Weekly Recap:

by Michael P. Reinking, CFA & Eric Criscuolo

Published on 08/1/25

Last week US equity markets continued to grind higher. With a modest economic calendar, the focus was on T&E: Trade and Earnings. The S&P 500 finished at a new all-time high in every session, ending the week up 1.5%, just under 6,400. The August 1 tariff deadline was approaching and we got a “deal” with one of the big ones, Japan, while negotiations continued with China and Europe.  

This week investors once again waded through a deluge of earnings, while the economic data shifted from a drizzle to a downpour with some additional trade deal showers passing through. To beat the water theme into the ground, some storm clouds are gathering over the oceans after President Trump announced (among many, many things) that he would position two nuclear submarines "in the appropriate regions", just in case these foolish and inflammatory statements [from former Russian President Medvedev] are more than just that." Medvedev had said earlier that Trump's threat of new Russian sanctions is a "step towards war". We’ll get to all that in a bit, but first we’ll look at something slightly less destructive than nuclear subs- the overall price action this week.

A trade deal with the EU was announced on Sunday. The S&P 500 managed to briefly trade above 6400 on Monday and Tuesday but couldn’t push any higher, closing below that level both days. Wednesday brought the Fed Rate decision, with rates unchanged as expected. Somewhat hawkish-leaning commentary from Chair Powell led to equities selling off following the Q&A before paring losses at the very end. Blowout numbers from META and MSFT led to the S&P gapping higher on Thursday, but the rewards were not shared across the equities landscape as most sectors, the equal-weight index and the Russell 2000 all opened lower. By the end of the day the top-heavy strength had withered. MSFT saw its 8% intraday gain cut in half by the Close and the S&P lost all of its 1% gain and then some, finishing down 0.4%. Today saw another day of heavy earnings as well as the June Payrolls and the ISM Manufacturing update. The ephemeral boost that mega caps earnings provided to the index on Thursday didn’t even try to make another appearance on Friday. Investors were lukewarm to disappointed in the major earnings releases and constant stream of data and news weighed on stocks as major index finished 1-2% lower.

For the week the S&P fell >2%, closing below its 20d ma for the first time in over 65 days. As we noted last week, or as we noted that Carson Group’s Ryan Detrick noted, the S&P has closed above the 20d moving average for >60 days in a row only 8 other times since 1950. The last instance was in 1998 and the return profile in the following 3/6/12 months has been positive. The equal-weight lagged by ~100bp this week and the Russell by ~200bp.  

With the majority of this earnings cycle past us, results have been strong, at least nominally and on the surface. According to FactSet's John Butters, 82% of S&P 500 companies have reported EPS above estimates, beating the 5 and 10-year averages of 78% 75%, respectively. 79% of companies have reported revenues above estimates, significantly above both the 5-year (70%) and 10-year (64%) averages of 64%.

Tech, particularly the mega-cap components, have stood out. Microsoft and Meta put up very strong numbers, continuing to benefit from, and spend breathtaking amounts on, AI. In the case of Meta, the low-end of the capex range was bumped up $2B, to $66B - $72B. but the bigger news was the possibility that capex spend could reach $100B next year. Overall the numbers continued to be solid but there has been cautious commentary on the impact of tariffs and the overall operating environment. Payment processors and travel companies have highlighted a resilient consumer with sequential improvement throughout the quarter. The real check on consumer spending will come in a couple of weeks when the major retailers begin reporting.  

Every sector except for Utilities and Comm Services finished lower this week. Materials was the worst performer as chemicals names were broadly weak. Eastman came under pressure following earnings (it was not alone), citing negative impacts from trade tensions and demand hits to consumer discretionary areas in particular. Consumer Discretionary was a lagging sector. Travel and Leisure names were under pressure with many S&P components down >5%. Autos were lower as well and apparel/luxury names also slid. In Europe Ferrari and Hermes were down as well. In Healthcare managed care continued to see selling pressure. President Trump sent letters to 17 major pharma companies pressuring them to lower prices, including by the use of the "Most Favored Nation" pricing policy. That helped push the group lower for the week. Industrials were broadly lower as freight and logistics names sold off, as did railways despite the M&A news flow (Union-Pacific / Norfolk Southern merger and CSX hiring Goldman Sachs reportedly).

Comm Services finished the week flat, but that was basically all due to Meta gaining 5% for the week after blowout earnings (and capex spending). Almost every other name in the sector was lower. Utilities saw investors flow into the space as a risk-off shift hit the later half of the week.  

We'll quickly note that the tariff deadline has passed. There was a broad update on Thursday, including Canada tariffs increasing from 25% to 35% (USMCA exemptions still apply though). Trump earlier announced 50% tariffs on Brazil. It was a big week of economic data. Up until this morning the prevailing narrative was largely intact. Economic activity had moderated but remained resilient. Inflation remained above target but there has been a moderation in services, with signs that goods inflation is starting to pick up. The housing market continues to be weak, while the labor market was moderating but resilient.

Let’s start with the first look at Q2 GDP, which rebounded to 3%, ahead of the 2.4% estimate after falling 0.5% in Q1. The unwinding of trade distortions (net exports, and inventories) led to much of the strength as expected. Personal consumption expenditures were about in line with estimates, up 1.4% after being up only 0.5% in Q1. Equities didn't move too much on the news.

For inflation data, June PCE showed an uptick from last month. On an annual basis the headline reading (2.6%) was a tenth ahead of estimates, while core was up 2.8%, in line with the May reading. Like CPI/PPI, the moderating services inflation is being offset by increasing goods inflation. In the chart below the last mile of getting inflation back to target has been difficult, bouncing around these levels for the last year. The 3/6mo annualized readings have started to turn a bit higher again.

The Fed rate decision on Wednesday was billed as a main event but the rate was left untouched as expected and Chair Powell largely kept to his script. The real impact was that decision and Powell's commentary in light of the monthly nonfarm payroll report that came later in the week. At his press conference, Powell highlighted a resilient labor market that was broadly in balance. He noted that inflation had moderated with the easing of services inflation but overall remains above target as goods prices are moving higher. The Chairman continued to describe monetary policy as modestly restrictive but not at a level that was negatively impacting the economy. The base case could be for a short-lived tariff impact but that it was “still quite early days” in making that assessment, with no determination about the September meeting. Markets were disappointed in the sort of hawkish comments and lack of clarity. Peak to trough, equity markets pulled back about 1% during the press conference but only ended slightly lower on the session. The probability for a September cut went from ~65% ahead of the meeting to about 40% after it, but still pricing 1-2 cuts by the end of the year. Which leads us to the payroll data.

The headline number was meh, with 73k jobs added to the economy, below estimates but not wildly so. Private sector hiring was 83k driven by service-providing jobs almost entirely in healthcare and social assistance while goods producing jobs fell 13k, the third consecutive decline. Government jobs fell 10k.

On a standalone basis the numbers were soft but not terrible considering the shifting immigration dynamics, and generally fell in with the "softening but still growing" labor market narrative. However that assumes you have confidence in the reported numbers. We buried the lead a bit here because there were massive revisions to the previous two months, reducing total jobs by >250K. The average number of jobs added to the economy over the last six months is 81K, about half of the average in 2024. The household survey was weak, showing a decline of 260k jobs. The unemployment rate ticked up to 4.2% as expected with the participation rate dropping to 62.2%.

President Trump took to social media as expected. Powell was a target, unsurprisingly ("stubborn", "THE BOARD SHOULD ASSUME CONTROL, AND DO WHAT EVERYONE KNOWS HAS TO BE DONE!"), but he wasn't the only target. Trump also posted that he would replace the commissioner of Bureau of Labor Statistics with someone "more competent and qualified". To add to the drama, Fed Governor Kugler resigned her position at the end of today. That gives President Trump an open position to appoint a nominee. The MAC Desk would like to remind Chair Powell that today is International Beer Day.  

Treasury yields plummeted on the labor data. The 2yr plummeted ~25bp, and 10-year fell 15bp on the day. Rate cut probabilities for September increased from ~40% yesterday to ~90% today, while odds for 3 cuts by year-end rose from under 10% to 50%, which is about where they stood a month ago.  

The secondary employment data this week was a bit less controversial / negative. JOLTS job openings dropped to ~7.44ml from ~7.71ml but my big takeaway was that there was little change to discharges, which remain historically low. Initial and continuing claims also held around recent levels, ~220k and ~1.95ml respectively, not suggesting any major shift. The ADP survey came in ahead of estimates showing 104k private sector jobs which was ahead of estimates and a rebound after declines last month.

ISM Manufacturing was below estimates (48.0 vs. 49.5), remaining in contractionary territory. New orders improved slightly, employment dropped to 43.4 but prices fell as well, to 64.8 from 69.7.

The housing market has been one of the disappointing aspects of the economy and activity remains slow given the affordability issues. Pending home sales fell 0.8% m/m with inventories rising. Home prices have been easing with Case Shiller home prices down 0.34% m/m the third consecutive monthly decline, which should help services inflation going forward.

The economic data slows back down. ISM Services will be one of the bigger releases. The Bank of England will hold its policy meeting (cut expected). Fed Speak will ramp up, and they will have a lot to talk about.  

We should get a good readout on the the health of the consumer with Marriott, Yum, Disney, McDonald's, Uber, Airbnb and Ralph Lauren, among others reporting. Caterpillar will provide a look at global growth. Pfizer and Lilly will be big reports for healthcare and biotech should be busy. AMD is among the tech reports.   

President Trump could enact more sanctions on Russia, as well as countries that purchase Russian energy. Fed governor Kugler's resignation will be dissected. Also, the tariff legal cases are still in the courts so keep an eye out for updates there as well. Feels like things are headed to the Supreme Court but that is absolutely not legal advice.  Enjoy the weekend.

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