Week ended July 18, 2025: US economic data and corporate earnings solid

Investor concerns regarding tariffs and trade rhetoric faded in the second half of the week, giving way to more positive vibes from a series of decent economic data reads in the U.S. and a strong start to the S&P 500 earnings season. 

CPI for June in the U.S. came in largely as expected, with enough nuances in the details that analysts and pundits alike were able to spin the data however they wanted.  Headline and core CPI for June was 2.7% YoY and 2.9% YoY, respectively, both up from May (as anticipated) but in line with expectations.  Recall that the Fed’s inflation target, which has been the same for years, is 2%/annum.  June’s data of 2.7% (headline CPI) and 2.9% (core CPI) – whichever figure you wish to use – is more than 2%.  Clearly, neither the level of inflation nor the trend is favourable for the Fed’s inflation objective, in spite of what you might be reading. 

Of course, we cannot forget that the Fed has a twin mandate, the other leg of which is full employment. Different economists might define the meaning of “full employment” differently, but generally, the meaning of full employment is believed to be when the U.S. has an unemployment rate of between 4% and 6%.  June’s unemployment figure for the U.S. was 4.1%, an indication that the U.S. jobs market – and the U.S. economy generally – remains solid.  However, as economists are quick to note, there are probably more nuances with the payrolls report each month than the inflation report.  What is very important is to gauge the direction of travel in the U.S. jobs market. In this respect, there are some underlying trends that might be signalling more weakening than the headline number suggests. 

It is some of the trends that are visible when drilling down into the payrolls report are the basis for Chris Waller – currently a member of the Fed Board of Governors – to break with the majority of FOMC members in saying that a rate cut should be considered at the next FOMC meeting, rather than waiting until the September meeting.  His rationale – as you can hear in an interview on #BloombergTV here (potentially available only to #Bloomberg subscribers) – is that support for the labor market in the June payrolls report is more attributable to strength in the public sector (i.e. government jobs) rather than the private sector, which largely remains in a holding pattern as it awaits clarity on volatile trade policies.  He goes on to say that the Fed should consider getting in front of a slowly weakening private sector jobs market with a reduction in the Fed Funds rate at the next FOMC meeting in late July.   

Mr Waller’s logic is not silly, although he still seems to be in the minority among FOMC governors.  Mr Waller does have a similar mind among Fed officials with Mary Daly, president of the San Francisco Fed (and rotating voting member of the FOMC).  She said during an interview on Thursday (here, audio) with Michael McKee (Bloomberg) that the Fed should also consider a reduction in the Fed Funds rate sooner rather than later, for similar reasons.  It is important to keep in mind that Mr Waller and Ms Daly seem to concur with two 25bps reductions in the Fed Funds rate for the remainder of this year, which were enshrined in the latest FOMC economic projections.  It is just a matter of timing – should the first reduction in the policy rate happen at the July FOMC meeting, or at the September meeting?

The other interesting bit of economic news in the U.S. that was released this past week (Thursday morning, Commerce Dept) was U.S. retail sales for June, which came in well above expectations (+6% actual MoM vs +2% expected MoM).  This was a favourable reversal from the poor figure for May, in which retail sales declined 0.9%.  (The only word of caution is that this figure is nominal not real sales growth.)  The figure suggests that U.S. consumers have shrugged off concerns regarding Mr Trump’s erratic trade policies and have opened up their wallets again, a good sign for the robust U.S. economy.

As far as earnings, we are off to a good start.  The six major U.S. banks delivered mostly solid 2Q25 results, and corporates like PEP, JNJ, ASML, TSM and NFLX also delivered excellent 2Q results.  However, although U.S. stocks continued to head higher this week, the frothy levels of companies like JPM and NFLX pushed their stocks lower even after strong results, simply because expectations are so elevated.  ASML had great results but cut its outlook, causing this member of the semi-conductor value-chain to get punished.  You can find reviews of the week for the S&P 500 companies at “This Week in Earnings” (LSEG I/B/E/S) or “Earnings Insights” (FactSet).  110 more companies will report results this coming week, in which earnings so far have surprised on the upside.

MARKETS LAST WEEK

There’s really not a lot to say about markets this past week, aside from the repetitive phrase that stocks headed higher as usual.  Emerging markets stocks led the way, up a solid 1.6% WoW, and now the best performing index by far of the ones I track YtD (+16.2%).  Both the S&P 500 and the NASDAQ Composite hit record high closes this past week, as any fears regarding risks on the horizon largely continue to be swept aside.  Corporate credit spreads were also stable to slightly tighter.  US Treasury yields were marginally higher at the long end of the curve, as bond investors – the “adults in the room” – continue to express concerns over a combination of inflation stuck above target and the increasing needs of the U.S. government to fund growing deficits.  One thing as an investor I continue to shun is duration – there is simply too much risk to take a punt by going long, at least for me, so I prefer generally to stay short.    

The tables below provide a summary of performance of the various indices and assets tracked by EMC.

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