Steady Markets Ahead of Earnings

1. Quiet Ahead of a Busy Week. Markets took a breather this week, trading slightly lower, as investors look ahead to next week’s key inflation data and kickoff of Q2 earnings. After reaching fresh record highs, the S&P 500 slipped 0.31%, while the Nasdaq edged down 0.08%. The U.S. labor market continued to remain steady. Initial jobless claims declined by 5,000 to 227,000, bringing the four-week moving average to 235,500. These figures remain well below recessionary thresholds of 350-375k, reinforcing our view of a healthy employment backdrop.

Despite recent sideways trading, it is important to remember the market is still up roughly 25% from April’s lows. This is a very impressive move considering the headwinds around tariffs, geopolitical tensions and a restrictive Federal Reserve. As tariff-related uncertainty begins to ease, attention is shifting toward pro-growth policies from the Trump administration, including deregulation. We have already seen financials benefit from deregulation, and we expect that trend to continue.

The economy continues to expand at a solid pace. The Atlanta Fed’s GDPNow model currently estimates Q2 growth at 2.6%. This level of growth supports stronger corporate earnings, which we believe will be the primary driver of market gains in the second half of the year. While consensus expects Q2 earnings growth of around 5%, we anticipate results closer to 8–10%, fueled by both revenue growth and margin expansion. We expect key contributors like industrials, financials, consumer discretionary and of course, technology to lead the way.

Short-term market consolidation is not a cause for concern. Volatility provides an opportunity to upgrade portfolios and take advantage of any weakness. With a resilient economy, easing trade tensions, and strong earnings potential, the broader outlook remains constructive.

Chart 1: S&P 500 Earnings Growth: Estimate vs. Actual^[1]

2. Delta Beats Expectations. Last week, Delta Airlines (DAL) reported a stronger than anticipated Q2 performance. It posted a record $15.5 billion in revenue, suggesting a robust travel season during early summer, defying concerns about potential weakness in discretionary spending. High-margin segments, like premium travel and loyalty programs significantly contributed to these strong results. Premium revenue saw a 5% increase y/y, while loyalty revenue jumped 8%. Delta CEO Ed Bastian noted that tariffs impacting air travel have “stabilized” due to progress on trade negotiations.

Delta’s performance is a positive sign for consumers, proving they remain strong, willing and able to spend. Airline travel is seen as a discretionary expense, signaling consumers are feeling more confident about their financial situations and the economy.

Increased spending from consumers aligns with recent economic trends we have seen. The U.S. added 147k jobs in June (exceeding expectations) and the unemployment rate fell to 4.1%. Inflation has cooled to around ~2% compared to ~9% three years ago. The most recent Johnson Redbook Index, which measures U.S. retail sales, saw a 5.9% increase in same-store sales growth in major U.S. retailers compared to the previous year. The increase provides confidence that retail spending remains strong. Overall, consumers continue to be resilient, and recent data suggests no changes will be coming on the consumer spending front.

3. Tariff Deadline Extended. This week, President Trump extended the deadline for levying tariffs on countries until the end of the month. This is believed to be the final deadline. Tariff rates were delayed on nearly 60 trading partners from July 9 to Aug. 1. The three-week extension gives the administration time to finalize framework agreements with trading partners that are close to the finish line, including India and the European Union. The extension also gives more time to deals that need lengthier negotiations, like Japan and South Korea’s. The goal is for this to be the final extension and to complete any outstanding deals.

While recent tariff developments lean hawkish, the markets seem to be more focused on potential trade policy off-ramps. Even with the recent deadline extension, we believe we are nearing the end of tariffs dominating headlines and fueling market reactions.

4. Housing Market Catching Steam. The housing market is beginning to show signs of life. Last week, we saw a significant surge, where overall mortgage applications increased by 9.4%. This coincides with a three-month low in mortgage rates, where the 30-year fixed-rate mortgage hit 6.77%. Purchase applications reached their highest level since 2023, climbing 9% for the week and to 25% y/y. Refinance applications rose by 9% for the week, and are now a substantial 56% higher than the same time last year.

We have noted the pent-up demand in the housing market, where we are five million homes short in the U.S. The housing market overall has been subdued for years behind high inflation, elevated home prices and unprecedented mortgage rates. Looking forward, things are beginning to turn. With a Federal Reserve rate cut looming, lower interest rates are bound to spark a rally in the housing market.

Chart 2: Housing Data Improvement^[2]

5. Meta’s AI Spending Spree Continues. Last week, reports surfaced that the head of Apple’s (AAPL) foundational models team, Ruoming Pang, would be leaving his role at Apple and joining Meta (META). The total compensation is said to have extended to nine figures, where Pang will be paid more than $200 million across several years. Despite the compensation’s massive size, it is in line with Meta’s recent hires and formulation of their new Superintelligence Lab team. Pang is just the latest high-profile addition to the team focused on building advanced AI systems capable of performing tasks as well as, or better than, humans.

This continued spending spree is only one part of Meta’s campaign to pull as much high-level talent as possible into its team. We have seen Open AI’s Sam Altman describe his ongoing battle with Meta over employees, where he claimed signing bonuses were as high as $100 million in some cases. Meta CEO Mark Zuckerberg continues his bold push to dominate the AI race through the company’s new Superintelligence Lab.

Suffice to say – we remain quietly bullish on the data center theme driven by AI, the grid infrastructure buildout and power consumption.

6. Fixed Income. Last week, U.S. Treasury yields experienced a broad sell-off across the yield curve. This was prompted by new tariff announcements by the United States, reciprocal discussions by other nations on aligning to combat future announcements and increased pressure on Federal Reserve Chairman Jerome Powell for rate cuts from President Trump. By Friday’s close, the 2-, 10-, & 30-year yields were higher by 1, 6, & 9 basis points, respectively, and are 15-20 bps higher across the curve in July. The markets focus now shifts to Tuesday’s CPI print for early signals of the administration’s tariff impacts in hard data.

Over the week, investment-grade spreads widened 4 basis points to + 127 and high-yield spreads expanded 11 basis points to + 339. Both investment-grade and high-yield credit spreads remain historically tight, as the current levels are just 40 basis points higher than their all-time lows. U.S. credit ratings deteriorated last week as the main rating agencies issued 43 downgrades and 17 upgrades. The Consumer Discretionary sector accounted for most of the downgrades, while Financials led with the most upgrades.

The tax-exempt yield curve steepened last week, with yields at the short end declining 3-7 basis points and yields at the long end of the curve increasing by 3 basis points. This week’s tax-exempt supply of $12.5 billion should be well received given persistent inflow, high yields, and the arrival of mid-month reinvestment capital of $10 billion.

7. The Week Ahead.

Economics – Tuesday: CPI, Hourly Earnings, Average Workweek; Wednesday: PPI, Industrial Production, Manufacturing Production; Thursday: Continuing Jobless Claims, Initial Claims, Retail Sales; Friday: Building Permits, Housing, Michigan Sentiment

Earnings – Monday: FAST; Tuesday: BLK, BK, JPM, WFC, STT, C, OMC, JBHT; Wednesday: LVS, MKTX, MTB, PGR, PNC, BAC, JNJ, GS, MS, PLD, UAL, KMI; Thursday: KVUE, STX, GE, MMC, ELV, PEP, CFG, FITB, SNA, USB, TRV, ABT, CTAS, NFLX; Friday: HBAN, SCHW, RF, MMM, AXP, SLB, TFC.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[3]

Sources

^[1] Source: FactSet, As of July 11, 2025.

^[2] Source: Strategas, As of July 12, 2025.

^[3] Source: Bloomberg. As of July 11, 2025.

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