Market and Economic Update
July witnessed the S&P 500 achieving ten fresh all-time peaks, driven by robust corporate earnings performance, steady economic indicators, and successful trade negotiations completed before the tariff implementation date. The month featured six straight record-setting closes during its latter half, pushing the S&P 500's year-to-date performance to an impressive 7.8% gain.1
Yet market volatility and economic uncertainties emerged as the month concluded. The July 31 tariff rate announcement sparked investor concerns about potential consumer price increases. Furthermore, employment data from July indicated that labor market conditions had deteriorated more significantly over the previous quarter than initial reports suggested.
During such periods, investors benefit from maintaining composure while markets digest fresh trade policy developments and economic information. Recent months demonstrate how rapidly conditions can shift, reinforcing the benefits of a long-term investment approach.
Equity markets achieved fresh record levels
July's second quarter earnings reporting period continued delivering favorable results, propelling markets to new heights. Although numerous companies noted some tariff-related impacts, these effects haven't been uniformly detrimental.
Among the S&P 500 companies that have reported results so far, representing over one-third of the index, 80% exceeded earnings-per-share expectations. The combined earnings growth rate now stands at 6.4% annually, which trails recent quarters but surpasses Wall Street analyst projections.2
Artificial intelligence optimism boosted several mega cap tech companies. Microsoft and Meta both delivered earnings that exceeded expectations while making substantial AI infrastructure investments. Microsoft's performance helped it become the second company ever to reach a $4 trillion market capitalization, joining NVIDIA in this exclusive category. Conversely, Tesla's second quarter results disappointed investors, pressuring its share price lower.
Despite technology stocks experiencing mixed performance in 2025, the Information Technology sector has gained over 13% year-to-date, trailing only the Industrials sector which has delivered over 15% returns. Health Care and Consumer Discretionary sectors have underperformed, posting negative returns.
Fixed income markets experienced modest declines during a relatively quiet month. The Federal Reserve maintained interest rates in the 4.25% to 4.50% range for the fifth consecutive meeting, balancing tariff-related inflation concerns against economic growth considerations. Notably, two Fed governors opposed this decision for the first time since 1993, preferring a quarter-point reduction. This dissent reflects ongoing public disagreements between President Trump and Fed Chair Powell, as the administration continues advocating for lower interest rates.
Post-meeting employment data revealed July's hiring weakness, with only 73,000 jobs created.
Downward revisions to earlier reports indicated 258,000 fewer jobs were added in May and June than originally calculated. The three-month average has fallen to just 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, potentially increasing the likelihood of rate cuts beginning in September.
Markets anticipate trade agreement outcomes and tariff decisions
Multiple trade agreements were finalized during July, including arrangements with the European Union, Japan, and South Korea, while Chinese negotiations continue. These agreements prevented the most severe scenarios investors had worried about since April, though many nations still face potentially elevated rates as negotiation deadlines approach. President Trump's July 31 executive order established new tariff rates for numerous trading partners, effective August 7 (extending the original August 1 deadline), as illustrated in the accompanying chart.
According to Yale Budget Lab estimates from July 23, consumers now face an overall effective tariff rate of 20.2%, representing the highest level since 1911. Companies have largely absorbed these additional costs rather than passing them to consumers thus far. The sustainability of this approach depends on final tariff levels and corporate adaptation strategies.
Congress enacted significant tax and cryptocurrency measures
Bitcoin achieved new record highs throughout July as Congress deliberated cryptocurrency regulation legislation. The administration's supportive stance toward broader cryptocurrency adoption has contributed to Bitcoin's 2025 gains. Additionally, the enacted GENIUS Act specifically addresses stablecoin regulation, particularly those linked to the U.S. dollar.
President Trump signed comprehensive tax and spending legislation on July 4, making numerous Tax Cuts and Jobs Act provisions permanent, including existing tax rates and bracket structures. This legislation provides investor certainty by preserving the current favorable tax environment, while raising questions about long-term national debt sustainability.
The Congressional Budget Office projects the legislation will increase national debt by over $3 trillion during the next decade. Although the bill included spending reductions for major programs, these cuts were exceeded by tax revenue decreases.
Making these tax provisions permanent eliminates uncertainty that had complicated long-term financial planning, since many TCJA components were scheduled to expire this year. This clarity could support business investment and consumer spending in the immediate term.
The bottom line? Markets achieved numerous records during a volatile month characterized by tariff developments, new cryptocurrency legislation, new tax legislation, and earnings reports. Looking toward August, trade negotiations and earnings results will likely continue capturing investor attention.
1Clearnomics, Standard & Poor’s.
2https://advantage.factset.com/hubfs/Website/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_072525.pdf
Indexes are unmanaged and it’s not possible to invest directly in an index. The S&P 500 Total Return Index is a market-capitalization weighted index of the 500 largest U.S. publicly traded companies. . The Dow Jones Industrial Average is a stock market index of 30 prominent companies listed on stock exchanges in the United States. The Nasdaq Composite Index is a market capitalization-weighted index that includes over 3,000 stocks listed on the Nasdaq Stock Market, primarily representing technology companies. The Bloomberg US Aggregate Bond Index, or the Agg, is a bond market index representing intermediate term investment grade bonds traded in the United States The 10-year Treasury yield represents the interest rate investors can expect to receive for holding a U.S. Treasury bond with a 10-year maturity.