Weekly Market Commentary July 28th to August 1st 2025
It was perhaps the busiest week of the year for data releases and economic activities. We saw the Fed stand pat, a crushing jobs report, stronger than expected GDP (with a caveat), lukewarm inflation numbers, and multiple corporate earnings reports. Lastly, the week closed with the Trump administration rocking global markets with additional trade tariffs.
Let’s start with the Federal Reserve. In their July meeting, the Fed decided to keep short-term rates unchanged, with two board officials dissenting. This dissention was unusual as it hasn’t happened in over three decades and is a sign of the economic uncertainty and political pressure currently on the Fed. Fed Chair Jerome Powell has done a remarkable job steering the economy towards a soft landing, but calls are growing to cut rates, with some suggesting he may be too late.
The July jobs report surprised investors with the Non-Farm Payrolls number coming in at 73,000 newly created jobs when 110,000 was expected. In a sign that the labor market is not as strong as once thought, job gains from previous months were also revised down by a total of 258,000. The unemployment rate also ticked up a notch to 4.2%. This report, coming just days after the Fed decision, adds “told-you-so” credibility to the folks suggesting rate cuts should have already occurred. It has pushed the likelihood of a September cut to over 80%.
Second quarter GDP came in at a strong 3.0% when 2.4% was expected. On the surface this is a rock solid print, but digging a little deeper tempers the enthusiasm a bit. Net Exports, the very statistic which caused the first quarter to be negative, bounced back. Goods imported from overseas suppliers were strong in the first quarter as international companies tried to front-run the looming tariffs. This caused second quarter imports to be much lower, and therefore, Net Exports to be much higher. Most economists suggest averaging the first two quarters to get a more accurate view of GDP growth. This would be +1.25%, which is far below long-term averages for GDP.
On the inflation front, the PCE, or Personal Consumption Expenditures index came in slightly hotter than last month. The month-over-month headline number was +0.3% when we saw +0.1% in June. The core PCE, which strips out volatile food and energy prices, also came in higher (+0.3% vs +0.2%). Fed Chair Powell has suggested that stubborn inflation is the main driver of keeping interest rates elevated. He may be losing that battle as the employment situation looks to be worsening.
Lastly, the Institute of Supply Managers (ISM) Manufacturing Index underwhelmed once again, coming in at 48 when 49 was expected. Manufacturing has contracted for 31 of the past 33 months.
Equity markets took a beating Friday as the Trump administration released startling new tariffs to our global trading partners. In April, when the first Trump tariffs were announced, the market took a similar course. But after a couple weeks of volatility, markets rebounded to all-new highs. Friday’s pullback caused all three indices to be down for the week with the S&P 500 finishing at 6,238 or down 2.4%; the Dow Jones Industrials at 43,589 or down 2.9%; and the NASDAQ closing at 20,650 or down 2.2%. Bonds rallied on the week with the 10-Year US Treasury closing at 4.22%.
For this upcoming week, not much beyond the Institute of Supply Managers (ISM) Services index will be released.
