Markets Reach All-Time Highs Despite Mixed Signals
Equity markets rose in July, with the S&P 500 reaching 10 new all-time highs and ending the month up 2.2%. Strong corporate earnings, steady GDP growth, and momentum from new international trade agreements drove investor optimism. However, volatility returned late in the month due to a weaker-than-expected jobs report and new tariff announcements from the White House.
These crosscurrents are a reminder of why we stay disciplined. Markets tend to react quickly to headlines, but financial goals are achieved over years, not news cycles.
Economic and Market Recap: July at a Glance
- S&P 500: +2.2% in July, +7.8% YTD
- Nasdaq Composite: +3.7% in July, +9.4% YTD
- Dow Jones Industrial Average: +0.1% in July, +3.7% YTD
- 10-Year Treasury Yield: Rose to 4.38%
- Bloomberg U.S. Aggregate Bond Index: –0.3% in July
- MSCI EM (Emerging Markets): +1.7%
- MSCI EAFE (Developed Markets): –1.5%
Oil Prices (WTI) rose 6.1% in July, ending the month near $89 per barrel. Supply concerns driven by Middle East tensions and OPEC+ production cuts contributed to the rally, adding another layer to the inflation picture.
GDP grew at an annualized rate of 3.0% in Q2, reflecting improved business investment and trade activity. However, the labor market cooled, with just 73,000 jobs added in July and significant downward revisions to prior months. The unemployment rate remained steady at 4.2%.
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Earnings Drive Markets; AI Leaders Surge
Roughly one-third of S&P 500 companies have reported earnings so far, and over 80% have exceeded EPS expectations. The blended year-over-year earnings growth rate sits at 6.4%, which is slower than in recent quarters but still above analyst forecasts.
AI enthusiasm continues to drive key players. Microsoft and Meta beat earnings expectations and expanded AI infrastructure investments. Microsoft joined NVIDIA in surpassing a $4 trillion market cap. Conversely, Tesla lagged on earnings, weighing on its share price.
- Top performing sectors YTD: Industrials (+15%), Information Technology (+13%)
- Lagging sectors: Health Care and Consumer Discretionary
Fed Holds Rates Steady Amid Conflicting Signals
The Federal Reserve held interest rates unchanged for the fifth consecutive meeting, keeping the federal funds rate at 4.25% to 4.50%. But for the first time in over 30 years, two governors dissented, favoring a rate cut. The internal debate reflects growing tension between inflation pressures tied to tariffs and slowing job growth.
With the three-month average job gains falling to just 35,000 per month, we may see the Fed pivot toward rate cuts as early as September if labor softness persists.
Tariff Changes and Global Trade Updates
The administration announced new trade deals with the EU, Japan, and South Korea, avoiding feared disruptions. However, on July 31, President Trump issued an executive order increasing tariffs on several countries. These changes are set to take effect on August 7.
According to the Yale Budget Lab, the effective U.S. consumer tariff rate now stands at 20.2%, the highest in over a century. So far, many companies have absorbed these costs, but if inflation pressures accelerate, consumer prices may follow.
Policy Developments: Taxes and Cryptocurrency
Two notable legislative updates emerged in July:
- GENIUS Act: A new crypto bill focused on stablecoin regulation gained bipartisan support and was signed into law.
- Tax Reform Bill: Passed July 4, this legislation made permanent many TCJA provisions, including current tax brackets and deductions.
While these moves provide long-term planning clarity, they may also widen the fiscal deficit. The CBO estimates an additional $3 trillion will be added to the national debt over the next decade.
Still, the elimination of key tax law sunset provisions allows households and business owners to plan with more certainty around income, estate, and investment tax strategies.
The Bottom Line
Markets hit new highs, supported by earnings and trade optimism, even as economic uncertainty builds. The recent tariff action, labor softness, and political wrangling over monetary policy will likely shape market direction into the fall.
For investors, this is a moment to stay steady. Rebalancing portfolios, trimming concentrated positions, and maintaining a tax-efficient strategy remain central to long-term outcomes.
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Frequently Asked Questions
Why is the S&P 500 hitting new highs if the economy is weakening?
Markets often price in future expectations, not current data. Strong earnings and AI growth are driving investor optimism despite labor softness.
Are higher tariffs going to impact my investments?
Tariffs can affect corporate profit margins and consumer spending. The market response will depend on how companies adapt to cost changes.
How should I prepare if the Fed starts cutting rates?
Rate cuts may impact bond yields, refinancing strategies, and sector returns. A flexible, diversified strategy remains key.
What does the new tax law mean for planning?
With TCJA provisions now permanent, income and estate planning can proceed with greater confidence in the current tax structure.
