Trending
Markets digested a heavy dose of policy headlines this week, from fresh tariffs to major tax changes. President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4, extending key tax cuts and increasing the SALT deduction cap to $40,000. While the bill is projected to reduce government revenues by $4.5 trillion over the next decade, spending cuts only offset about $1.2 trillion leaving a $3.3 trillion hole. The economic impact may be muted in the short run but will show up as higher rates and lower growth long-term. However, this is good for business investment in the short-term (100% bonus depreciation rules) and small business owners (eased restrictions on QSBS) in addition to many other permanent tax extensions. Many benefits favor high-income households which should only boost market investments.
The tariff saga returned in the form of the 90-day pause expiring. New tariffs were announced on over 20 countries, ranging from 15% to 50%, with Brazil and Canada seeing some of the steepest hikes. The copper market got caught in the crossfire too, with U.S. copper futures spiking on news of a 50% tariff. Not all countries are getting hammered, though. Vietnam and the U.K. secured lower rates through trade deals, hinting that negotiation may still be on the table. These announcements are both a carrot and a stick for those that haven’t come to the table yet.
Despite the tariff fireworks, markets stayed relatively calm. The S&P 500 briefly touched a record high of 6,290, helped by a tech surge as NVIDIA crossed the $4 trillion market cap mark. However, gains faded by Friday as tariff headlines resurfaced. The Nasdaq held up best among the major indexes, while sectors like energy and tech outperformed. In the bond world, Treasury yields whipsawed but finished flat. The 10-year auction saw strong demand, even amid rising deficit concerns.
Fed policy remains in focus. The latest meeting minutes revealed a split among officials. Some pushing for rate cuts as early as July (those who want the top job), while others hold firm for no cuts in 2025 (those who don’t want the top job). With inflation at 2.3% and interest rates still near 4.3%, the Fed is in wait-and-see mode, with a bias toward easing if inflation stays contained. Tuesday's CPI is important for the economy but has basically no bearing on July cuts which remain off the table in my opinion.
Bitcoin broke out of a two-month range, surging past $118,000 and giving crypto investors something to brag about on X. Oil prices bounced around, gold consolidated, and airline earnings hinted at renewed consumer strength as Delta lifted its full-year forecast.
What this means for investors
Between new tax cuts and rising tariffs, the economy is walking a fine line between stimulus and stagflation. The market doesn’t seem to mind, and looks to keep climbing. With a tricky earning season there will be some chop. Stay diversified or get diversified for most of you. Focusing on quality U.S. equities, intermediate-term bonds, and get some international equities using any pullbacks as opportunities to rebalance.
Market Activity
Bitcoin wins for best performance this week.
Bitcoin Traditional power structures
Stocks
Fixed income
Economic Reports
The labor market just won’t seem to crack to the chagrin of many randos that argue with me on LinkedIn. I’m sorry but your uncle’s cousin’s childhood dog’s bestfriend losing their job bussing tables for Nebraska’s second-best Tex-Mex restaurant isn’t evidence of a recession.
CPI next week is looking likely to rise in the neighborhood of 0.2%-0.25% month over month which will be the first meaningful acceleration of inflation post-tariff. Small chance of a miracle downside surprise at this point.
Retail sales will also be interesting to see how consumers are responding to the environment after the negative report in May.
Last week
Next week
Earnings Releases
It’s earnings season, baby! Q2 earnings are coming and will offer some vital insights into how companies navigated the “tariff quarter” ahead of many more tariff quarters to come. Since many stocks roundtripped from losses of -15% to -30%, many companies should be riding high. Checkout the links to some additional FactSet insights in the Recommendations section.
Last week
Next week
Recommendations
I’m just a bill on capital shill
My recent thoughts on the One Big Beautiful Bill Act’s impact on our economic and fiscal environment. tl;dr: We’re selling our the future for someone else’s present.
- The Last Great Giveaway | The One Big Beautiful Bill Act (OBBBA) is enormous and its expected implementation is still largely being decided and analyzed. The new bill is a mishmash of policy priorities for the border, energy policy, defense, and more. All of it was stuffed like foie gras into the form of a single spending reconciliation bill. But make no mistake, there is a clarity of purpose here.
International equities in focus
Japan has been hit by investing fever | Investors have opened 5m new accounts. And earlier this year, assets in NISAs reached ¥59trn, having hit the government’s target three years ahead of schedule. Foreign countries want what the US has, a strong stock market. Don’t miss out on getting a piece before they do.
The lowest common denominator
- Lessons from Labubu | A new collectors item is competing with gambling and IG fast fashion to siphon away your money. Manias never die, they only fade. (I heard conversations as recently as this weekend about the Princess Diana beanie baby.)
- Brave New World & The Proliferation of Private Digital Money | Two very good reads from Briefing Book about the risks of loose regulation on Fintech.
FactSet Earnings Insights
Analysts have been cutting EPS expectations, which may play into the above average amount of companies coming out with positive guidance. Q2 is a toss-up but early results are looking good (stock prices certainly support that).
- Analysts Made Larger Cuts Than Average to EPS Estimates for S&P 500 Companies for Q2 | During the quarter, analysts lowered EPS estimates by a larger margin compared to the three most recent averages.
- More S&P 500 Companies Issuing Positive EPS Guidance for Q2 Than Average | [T]he number of companies issuing positive EPS guidance for the second quarter is above the 5-year average of 42 and above the 10-year average of 39.
Chart(s) of the week
Bespoke highlights the changing of the guard as investors start to trade recent winners for recent losers. A little profit-taking is expected, but bottom-fishing is a dangerous game. I don’t mind peeling off some gains, but its usually better to let your winners run than try to time a bottom or catch a bounce.
Overall S&P 500 EPS has been rising steadily. Prices are way up (new ATHs) and companies like NVIDIA have blown through their prior highs. There is a lot of expectations to live up to. It wouldn’t be surprising to see earnings beats yield flat prices, and misses to get punished severely.
2025 is far from a normal/typical/predictable market environment so all bets are off For instance: earnings could get weird post-tariffs, on top of the potentially rising inflation, labor market adjustments to lower immigration, and a locked up housing market. Other than that…if historical equivalence means anything (sometimes?), then this train is hard to stop (Thanks to Daily Chartbook for all of these).
From RenMac: given S&P 500 performance, this is low level of bullish investors. Which is bullish.
A body in motion tends to stay in motion.
Looks good to me. 3 for 3.
Related: The Frankenstein Bill With a Purpose: Inside the Last Gift to America's Oldest Voters