Last week, U.S. markets once again found themselves at the center of a whirlwind of political rhetoric, macroeconomic data, and the start of earnings season. Despite ongoing volatility, the S&P 500 and Nasdaq 100 reached new record highs. Yet investors are increasingly forced to choose between trusting the Federal Reserve's dovish tones or preparing for inflationary pressure triggered by the Trump administration’s aggressive trade policies.
Geopolitical Risk Looms Over the Markets
The dominant external factor impacting market sentiment this week was a wave of announcements from Donald Trump regarding new import tariffs. The president ramped up his trade war narrative by imposing 30% tariffs on goods from the EU and Mexico starting August 1, 35% on Canadian imports, 50% on copper (including semi-finished products), and threatened up to 200% duties on pharmaceutical companies that don’t relocate production to the U.S.
He also proposed a unified tariff on more than 150 countries, a move that could radically disrupt global supply chains and stoke inflationary risks.
Markets were also unsettled by news that Trump discussed firing Fed Chair Jerome Powell. Although the president later denied imminent action, the very notion raised serious concerns about the Fed’s independence—especially ahead of crucial monetary policy meetings.
The Fed: A House Divided
Investors received conflicting signals from Federal Reserve officials throughout the week. Cleveland Fed President Beth Hammack reiterated that inflation must decline further before she supports rate cuts. In contrast, San Francisco Fed President Mary Daly suggested that two rate cuts could be appropriate before year-end, cautioning that waiting too long might unnecessarily harm the economy.
Adding to this dovish momentum, Fed Governor Christopher Waller on Thursday evening voiced his support for a 25 basis point cut, noting that inflation was “near target” and there was no need to wait for labor market deterioration.
Macroeconomic Data: Resilience With Caveats
Despite the backdrop of tariff threats, macro data painted a largely optimistic picture—though not without warning signs.
The June Consumer Price Index (CPI) rose 0.3% month-over-month and 2.7% year-over-year, both above forecasts. Core inflation reached 2.9% y/y, exceeding the previous month’s 2.8%. However, Wednesday’s Producer Price Index (PPI) data surprised positively with flat monthly growth, easing fears about rising input costs.
Retail sales surged by 0.6% in June—triple the expected pace—while initial jobless claims dropped to 221,000, a three-month low, suggesting labor market strength. Housing starts rose 4.6%, and building permits ticked up 0.2%, signaling steady housing demand. Consumer sentiment, as measured by the University of Michigan, rose to a five-month high of 61.8, while one-year inflation expectations fell to 4.4%.
In short, the U.S. economy remains resilient, but robust consumer demand paired with looming tariffs raises the specter of inflation re-acceleration later this year.
Earnings Season: A Promising Start Amid Low Expectations
Earnings season began with a cautiously optimistic tone, despite modest forecasts. According to Bloomberg Intelligence, S&P 500 companies are now expected to report 3.2% earnings growth in Q2 year-over-year—above the earlier consensus of 2.8%.
Financials led the charge: Interactive Brokers and Regions Financial beat estimates on net interest income, while Charles Schwab and Abbott Labs also exceeded expectations.
On the downside, healthcare underperformed sharply. Elevance Health, Humana, and Centene all fell after disappointing news, legal setbacks, and analyst downgrades. Netflix spooked investors with a lower-than-expected operating margin forecast, while Sarepta Therapeutics plunged after reports of a patient death during gene therapy trials.
Only six of the eleven S&P 500 sectors are expected to show profit growth this quarter, according to Yardeni Research—marking the lowest breadth since early 2023. Next week, the spotlight shifts to Big Tech earnings.
Bonds and Rate Expectations: All Eyes on September
Yields on 10-year U.S. Treasuries fluctuated throughout the week, ending Friday at 4.43%, slightly lower than where they started. The bond market responded to macro reports, Fed speeches, and shifting rate expectations.
Futures markets now assign just a 5% chance of a rate cut at the July 29–30 FOMC meeting, and a 58% chance at the September meeting. Fed commentary continues to drive demand for longer-term bonds, especially following dovish remarks from Waller.
In Europe, sovereign bond yields were mixed. German bunds edged lower, while U.K. gilts climbed to their highest level in 1.5 months.
Cryptocurrencies: Whipsawed by Politics
Bitcoin had a volatile week. It initially rose on speculation that Washington could adopt crypto-friendly regulation, only to fall 3% when procedural votes on key legislation failed in Congress. It rebounded midweek after Trump declared his support for stablecoin legislation, asserting that the U.S. should become “the crypto capital of the world.”
Conclusion: A Market Living Headline to Headline
This week underscored how hypersensitive the markets have become to both economic data and political developments. Trump's trade rhetoric, internal Fed disagreements, solid macro stats, and early earnings all contributed to daily mood swings on Wall Street.
Going forward, inflation, rate decisions, and trade tensions will remain at the forefront. With the ECB meeting on July 24, key Big Tech earnings, and the FOMC decision just around the corner, investors should brace for another highly eventful stretch.
Share this post