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Markets continued to climb the wall of worry, with the S&P 500 and Nasdaq hitting fresh all-time highs. Year-to-date, both are up around ~8%, boosted by falling inflation expectations, resilient consumer spending, falling initial jobless claims, and still upbeat corporate earnings. CPI for June rose 2.7% year-over-year (core CPI 2.9% YoY), just above forecasts, while PPI came in cooler than expected at 2.3%, helping ease fears that tariffs are turbocharging prices. Despite the increased distance from the Fed’s 2% target, these reports represent a cooler-than-worst-expectations result, and that’s all that matters to markets.
Retail sales rebounded sharply, rising 0.6% in June, blowing away the 0.1% expectation, fueled by strong spending on autos and dining. With consumption driving roughly 70% of U.S. GDP, this suggests the American consumer is still opening their wallet (even if home appliances may be out of favor for now). The segments of the consumer base driving this spending are increasingly in the top half of the income spectrum. Those on the lower end are struggling and face increased harm from inflation. However, lower-end consumers have little direct impact on corporate earnings and thus aren’t likely to impact earnings negatively.
Corporate earnings kicked off on a strong note: 86% of companies reporting so far have beaten expectations, led by major banks and consumer brands like PepsiCo and Netflix. NVIDIA also stole headlines again, gaining approval to sell its AI chips to China and rallying above a $4.2 trillion market cap.
While tariff tensions remain a concern, their inflationary impact has so far been muted and slow to materialize. That’s likely due to companies absorbing costs, stockpiling inventory, and falling oil prices keeping consumer energy bills in check. Investors also took heart from hints of flexibility in trade talks and potential loosening of export restrictions.
Fed policy remains in the spotlight. Rate cuts have been paused for now, but with inflation still above target and political drama briefly swirling around Fed Chair Powell, the central bank remains a wildcard. Yields were mostly steady this week despite the news cycle. Corporate bonds outperformed Treasuries as investors hunted for yield.
What this means for investors
Despite tariff noise and seasonal market turbulence ahead, strong earnings and a resilient consumer suggest the US economy is far from failure and further gains are possible. Bullish sentiment is still muted, which leaves room for enthusiasm to grow. Use any volatility as a buying opportunity, especially in large-cap U.S. equities, and stay diversified across sectors and asset classes.
Market Activity
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Fixed income
Economic Reports
A solid week for economic releases. Even though inflation rose and the tariffs are starting to manifest, the impact has already been more muted than expected. Longer-term inflation expectations are falling across various sentiment surveys. Retail sales showed up like the Kool-Aid Man—you can’t keep the American consumer down.
Next week, brace for more rough home sales numbers. Also, one more good jobless claims release, and we will be turning the corner into a downtrend. I doubt it will shut up all the doomers, but they are used to being wrong.
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Earnings Releases
Per FactSet:
12% of the companies in the S&P 500 have reported actual results for Q2 2025 to date. Of these companies, 83% have reported actual EPS above estimates, which is above the 5-year average of 78% and above the 10-year average of 75%. In aggregate, companies are reporting earnings that are 7.9% above estimates, which is below the 5-year average of 9.1% but above the 10-year average of 6.9%.
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Recommendations
Ups and downs
- While markets often crash, they’re never crashing | Don’t mistake observation for control. “When you say, 'the market has crashed,' you’ve framed the situation more accurately. Something has already occurred, and you must deal with the aftermath.”
- Checking in on the unluckiest market timer I know | “I recently wrote about the unluckiest market timer I know. This unfortunate fellow has a history of making big, lump-sum purchases near market tops. Unfortunately, that unlucky market timer is me.”
Selective recessions
- Rising graduate joblessness is mainly affecting men. Will that last? | Joblessness among highly educated youngsters everywhere from the US to the UK and beyond has climbed above the overall unemployment rate for the first time on record.
- Housing construction continues to look recessionary | Reports on housing permits, starts, and construction continue to display a worrisome trend. After several years, is this enough to create a recession?
Other stuff
- Betting on GLP-1 | In just 6 years after launch, more than 2% of Americans are taking this drug. We keep learning about its broadening benefits. How big is the addressable market?
- Issue 88 - The stockchain | Molly White covers the three ‘cryptoweek’ bills in detail and paints a gloomy picture of what's to come. Some of these concerns are echoed in Michael Cembalest’s OK, Boomer piece from June.
- Why the Upper Middle Class Isn’t Special Anymore | There’s something happening to the upper middle class in the United States that no one is talking about. They are going through an existential crisis.
Chart(s) of the week
Foreign money is still flooding into the US markets. Where else is it going to go? We have the deepest, most liquid markets in the world and given the rally we’ve just had the institutional set has some catching up to do. Expect more money to follow.
Source: Bespoke
Tariffs? The stock market is over it. Earnings appear to be coming in above expectations so far, and if companies retain or increase earnings, we’re heading higher. The fear appears to be overblown, and those heavily beaten-down stocks have recovered.
Inflation data aside, if you feel like your costs are rising too fast, it doesn't hurt to review your spending activities to re-align your habits with your priorities. Per the report from the National Restaurant Association, “Gen Z and millennials are leading the way: Two-thirds say takeout is essential to their lifestyle”. We can't blame inflation all on tariffs when we are all ordering private taxis for our food!
Sources: National Restaurant Association – From Trend to Transformation: Off-Premises Dining Now Essential for Restaurant Consumers, Operators, Apollo Chief Economist
The chart from Torsten Slok below shows the dizzying level of construction in solar energy over recent years. Unfortunately, it does not reflect the paltry amount of benefit it offers. To me, this chart shows how little care is being taken to bolster our energy infrastructure with the types of energy we actually use.
Per Michael Cembalest in his March energy paper, Heliocentrism:
Solar power accounts for ~2% of global final energy consumption, which could rise to 4.5% by 2027. Even if these solar trends continue into the 2030’s, human prosperity will be inextricably linked to affordable natural gas and other fossil fuels for many years. Human prosperity, in places where it thrives, relies heavily on steel, cement, ammonia/fertilizer, plastics, glass, chemicals and other industrial products which are energy intensive to produce…[and] these products currently rely on fossil fuels for 80%-85% of their energy.
Note: GW = Gigawatts. Sources: IRENA, Apollo Chief Economist
Related: Why Tech Will Win Over Tariffs—and What That Means for Investors