Resilient Markets and Rising Tech

1. Slowing in the Labor Market. Labor market figures for July fell short of previous expectations, with only 73,000 jobs added. But the surprise came from the revisions, which showed just 19,000 new jobs in May and 14,000 in June. The unemployment rate inched up to 4.2%, while the long-term unemployed grew from 1.65 million in June to 1.83 million. Not surprisingly, much of the softness came from the Federal Government segment as the administration continues to pare back this area of the labor market.  Initially, Federal Government jobs showed 63,500 jobs for June, but the revision came in at 7,500. 

We emphasize that the NFP report is backward-looking and the revisions are always volatile. We pay closer attention to the weekly initial jobless claims – and use a 4-week moving average to smooth out the results. Last week showed improvement with the 4-week moving average now at 221K. While this figure has been moving higher post-COVID, it is still quite healthy – recall that during recessions, that figure averages 350-370K.  If we see claims rise above 260K, that would be more of a yellow flag for us.

2. Fed Holds Rates Steady. As expected, the Federal Reserve kept the federal funds rate within a range of 4.25%–4.5% for the fifth consecutive meeting. Federal Reserve Chair Jerome Powell reaffirmed the strength of the U.S. economy, citing sustained consumer demand as a reason to maintain a modestly restrictive stance. He emphasized the Fed’s continued focus on its dual mandate: stable inflation and maximum employment. What’s remarkable this time around is dissent within the Fed itself; two board governors, Christopher Waller and Michelle Bowman, voted against holding rates steady – the first time since 1993.

Despite elevated policy rates, the economy is displaying classic “Goldilocks” behavior, not too hot, not too cold. Second-quarter GDP rose by 3%, Personal Consumption Expenditures (PCE) sits at 2.1%, and Core PCE remains close behind at 2.5%. Personal consumption grew by a solid 1.4%, reaffirming the strength and resilience of the American consumer. With inflation largely under control and growth picking up, the Fed may soon be compelled to ease rates. After the labor market report, the odds of a September cut rose to 89% from 38% the day before. We believe the Fed should cut, as Fed Chair Powell is quoted as saying they would have been cutting by now, if not for the uncertainties over what tariffs will do to inflation. 

3. Tariff Turbulence. Trump’s revamped tariff plan triggered turbulence across markets, with tech-heavy indexes and the dollar slipping amid fears of trade tensions. Yet behind the volatility lies a strategic recalibration of global commerce. New levies, ranging from 10% to 39%, signal a push for fairer agreements and a shift toward domestic resilience. Countries like Switzerland and Taiwan have already begun negotiating for adjustments, supporting tariffs’ role as leverage rather than a long-term barrier. While major indexes and yields dipped following a softer-than-expected jobs report, the increased pressure from tariffs could accelerate central bank accommodation, potentially leading to rate cuts that support equity valuations. In the face of short-term uncertainty, businesses and investors may find new growth channels as global supply chains evolve and monetary policy turns more supportive. At the end of the day, the tariff “unknowns” will become “knowns,” and investors can then focus on the pro-growth objectives of lower taxes and deregulation. 

4. Tech Excels in Reporting Season Meta Leads with AI Strategy. By far, Meta’s report has been the best of the Mag 7 – so far.  Meta’s second-quarter performance exceeded expectations, largely due to a 21% year-over-year increase in its advertising business, which was driven by success around their generative AI strategy. Both ad impressions and average price per ad showed solid growth, up 11% and 9% respectively. AI recommendation algorithms helped lift user engagement, with Instagram seeing a 5% increase in time spent, and Facebook rising 3%. WhatsApp’s revenue also jumped 50% from the previous year, driven by growing traction in business messaging, although Meta noted WhatsApp ads will remain a relatively minor contributor in the near term.

On the earnings call, CEO Mark Zuckerberg outlined a vision for superintelligence and the future of AI integration through wearable tech, highlighting the growing popularity of Meta’s RayBan smart glasses. Demand for the glasses continues to outpace supply, and updates are expected in September. Meta also plans further CapEx expansion in 2026, while exploring external investment in data centers with firms like Apollo. The company’s global user base rose 6% year-over-year to 3.48 billion, and it repurchased $9.76 billion in shares during the quarter. The tone of Meta’s update was strongly optimistic, sending the stock 12% higher after hours.

Microsoft also exceeded expectations, with Azure revenue rising 39% year-over-year, comfortably beating expectations of 34.23%. The company continued gaining traction across its business lines, including Dynamics 365, where strength in CRM (Customer Relationship Management) and ERP (Enterprise Resource Planning) raises competitive pressure. Cybersecurity also saw momentum, with Microsoft now serving 1.5 million security customers and gaining market share across all categories. A major highlight was Microsoft’s ability to conduct seamless data migrations to Azure, a trend that has now contributed meaningfully for two straight quarters. CEO Satya Nadella emphasized that the industry is entering the “middle innings” of cloud migration, with substantial upside remaining. He also introduced the concept of AI agents and pointed to growing commercial applications for these agents, including early monetization paths for software providers.

While CapEx hit a record $24.2 billion for the quarter, up 27% year-over-year, Microsoft maintained its operating margin, a rare feat during periods of infrastructure expansion. The company reported strong commercial bookings and remaining performance obligations, both up 37% year-over-year. Cloud revenue grew by 27%, though cloud gross margins dipped to 68% due to AI infrastructure scaling. Microsoft returned $9.4 billion to shareholders and reported a $368 billion backlog. First quarter FY26 CapEx is projected to exceed $30 billion, though total spending should moderate across the fiscal year. Investor sentiment was upbeat, driving a 9% after-hours gain in the stock.

Apple’s third-quarter results showcased robust growth and strategic momentum, driven primarily by surging iPhone sales and a strengthened Chinese economy. EPS rose 12% year-over-year to $1.57, while revenue jumped 9.6% to $94.04 billion, exceeding estimates by more than 5%. Most of the beat came from iPhone revenue, which surged 13%, more than 11% above expectations. This marked a record quarter for iPhone switchers in mainland China and a rebound in regional revenue after eight consecutive quarters of decline. Apple planned strategic production shifts to India, committed $500 billion to U.S. manufacturing, and continued investing heavily in AI and semiconductors. Services revenue grew 13% to $27.42 billion, driven by double-digit gains in App Store and TV+ engagement, and the company shipped its 3 billionth iPhone. R&D spending rose 11% to $8.87 billion, reflecting Apple’s push into smart technologies and AI-powered experiences.

Importantly, AI CapEx spend is alive and well – collectively GOOGL, MSFT, AMZN, and META will spend $400B in 2025, which, interestingly, is close to what the entire EU will spend on defense at $410B.  We’ve been big supporters of AI, the Data Center, the Grid upgrade, and Power.  After these new CapEx numbers were released, we are even more bullish.

5. Fixed Income. Last week, U.S. Treasury yields fell sharply across the curve, driven by a substantial downside surprise in the July Nonfarm Payrolls report and material downward revisions to the prior month’s data. In response, markets swiftly recalibrated expectations for near-term monetary policy, with the probability of a September rate cut surging to 88%, up from 40% earlier in the week. By Friday’s close, the 2-, 10-, & 30-year yields were lower by 24, 17, & 11 basis points, respectively.

The sharp decline in U.S. Treasury yields and the aggressive repricing of Federal Reserve rate cut expectations contributed to wider credit spreads last week. Investment-grade spreads widened by 4 basis points to +123, while high-yield spreads expanded by 31 basis points to +356. Concurrently, U.S. credit quality weakened as the main rating agencies issued 49 downgrades and 26 upgrades. The Financial sector accounted for the majority of the downgrades, while Real Estate led with the most upgrades. Investment-grade spreads remain 13 basis points above their year-to-date lows, while high-yield spreads are currently 59 basis points wider. In the context of relatively tight credit spreads, there remains a compelling opportunity to enhance portfolio quality without materially sacrificing yield—an approach we have been methodically implementing across our corporate portfolios for some time.

Tax-exempt yields followed Treasuries, falling 10-14 basis points across the curve. On Friday, Aug. 1, approximately $29 billion in principal was redeemed from maturing and called securities—marking the largest principal redemption day of the year and the second-largest when accounting for combined principal and interest payments. The large redemptions have been met with a similarly large amount of issuance, as July supply was 43% more than last July, and YTD issuance is 21% ahead of last year’s record-setting pace. $17 billion of new issuance is expected this week, which is 61% more than the 1-year weekly average. This supply mix has skewed longer than historical, which has led to the mid-to-long end of the municipal curve to provide strong investment opportunities with 5% coupons nearing par. Long-term municipal bonds are now offering yields on par with Treasury bonds of similar maturity—a rare occurrence. With Muni-to-Treasury yield ratios nearing 100%, investors are effectively getting the benefit of tax exemption without a yield penalty. In plain terms: tax-free income at taxable yields. To take advantage of this unusual pricing dynamic, we plan to extend duration by up to one year in our Intermediate Municipal strategies. This modest shift allows us to allocate up to 20% of portfolios—or 2– 4 positions—into long-dated Munis, capturing the value while maintaining prudent risk management.

The Week Ahead.

Economics- Monday: Durable Goods, Factory Orders, Tuesday: Developing Economies, Thursday: Labor Markets, Wholesale, Consumer Credit

Earnings – Monday: WAT, IDXX, ON, TSN, VRTX, AXON, SPG, SBAC, PLTR, Tuesday: HSIC, IT, DD, LDOS, YUM, CAT, BR, ZBRA, ZTS, FOXA, APO, MAR, TAP, FIS, FANG, WMB, PGR, ADM, PFE, J, DUK, CMI, CTRA, EQR, ETN, MPC, BALL, OKE, TDG, PEG, ANET, SWKWS, AMGN, DVA, NWSA, MTCH, AMD, SMCI, Wednesday: EMR, DAY, UBER, GPN, TRMB, GPN, TRMB, AFL, AIZ, CDW, COR, ROK, MCD, DIS, IRM, NRG, IFF, TECH, CRL, MKTX, NI, MOS, DVN, PNW, ABNB, FTNT, MCK, O, DASH, PAYC, FRT, CPAY, Thursday: WBD, PODD, DDOG, BDX, EPAM, AIG, VTRS, LLY, KVUE, ZBH, STE, RL, VST, EVRG, CTVA, MET, LML CEG, CF, ATO, TPL, TKO, TRGP, APA, PH, SRE, COP, OXY, SOLV, AKAM, GILD, TTWO, WYNN, EXPE, LYV, MSI, GDDY, TTD, MCHP, XYZ, GEN, MNST, Friday: LNT, ERIE, EO

Stephanie Link’s TV Schedule:

Return for Selected Indices^[1]

Sources

^[1] Source: Bloomberg. As of July 18, 2025.

Disclosure

Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, as a member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.