Summer Vacation is Over
Stocks fell last week as investors assessed progress on trade negotiations, new U.S. tariffs, and fresh economic data.
The Standard & Poor’s 500 Index fell 2.36 percent, while the Nasdaq Composite Index declined 2.17 percent. The Dow Jones Industrial Average dropped 2.92 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, lost 2.95 percent.1,2 On the bright side, the US Aggregate Bond Market Index gained .77% for the week.
For the past two years, I've sounded a bit like a broken record pointing to measures of inflation and employment as the two primary economic indicators to pay attention to in assessing the strength of the US economy. This week, we got less-than-ideal updates on both the inflation and employment fronts.
On the inflation front, despite inflation not being below the Federal Reserve's target of 2%, both the CPI and PCE measures of inflation remain below 3% on a year/year basis. The average inflation rate over the last 100+ years is 3.29%, for reference. At the same time, the Federal Reserve's policy rate is sitting between 4.25% - 4.50% and is clearly restrictive, especially to the housing and construction sectors.
On the employment front, the US economy was shown adding 73,000 jobs in July. On its face, that's not great but also not catastrophic. The same report, however, showed initial employment reports from May and June being revised down by 258,000. This essentially wiped out all job creation for the last two months. This piece IS worrisome, however, I will add the caveat that the July employment report has been an outlier for the last two years (ie showing the labor market to be weaker than it is). We had this same freakout during the first week of August last year (and the Yen carry trade debacle at the same time) and in 2023 before readings of the labor market bounced back starting in September.
To sum up, inflation is trending hotter and employment is trending lower all while the Federal Reserve is in "wait and see" mode (at least for now). I expect that to change in September, much like in 2024. That said, we will continue to keep an eye on these data points and corresponding action from the Federal Reserve in August/September and going forward to try to parse out signal from noise.
Stocks fell last week as investors assessed progress on trade negotiations, new U.S. tariffs, and fresh data on the U.S. economy. The Standard & Poor’s 500 Index fell 2.36 percent, while the Nasdaq Composite Index declined 2.17 percent. The Dow Jones Industrial Average dropped 2.92 percent. The MSCI EAFE Index, which tracks developed overseas stock markets, lost 2.95 percent.1,2 Action-Packed WeekStocks largely went sideways over the first half of the week as investors waited for more Q2 corporate results, fresh economic data, and the Fed decision. The U.S.-E.U. trade agreement announced over the weekend had a muted impact on the market as the week began. Stocks then retreated as China trade talks appeared to stall, with the Dow declining the most of the three major averages through midweek.3,4 Stocks gained on Wednesday morning after the latest gross domestic product (GDP) report showed consumer spending powered the economy back to 3 percent annualized growth in Q2. That afternoon, the Federal Reserve announced they were holding rates steady, which put some pressure on stocks.5 Selling pressure continued on July’s final trading day as investors continued to fret about the Fed’s next move. The Personal Consumption and Expenditures (PCE) Index—the Fed’s favored inflation metric—showed a June uptick in core goods prices, unsettling investors.5 Stocks were under pressure from the opening bell on Friday as investors sorted through fresh tariff announcements from the White House, a softer-than-expected July jobs report, and mixed Q2 corporate reports from two megacap tech names.6,7 |
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Mixed Economic SignalsThere was a trove of economic data for investors to parse last week. First, there was economic growth. While 3 percent GDP growth in Q2 is a solid step up from a 0.5 percent contraction in Q1, consumer spending largely drove the increase, offset by slower business spending—especially investment in equipment and buildings.8 The PCE report showed why the Fed remains focused on inflation. Finally, Friday's jobs report pointed to a slowdown in hiring in July. A bit more concerning was that the jobs data from prior months were revised lower. The Fed has no meeting in August, with three other meetings scheduled for 2025. This Week: Key Economic Data Monday: Factory Orders. Motor Vehicles Sales. Tuesday: Trade Deficit. ISM Services Index. Wednesday: Treasury Buyback Announcement. 10-Year Treasury Note Auction. San Francisco Fed President Mary Daly speaks. Thursday: Productivity and Costs. Weekly Jobless Claims. Wholesale Inventories. Consumer Credit. Fed Balance Sheet. Atlanta Fed President Raphael Bostic speaks. Friday: St. Louis Fed President Alberto Musalem speaks. Source: Investors Business Daily - Econoday economic calendar; August 1, 2025 This Week: Companies Reporting EarningsMonday: Palantir Technologies Inc. (PLTR), Vertex Pharmaceuticals Incorporated (VRTX) Tuesday: Advanced Micro Devices, Inc. (AMD), Caterpillar Inc. (CAT), Amgen Inc. (AMGN), Arista Networks, Inc. (ANET), Pfizer Inc. (PFE), Duke Energy Corporation (DUK) Wednesday: McDonald’s Corporation (MCD), The Walt Disney Company (DIS), Uber Technologies, Inc. (UBER), Shopify Inc. (SHOP), AppLovin Corporation (APP), DoorDash Inc. (DASH), Brookfield Asset Management Ltd. (BAM) Thursday: Eli Lilly and Company (LLY), Gilead Sciences, Inc. (GILD), ConocoPhillips (COP), Constellation Energy Corporation (CEG) Source: Zacks, August 1, 2025. Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice. |
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“Judge each day not by the harvest you reap but by the seeds you plant.” – Robert Louis Stevenson |
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Mesquite Dunes |
Footnotes and Sources1. WSJ.com, August 1, 2025 2. Investing.com, August 1, 2025 3. CNBC.com, July 28, 2025 4. CNBC.com, July 29, 2025 5. WSJ.com, July 31, 2025 6. MarketWatch.com, August 1, 2025 7. WSJ.com, August 1, 2025 8. WSJ.com, July 30, 2025 9. IRS.gov, July 30, 2024 10. Once Upon a Chef, March 18, 2025 |
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