris paribus analysis (all else remaining equal). While challenges remain, especially regarding long-term debt and interest costs, the US economy has once again proven more dynamic and adaptable than many experts anticipated, and the administration’s focus on fiscal responsibility is clear.

Rising growth estimates, falling inflation expectations, budget control, and disciplined spending cuts highlight that earlier fearmongering estimates were ideologically motivated. The lesson from this experience is to approach economic forecasts with caution. Keynesian estimates often prove overly optimistic regarding growth and inflation when government spending increases and predict gloom when the opposite happens.

The US economy is stronger, and the private sector is likely to grow faster as tax cuts and deregulation lift burdens on investment and employment.

1Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.