Strong Data, Stronger Markets

1. Strength in the Numbers. Regardless of any tariff overhang, data continued to reflect economic resilience this past week. Weekly jobless claims ticked down to their lowest level in three months to 221,000. This marked the fifth straight weekly decline and the fewest since mid-April. The four-week moving average now sits at a modest 229,500, mitigating any concerns regarding labor market weakness. Again, the labor market remains sturdy despite the uncertainty related to the impact of tariffs. This positive labor market data adds to an already strong June jobs report, where the U.S. economy added a net total of 147,000 jobs, beating expectations. We continue to see a U.S. labor market that exhibits resilience, characterized by continued job growth and a stable unemployment rate.

Consumers also picked up their spending in June. The US consumer accounts for 70% of U.S. GDP and services spending is 75% of our consumption. Retail sales rose a better-than-expected 0.6% in June, after two consecutive months of spending declines. Furthermore, the University of Michigan’s Survey of Consumers for July showed overall sentiment rose 1.8% to 61.8, the highest since February. This proves that consumers remain resilient and able to spend, and their worst fears about tariff-induced inflation have receded. We did see CPI tick higher last week, by 0.3% m/m. The increase pushed the annual inflation rate to 2.7% in May, up from 2.4% in May but still well below the peak levels from three years ago when it reached 9.1%. We have made significant progress on the inflation front, and we believe the Fed will still restart its cutting cycle later this year. While the Fed is waiting to see what the tariff impact will be on inflation, we strongly believe cuts could begin now, given the progress we have seen, and that tariffs won’t be as inflationary as they believe.

Boosted by strong economic data, markets experienced a slight increase this week, with the S&P 500 rising by 0.59% and the Nasdaq by 1.51%. Unsurprisingly, technology led the way this week, rising by +2.09%. Utilities, Industrials and Financials also increased, while energy lagged.

It is important to recognize that we are now up ~26% from the April lows, and that 26% increase occurred in just ~65 days. In the short term, market choppiness and volatility are normal, and we are now headed into the seasonally weaker part of the year for equities (August/September). However, the economy continues to grow, the labor market and consumer remain resilient, and inflation has made significant progress. More importantly, consumers are realizing the effects of tariffs are not as cataclysmic as originally expected and are now seeing past the volatility it has created. While the economy grows healthily around 2.5%, we expect earnings to be the catalyst for driving markets higher through the rest of the year and believe the consensus is underestimating just how strong earnings will be.

Chart 1: S&P 500 Forward Performance Following 65-Day % Changes^[1]

2. Trump, Powell Faceoff. Ahead of the Federal Reserve meeting later this month, tensions between the White House and the Central Bank reached a new high last Wednesday. Reports came out that President Donald Trump was likely to soon fire Federal Reserve Chair Jerome Powell. Trump has long been critical of Jerome Powell, insisting that he should already be cutting interest rates. While there has been speculation that Trump has entertained firing Powell, we believe it is noise at this point.

Interestingly, Jerome Powell did indicate they would already be cutting interest rates if it weren’t for President Trump’s tariffs. Powell has acknowledged that the tariffs do introduce uncertainty into the economic outlook, and that the Fed is closely watching. Notably, Federal Reserve Board of Governors Christopher Waller, Kevin Hassett and Michelle Bowman are supportive of an interest rate cut in July.

3. Big Banks Encouraging Earnings. Last week, Financials kicked off Q2 earnings season in a big way. Regardless of the high bar, we saw some very positive trends, including resilient consumer results, strong trading revenues, and margin expansion. Notably, financials entered the most recent quarter with expected earnings growth of 2.7%. However, following the initial wave of earnings reports, that growth rate jumped to 7.8%. The clear standouts were the Investment Banks, Morgan Stanley and Goldman Sachs, but the other money center banks also produced solid results.

Morgan Stanley (MS) surpassed expectations with a very strong quarter, and the company’s total revenue for the quarter reached $16.79 billion. The most recent quarter saw 17% EPS growth, 11% revenue growth, and equity sales and trading rose by 23%. Furthermore, net interest income (NII) was up 13% y/y, driven by lending growth, and they cited an expectation for NII to remain elevated through 2025. Goldman Sachs (GS) also reported a strong quarter. The bank reported the largest trading revenue in Wall Street history, $4.3 billion. They saw continued growth in advisory and asset management, with revenue rising by 71% y/y, bolstered by M&A activity and high client demand. Goldman Sachs CEO David Solomon was very optimistic, citing that the bank plans to become even more efficient while continuing to grow returns for shareholders.

Positively, we saw multiple banks experience expanding NII. Bank of America (BAC) reported a 3% increase to NII q/q. Citigroup (C) also experienced strong NII growth, growing 8% over the quarter. Morgan Stanley did report a flat q/q NII growth: however, it remains up 14% y/y. NII growth signifies a positive trend in big banks’ core business, indicating improving profitability and financial health.

Finally, we saw increasing returns to shareholders through buybacks and/or dividends. Citigroup increased its quarterly dividend by 7% and completed ~$2 billion in share repurchases. Bank of America demonstrated the largest buyback activity, repurchasing $5.3 billion in shares during Q2.

Overall, the tone from the big banks suggested optimism about regulatory relief, strong capital positions enabling growth and returns, technology-driven efficiency improvements, and positioning to capitalize on continued economic growth opportunities. While they cited near-term uncertainties, they remain confident about the overall economic outlook.

Chart 2: S&P 500 Financials: YTD Performance vs YTD EPS Revisions Change^[2]

4. Industrial Automation Strength. Last week, ABB Group (ABBNY) topped expectations for Q2, reporting $8.9 billion in revenue, a 6% rise from last year. More importantly, they saw a 14% increase in order growth, even with persistent global uncertainty.

This is notable because ABB Group is an important bellwether for U.S. electrical, automation and certain industrial stocks. The strong order growth and margin expansion are a good read on other electrical companies where we have significant exposure.

These strong results are bolstering confidence in industrial and electrical automation, brushing off any concerns about sluggish global growth and ongoing trade tensions. This momentum suggests that businesses are still eager to invest in next-generation infrastructure and are striving to boost productivity. These results are indicative of robust demand for industrial and electrical expansion, a theme we have been focused on for quite some time.

5. Fixed Income. U.S Treasury yields experienced a modest curve steepening last week. The steepening was driven by mid-week volatility following President Trump’s comments expressing a desire to remove Federal Reserve Chair Jerome Powell, as well as a slightly hotter-than-expected June headline CPI print. By Friday’s close, the 2-year yield had declined by 2 basis points, while the 10 & 30-year yields rose by 1 and 4 basis points, respectively.

Over the week, investment-grade spreads tightened 2 basis points to + 123 while high-yield spreads widened 1 basis point to + 340. 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 25 downgrades and 24 upgrades. The Consumer Discretionary sector led the downgrades for the second week in a row, while Financials led with the most upgrades.

The tax-exempt yield curve steepened again last week, with yields on the short end declining 1-2 bps and the longer end rising 12-28 bps. Issuance will continue to be robust this week with a supply of $11.3 billion, but with mid-July reinvestment capital mostly deployed, yields have the potential to continue to rise if supply outpaces demand.

6. The Week Ahead.

Economics – Wednesday: Existing Home Sales; Thursday: Building Permits, Continuing Jobless Claims, Initial Claims, PMI, New Home Sales; Friday: Durable Orders

Earnings – Monday: DPZ, ROP, VZ, ARE, STLD, WRB, NXPI; Tuesday: NOC, RTX, DHR, SYF, DHI, EFX, GM, KEY, PHM, AVY, DGX, HAL, MSCI, PNR, GPC, KO, IPG, IQV, IVZ, PM, SHW, LMT, PCAR, CB, CSGP, EQT, TXN, COF, ENPH, ISRG, BKR; Wednesday: ROK, APH, GEV, NEE, NVR, OTIS, T, TEL, HLT, TMO, BSX, HAS, LII, TDY, CME, GD, MCO, FI, FCX, LW, NTRS, CCI, CSX, GL, GOOGL, IBM, MOH, PKG, RJF, ROL, TSLA, URI. LVS, TMUS, CMG, NOW, ORLY; Thursday: EIR, LUV, MLM, ALLE, BX, CNP, KDP, LHX, MHK, TSCO, TXT, WAB, DOW, HON, LKQ, WST, VLO, LH, AOS, DOV, NDAQ, POOL, UNP, AMP, DOC, NEM, INTC, DECK, DLR, VRSN, EW; Friday: CNC, AON, CHTR, PSX, HCA.

Stephanie Link’s TV Schedule:

Return for Selected Indices^[3]

Sources

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

^[2] Source: Strategas, As of July 17, 2025.

^[3] Source: Bloomberg. As of July 18, 2025.

Disclosure

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