Week ended July 25, 2025: it was an "everything up" week (again)

Let’s face it – nothing can slow the “risk on” sentiment currently charactering equity markets.  SPACs were the first to reappear a few weeks ago, and this week has seen the return of meme stocks.  Heavily shorted names like Kohl’s, Opendoor, GoPro, Krispy Kream and Beyond Meat all gapped up massively in price, although most have given back a lot of their gains as we head into the end of the week.  For example, Kohl’s (KSS) ended last week at $9.58/sh, peaked on Tuesday intraday once meme-phobia gripped it at $21.39/sh, and closed yesterday at $13.63.  And as is typical for the meme stocks, short interest in KSS at yesterday’s close was nearly 66% (of float) because the company is operationally poor.  For professional investors, things like SPACs and meme stocks are nothing more than an amusing sideshow, but I think that they accurately reflect the fearless approach of retail / momentum investors at the moment who could care less about intrinsic value or company fundamentals.  Certainly, the rally in stocks in continuing across nearly all geographic markets, with Japanese equities leading the way so far this week after a favourable trade deal was reached with the US early in the week.     

Earnings also were good enough this week, with much of the focus on Mag 7 names #Tesla and #Alphabet (Google).  The former remained true to form, with earnings disappointing and the outlook cloudy at best.  The stock got hammered on Thursday (– 8.2%), but still rather shockingly trades at ridiculous valuation multiples: 161x forward earnings, 11.6x sales and a PEG of 5.45x.  This makes absolutely no sense to me, but you best speak to the Tesla diehards that believe every word that spews out of the mouth of Elon Musk, as he claimed on the earnings update that the company is near to delivering robotaxis in every major American city (by the end of 2025), not to mention robots in abundance.  OK, stop laughing.  If you are an #FT subscriber and want a better understanding of the lay-of-the-land regarding robotaxis – on which Elon Musk has hitched the company’s inflated valuation – read this article: “What will it take for robotaxis to go global?”  Draw your own conclusions, although it seems to me that Waymo (Alphabet) already has a massive jump on Tesla. 

Speaking of Alphabet (GOOG), the company surprised on the upside with solid earnings, sending the stock up nearly 1 % on Thursday.  Now if you care to compare GOOG to “pie-in-the-sky” Tesla, GOOG’s valuation multiples are as follows: 20.2x forward earnings, 6.4x sales and a PEG of 1.45x.  Dare I say GOOG’s multiples look slightly more reasonable that TSLA’s, although #GOOG has risks ahead which are probably capping its upside, including: i) antitrust / government action in the US and Europe, ii) search engine (90% market share) remains under threat from AI, and iii) the company’s revised capex spend is massive at $85 billion.  As you might recall from my recent portfolio update (here, end of 1H2025), GOOG is my 5^th largest holding although I am not adding at these levels.  I think all of the Mag 7 companies will have high bars to reach as far as earnings in order to support their (re)inflated valuations, so if there is a pull-back it would not surprise me one bit. 

Away from earnings, economic data was more or less as expected this week, with much of the focus on PMI data in the UK, the Eurozone and U.S. on Thursday.  US existing home sales hit a nine-month low in June, but I struggle to read too much into this as volumes remain muted in the US housing market anyway.  As expected, the ECB held rates steady at its policy meeting on Thursday, and you can find the official decision and commentary here.  For those readers that want to jump on the bandwagon of the Fed reducing its policy rate, keep in mind that inflation in the Eurozone remains at the target rate of 2% (whereas the latest US CPI read was 2.7%/annum headline and 2.9%/annum core, both up from May CPI readings).  And I can’t possibly end this update without referring to the rather farcical visit of President Trump and a host of “hanger ons” from Congress to the Fed to view the property’s refurbishment cost over-run.  I especially love that the leader of the free world included the cost of a building in the refurbishment that was built five years ago!!  See it as you wish, but one thing is for sure – Mr Trump is always entertaining! 

MARKET UPDATE

Risk markets were on fire (again) last week, with Japanese stocks – up over 4% WoW following the announcement of a trade deal on Monday between the U.S. and Japan – leading the way.  U.S. stocks also continued their march to record high levels, with a slew of generally decent earnings reports convincing investors that the good times will carry on.  UST yields vacillated, but were a few basis points better at the intermediate and long end of the curve, with short term yields slightly higher as investors await this week’s decision by the FOMC.  In line with risk-on appetite, corporate credit spreads also tightened across the investment grade-high yield spectrum.  Valuation multiples of US stocks are near record levels, so investors need to consider the risk of a correction at some point…..or can this go on forever?

Below are tables that summarise last week's performance across various assets and indices tracked by EMC.

_________________

**** Follow E-MorningCoffee on Twitter, and please like and comment on my posts right here on my blog. You need to be a subscriber, so please sign up. Thanks for your support. ****