The Setup & Where to Focus

Stocks recovered almost all the losses from the month’s first session, with the S&P 500 rising 2.4% last week. 

• A persistent “buy the dip” mentality has helped support the strong rally off the April bottom, and despite sketchy historical August performance patterns, markets remain resilient. 

• The Nasdaq Composite closed Friday at a new record, thanks to huge gains in Apple (AAPL) shares. Now the world’s third most valuable company, the iPhone Maker’s stock soared 13% from Wednesday through Friday.

The Cboe Volatility Index (VIX) spiked above 21 for a moment following that dismal July jobs report, but Wall Street’s fear gauge closed near 15 last Friday, very close to its year-to-date low. 

• Looking ahead, with 90% of earnings results in hand, the focus shifts back to macroeconomic data. This week, inflation data and Retail Sales are the primary volatility catalysts. 

• The US-China tariff deadline is also in play on Tuesday, while a key meeting between Presidents Trump and Putin in Alaska could bring an end to the war in Ukraine.

Zooming in on price action, a big green AAPL helped lift the Information Technology (XLK) sector to the top spot last week. 

• Up 4.3%, the broad AI narrative kept a bid to big-cap tech, but single-stock stories were outright euphoric in terms of price action. 

• Bullish vibes got going early when this year’s best-performing S&P 500 stock, Palantir (PLTR), reported blowout Q2 earnings. On the call, CEO Alex Karp said, “Tell the haters, read ’em and weep.” The software-defense company is now up a stunning 538% from a year ago and worth more than the likes of Costco (COST), Johnson & Johnson (JNJ), Home Depot (HD), and Procter & Gamble (PG). PLTR put an exclamation mark on the Q2 earnings season. 

• As for AAPL, Mr. Cook went to Washington, donned his diplomat hat, presented a golden statue to the president, and whipped up a deal that largely spared the company from extreme tariff rates once feared. While iPhones will still be partly manufactured in India, Cook’s company promised to invest $100 billion in US buildouts over four years, bringing its total investment to $600 billion. I

• t’s an essential piece of the America First agenda. Still, critics assert that it’s simply not cost-feasible to produce iPhones domestically, lest robots (not American workers) be put to work in a big way. Regardless, AAPL shares broke through significant resistance on the chart and helped charge the S&P 500 higher. 

• A 5% jump in NVIDIA (NVDA) shares came on the heels of news that US chip producers would be exempt from a 100% semiconductor tariff. Broadcom (AVGO) and Micron (MU) also soared. 

Information Technology stood out last week, but substantial gains were made in the tech-adjacent sectors of Consumer Discretionary (XLY) and Communication Services (XLC). 

• Tesla (TSLA) flew under the radar with a sizable 8.9% advance, while Alphabet (GOOGL) jumped 6.4%. 

• Netflix (NFLX) turned out to be the big winner after Disney’s (DIS) quarterly report; the former rose 4.6% last week, while the latter gave back 3.6%. 

• Elsewhere among the Magnificent Seven, Amazon (AMZN) lifted 3.7% and Meta Platforms (META) tacked on 2.6%.

The notable sector laggards during the strong week were Energy (XLE) and Health Care (XLV). 

• Oil and gas stocks stumbled amid growing fears that a 17% US effective tariff rate could stymie global growth. A ceasefire between Russia and Ukraine could increase the supply of the key commodity. At home, it’s clear that macro indicators point to a second-half soft patch, which may keep oil below $70. 

• As for Health Care, the dramatic story was the massive drop in shares of pharma giant Eli Lilly (LLY). Still, the largest stock by market cap in its sector, the GLP-1 drugmaker suffered its worst week since October 2008 in the wake of disappointing results from its oral weight-loss drug. 

• Rival Novo Nordisk (NVO) had already seen its shares get slimmed down thanks to increasing competition from so-called compounders that can produce comparable doses more cheaply. LLY’s losses were made worse by pressure from President Trump on US pharma companies to reduce retail prices. By the time the dust had settled, LLY had given back 18%.

Large-cap price action seemed to revolve around tariffs last week, which made sense given the new world we live in. 

• The Yale Budget Lab revised its estimate of the overall effective tariff rate to 18.3%, the highest level since 1934. Higher duties are aimed, in part, to protect domestic goods producers, but we still have not seen any meaningful pickup in US mid- and small-cap companies. 

• Last week, the iShares Core S&P Mid-Cap ETF (IJH) underperformed, rising just 0.7%, while the iShares Russell 2000 ETF (IWM) posted a respectable 2.5% climb. What will help to catalyze gains among US SMIDs (Small and Mid-Cap) is a revival in capital markets, including lending to small banks, and lower interest rates to alleviate balance sheet worries. 

• Our team constantly monitors trends in the SPDR S&P Regional Banking ETF (KRE) for early clues of an unlock in enthusiasm among cyclical small financial institutions—still somewhat quiet there. 

• Biotech is another niche to watch. The SPDR Biotech ETF (XBI) was in the red last week, no doubt dragged down by negative headlines in the overall Health Care sector. The upside is that Treasury yields have already dipped, and the Fed is likely to resume cutting interest rates next month.

Turning to overseas markets, a 0.9% decline in the US Dollar Index (DXY) helped lift the Vanguard FTSE All-World ex-US ETF (VEU) to within pennies of its highest weekly closing level. 

• VEU’s 3.2% rally matched the strength in US large-cap growth equities, but without the fanfare. 

• International small caps are now up by more than 20% thus far in 2025. 

• European Financials (EUFN) soared 6.3% last week, with the bellwether group knocking on the door of a 50% YTD return. 

• The best country ETFs in 2025 are Greece (GREK), up 68%, and Poland (EPOL), higher by 63%.

In the bond market, volatility remains absent. 

• The yield on the benchmark 10-year Treasury note settled Friday at 4.285%. Although that is 10 basis points above the August low, it remains significantly under the high from before the July jobs report was released. It does appear, however, that support just below the 4.2% mark has emerged. 

• So, there could be upside risk to interest rates if we see higher-than-expected inflation numbers in this week’s CPI and PPI reports. A strong July Retail Sales update would also send yields up. 

• The good news is that worker productivity rose in the second quarter, according to the BLS last week. Total output increased by 3.7% over the April through June period, and hours worked rose just 1.3%. Companies are squeezing more from their employees, but economists hope that doesn’t lead to an uptick in layoffs over the balance of the year. 

• Initial Claims, meanwhile, rose for a second consecutive week. At 226,000, it’s still a low number and actually below the year-ago unemployment filing count. Conversely, Continuing Claims notched a new cycle high at 1.97 million in the week ending July 26 (it’s always a week lagged compared to Initial Claims). The “slow to hire, slow to fire” labor market presses on. 

• Also impacting the bond market were headlines surrounding the Fed. On Thursday, the White House confirmed that President Trump was set to nominate Council of Economic Advisers Chairman Stephen Miran to fill the open governor seat left by Adriana Kugler. Kugler was a no-vote at the July FOMC meeting, and her term was set to expire next January. Miran is a Trump loyalist, so he will surely vote for rate cuts once he’s in his seat at the Fed, potentially as early as the September 17th decision. 

• As for the race to succeed Chair Powell, Governor Chris Waller is now the frontrunner. A Bloomberg story made the rounds on Thursday that the noted dove and dissenter at the July Fed gathering was the top choice. It’s still anybody's ballgame, with Kevin Hassett and Kevin Warsh vying for the job.

To wrap up with commodities, gold futures spiked to all-time highs amid confusion over Swiss tariffs. 

• With so much gold being exported from Switzerland, a 39% levy on one-kilogram and 100-ounce gold bars from the wealthy European nation put a bid to gold contracts on Friday morning. The White House clarified that the duty may not apply to gold imports, which brought about some selling pressure by the afternoon. All the while, spot gold (GLD) rallied, but remained under its April high of $3,500 per ounce.

• As for cryptocurrency, ether (ETHA) zoomed through $4,000, rallying above $4,300 by the weekend, while bitcoin (IBIT) hovered in the high $110,000s.

The Look Ahead

It was all about tariff nuances last week, but investors now turn back to traditional economic indicators. We’ll get clues on inflation and a pulse check on the health of the consumer. CPI, Industrial Production, PPI, and Retail Sales are the highlights this week, along with a first look at the August University of Michigan Consumer Sentiment survey. Let’s get to it.

Monday is quiet with just a pair of Treasury bill auctions in the late morning.

Tuesday is when the macro action heats up; traders hope for ‘cool’ inflation reports. 

• The first is the NFIB Small Business Optimism Index, which often includes telling nuggets about the vibes among entrepreneurs and small business owners. Expansion plans, including hiring intentions, will be particularly interesting this go around. 

• Next comes the July CPI report. Economists expect a 0.2% rise in the headline rate, while core prices are seen as having increased by a firm 0.3%. That would bring the YoY figures to 2.8% headline, 3.0% core. Tariffs are likely to further impact goods prices, but services inflation appears to be easing economywide. Given the technical support in play on the 10-year yield, we would not be surprised to see a backup in interest rates, particularly if CPI data is hot. 

• Afterward, Fed speak from Barkin and Schmid, two hawks, come after the opening bell. Tuesday, the 12th, is also when the tariff pause between the US and China expires, and our team expects an extension of that truce.

Wednesday is calm. 

• The weekly MBA Mortgage Applications report prints in the morning, and we could see a tick higher there, given that borrowing costs have sunk to near a 10-month low. 

• The EIA oil storage report is released later, which comes a day after OPEC’s monthly oil market report. 

• The Fed’s Barkin, Goolsbee, and Bostic will comment on the state of the economy throughout the day.

Thursday shifts the macro focus back to inflation. 

• July PPI crosses the wires at 8:30 a.m. ET, and the market expects a 0.2% rise in both the headline and core rates. Higher stock prices could bump up PPI for Portfolio Management, while a sultry and humid July across the eastern third likely pushed up the Electric Power Generation category. 

• All of that could result in another rise in the PCE Price Index to be issued at the end of the month, the Fed’s favorite inflation barometer. 

• Initial and Continuing Claims are also in focus as the employment situation teeters.

Friday is busy. 

• July Retail Sales is the one to watch. A robust 0.5% rise is expected, with the core control group (which feeds into GDP) seen increasing by 0.3%. We are in the throes of the back-to-school season, the second-biggest shopping event of the year, and some front-running of the August 7 tariffs may have supported July spending. Air travel trends were also at record levels to begin the second half of 2025—another bullish retail data point. We think a strong number is in the cards, which would help to quell recession concerns. 

• Import and export prices for July come in the premarket, too, offering clues on who is bearing the brunt of tariffs. 

• Industrial Production, Capacity Utilization, and Business Inventories roll in later in the day, along with UMich Consumer Sentiment. In recent weeks, there has been an uptick in both household and CEO confidence about the economy, which augurs well for upcoming “soft” data.

Fiscal Policy Framework

Tariffs. It’s all about tariffs this week with Congress in recess and the administration clearly open to negotiating new deals with allies, partners, and adversaries. Switzerland and Taiwan are reportedly mulling greater US investments to appease President Trump, and tensions are high regarding an agreement with India. Sector-specific levies are having an impact on certain industries, so any news on chips, drugs, and gold will sway price action. 

Geopolitical developments are sure to unfold this week. The Trump-Putin meeting (excluding Ukraine’s president) in Alaska on Friday has vast implications for the Energy sector, while any surprises between the US and China regarding trade may impact multinationals. Additionally, White House efforts are underway to broker a peace agreement between Armenia and Azerbaijan, which could open access to valuable minerals and natural resources.

Risks & Opportunities

The shock-and-awe media likes to bandy “stagflation.” Push comes to shove this week, given the trove of inflation data on tap and a fresh read on consumer spending. Hot CPI and PPI, coupled with tepid Retail Sales for July, would support mild stagflation vibes. But if a sixth-straight cool CPI report plays out and retail activity verifies strongly, as we think is possible, then the doom-and-gloom macro narrative will fall flat once again. 

Still, with the S&P 500 sporting a premium 22x price-to-earnings multiple during what’s often a weak calendar stretch, many investors are cautious. The bull case is, of course, sanguine economic data, but also more conducive deals brokered by President Trump. China, Russia, and India are all in the spotlight right now. Positive geopolitical developments may reduce the risk premium, sending stocks higher into the back half of the third quarter.

In terms of price action, there’s little resistance on the charts of the S&P 500 and Nasdaq Composite. That makes Treasuries and the dollar more critical. What’s different today is that the stock-bond correlation has broken down to about zero. Ergo, there’s no clear signal whether a rate drop or dip would be positive or negative for equities. As for the greenback, it’s kind of the same story; a weaker dollar, lately, has coincided with softer macro data, bucking the usual inverse dollar-stock relationship.

Quick Hits

• US growth stocks continue to outperform value equities, but the opposite style trend is happening among overseas shares

• The S&P 500 nearly finished last Friday at an all-time high, but just 58% of the index’s components trade above their respective 200-day moving average

• Apollo reports that the number of businesses created in the US has increased significantly since Trump won the election in November 2024

• S&P 500 earnings estimates ticked up last week; strategists now forecast $267 of 2025 SPX EPS and $303 for next year

• FactSet notes that there has been a whopping 87% plunge in the number of companies citing “recession” on Q2 earnings conference calls

• Following hot IPOs such as CoreWeave (CRWV), Circle (CRLC), Chime (CHYM), Figma (FIG), and FireFly (FLY), rumors swirl that Fannie Mae and Freddie Mac may go public later this year.