The Setup & Where to Focus

Stocks hit the pause button last week after a stellar stretch of gains. 

• The S&P 500 shed 0.3% in what was a data-light period ahead of the Q2 earnings season. The Nasdaq Composite was fractionally lower, though its largest component, NVIDIA (NVDA), rallied 3.5% to become the first company to eclipse the $4 trillion market cap level. 

• Between the media hoopla around that and a focus on President Trump’s tariffs, there wasn’t much else to command attention.

Indeed, the Cboe Volatility Index (VIX) notched its lowest closing mark since February 18 last Thursday before a modest rise into the weekend. 

• BofA put out a note that stock market volatility, as measured by the VIX, and the Treasury interest rate volatility index, as measured by the ICE BofA MOVE Index (MOVE), combined for their softest sum since February. It’s a classic “summer doldrums” indicator, but action may heat back up this week. 

• June CPI, PPI, and Retail Sales hit the tape, and the second-quarter reporting period begins in earnest when J.P. Morgan Chase (JPM), among others, issues profit reports Tuesday morning.

Digging into the sector performance view last week, Energy (XLE) quietly carried the torch.

• The oil and gas space rallied 2.5%, care of WTI crude oil re-approaching the $70 per barrel level and finishing at its best mark since June 23 last Friday. In the commodity arena, they say the cure for low prices is low prices, and Baker Hughes reported that the oil rig count dropped for an 11th consecutive week. Less drilling means less supply, at least at home. 

• Recall that over the 4th of July weekend, OPEC nations announced a larger-than-expected oil production increase. You’d think that would have been bearish for oil, but that was not the case. This is something to pay attention to—if we see a move through $70 on WTI, it may catch the attention of a tech-enamored media. 

• As it stands, the S&P 500 Energy sector trades with the cheapest price-to-earnings multiple among the 11 groups, while its total shareholder yield (which combines the dividend yield and net buyback yield) is the highest in the market. 

• Finally, from an intermarket perspective, should interest rates rise, it could be a redux of the first half of 2022, when the bond market sold off and commodities soared (a bearish setup for the 10 other S&P 500 sectors). It’s just one week of Energy alpha, so perhaps it’s not an imminent risk.

Utilities (XLU) and Industrials (XLI) were also relatively strong, but their absolute gains were not all that impressive. 

• For Utilities, some of the data-center plays did well, but perhaps the biggest story was a modest relief rally after the passage of President Trump’s One Big, Beautiful Bill Act (OBBBA). One area to watch is solar. 

• The Invesco Solar ETF (TAN) has returned 50% from its April low, outperforming the S&P 500, despite fundamental headwinds that came with the termination of many renewable tax credits in the OBBBA. That’s something to keep on the radar within Utilities. 

• As for Industrials, there were more big gains in Aerospace & Defense (ITA), which is an AI-adjacent play. Shares of GE Aerospace (GE) and Boeing (BA) soared, with the latter touching its highest price in 18 months. GE, meanwhile, remains one of the top S&P 500 performers this year.

Financials (XLF) was the worst sector last week, declining 1.9%. 

• It was a mixed bag within the group. Visa (V) and Mastercard (MA), along with PayPal (PYPL), were slammed on Friday when JPM announced that it would charge fintech firms to pay up for customer data. The credit services companies could be in play as the House of Representatives holds its first “Crypto Week.” 

• Elsewhere, insurance stocks tumbled with no major news in the industry other than a Morgan Stanley downgrade of Progressive (PGR). And while asset management firms like Blackstone (BX) and BlackRock (BLK) rallied, the big banks fell. Perhaps that’s a healthy development heading into a key earnings stretch.

It was also rather quiet in the small- and mid-cap spaces. 

• The iShares Russell 2000 ETF (IWM) shed 0.6% and the S&P SPDR MidCap 400 ETF (MDY) dropped by the same amount. Small caps have been trending well, however. After busting through its 200-day moving average ahead of Q2’s end, IWM climbed a fast 5% to reach a multi-month high of $226. 

• Weakness at the end of last week brought the fund back down to $221. But, in the face of all the fanfare around big-cap tech and growth stocks, IWM has matched the S&P 500’s performance since mid-April. 

• Small and mid-cap homebuilders, biotechs, and even some regional banks have outperformed markedly. From a bull-market perspective, it’s constructive to see that risk-on price action. 

International stocks braced for Tariff Week 2.0. 

• The first few sessions in the wake of the April 2 Liberation Day announcement were rough for all corners of the equity world, but last week was much more ho-hum. 

• An old Wall Street adage is that stocks don’t react to the same headline twice, and that sort of played out leading up to and immediately after July 9, the initial expiration of the 90-day pause on reciprocal tariffs. 

• The Vanguard FTSE All-World ex-US ETF (VEU) lost 0.7%, only slightly underperforming the S&P 500. Canada (EWC) dipped 1.2%; it was slapped with a 35% potential levy (not including USMCA-exempt goods). 

• President Trump sent a letter to Brazil informing them of a possible 50% levy on exports to the US. Most new tariff rates are set to take effect on August 1, including a 30% levy on Mexico and EU imports announced over the weekend. While most country funds reacted little to the new duties, EWZ was slammed. 

• Brazil is the largest economy in South America, and shares of the country’s ETF plunged 6%. Argentina (ARGT) and Chile (ECH) fell in sympathy. Still, the August 1 tariff rates are very close to the percentages announced from the White House Rose Garden more than three months ago. The stock market seems to think deals will be reached or the can will be kicked further down the road. 

• But even in advance of the reciprocal levies, US tariff revenue is pacing for its highest annual total since 1934. Moreover, June’s US budget balance unexpectedly flipped positive—the first June surplus since 2016.

Turning to the bond market, interest rates bounced around, but both the benchmark 10-year Treasury note yield and the 30-year long bond rate settled at multi-week highs. 

• It was really an ex-US story that pressured fixed income. Germany’s 30-year bond jumped to its highest level since 2011. Similar moves were seen in UK and Japanese rates. Despite decent Treasury auctions at home, it’s tough to keep that beach ball under the surface in such an environment. 

• Minutes from the June FOMC meeting were released last week, and the report showed when most investors expected...a growing division within the FOMC, with Governor Chris Waller and Vice Chair of Supervision Michelle Bowman likely the ones more outspoken for rate cuts sooner rather than later. 

• Before and after the minutes crossed the wires, President Trump continued his verbal vendetta against Chair Powell. Then, late on Friday, rumors swirled that Powell was considering resigning from his FOMC perch, but prediction markets peg odds of a premature departure at just 18% (up from about 12% before the rumor). 

• That speculation was due to Federal Housing Finance Agency Director Bill Pulte posting on X that he’s “encouraged by reports that Jerome Powell is considering resigning.” Stocks and bonds didn’t move much, so it’s still in the “just a rumor” stage right now.

Wrapping up with commodities, quiet was certainly not the word of the week. 

• Copper (CPER) soared to an all-time high on news of a sectoral tariff of its own, silver (SLV) rocketed above $38 per ounce (a 14-year peak), and oil (USO) continued its post-Israel-Iran war rally. Palladium and platinum keep outperforming gold within metals. 

• But by week’s end, all (laser) eyes were on bitcoin (IBIT). The world’s most valuable cryptocurrency lifted to new record highs above $119,000 on Sunday. Other tokens did even better—ether, solana, cardano, and ripple all outperformed bitcoin over the five-day period.

Weekly Calendar Look Ahead

Macro investors can get back down to business this week. The data deck is heavy, and earnings reports will offer color on the economic backdrop. CPI, PPI, Retail Sales, and UMich are the day-by-day notable reports from Tuesday through Thursday. Bank earnings begin rolling in on Tuesday before the CPI report is released. Fed speak, the Fed’s Beige Book, import/export prices, an OPEC report, and late-week housing data offer more clues on the macro. Let’s get to it.

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

• There could be action in crypto—the House is expected to take up legislation around digital assets via the CLARITY Act, GENIUS Act, and Surveillance State Act. Other than that, the media will fixate on bitcoin, NVIDIA, and Trump’s tariffs.

Tuesday begins with earnings from JP Morgan, Wells Fargo (WFC), BlackRock, and Citigroup (C). Those will set the tone for the Q2 reporting period. 

• Then, at 8:30 a.m. ET, June CPI hits the tape. Tariffs should mildly impact the headline and core rates, and the consensus expects a 0.3% increase in both. That would bring year-on-year CPI inflation to 2.6% headline and 3.0% core. 

• Keep in mind that we had soft prints a year ago, so the YoY comp is more challenging. Still, if the numbers come in light, it would be a fifth straight dovish CPI read. What’s more, if you take out the lagged shelter component, there was actually deflation in May. 

• We think there’s upside to stocks and bonds if we get another tame update, particularly given the jump in interest rates late last week. 

• Also on Tuesday, we’ll get the NY Empire Manufacturing Index, which will be negative again, Johnson Redbook retail sales, which ticked up during the 4th of July week, and a slew of Fed speak. 

• Our team will be particularly curious to hear what Bowman, a fresh FOMC dove, says beginning at 9:15 a.m. ET. 

• Finally, in Energy, OPEC releases its monthly report on the state of the oil market.

Wednesday is also busy. 

• Earnings in the morning from Johnson & Johnson (JNJ), Bank of America (BAC), Morgan Stanley (MS), and Goldman Sachs (GS) get the action going. 

• PPI then hits before the bell—what's interesting there is that higher stock prices will probably put upward pressure on PPI for Portfolio Management, which feeds into PCE inflation (the Fed’s preferred inflation gauge). 

• So, digging into the PPI’s components will be crucial to determining its actual impact on the macro. 

• June Industrial Production prints in the premarket, too, with the Fed’s Beige Book of regional economic activity crossing the wires in the afternoon. 

• Fed speak includes comments from Hammack, Barr, and Williams.

Thursday is all about Retail Sales, though Netflix (NFLX) offers an early read on consumer spending when it reports in the premarket. 

• There are mixed takes on overall June household spending. BofA is bullish. They see a 0.9% monthly rise in the key core control group, which affects GDP. But recent consumption trends point to a more subdued projection, particularly May’s soft personal spending data released in the PCE report two and a half weeks ago. 

• Furthermore, it’s likely that higher goods prices (not necessarily higher volume demand) due to tariffs may have resulted in more spending. 

• We think the best proxy might be how much Americans doled out at bars and restaurants in June—a big number there, and it’s party on. 

• Conversely, a Retail Sales slowdown, coupled with soft CPI and PPI, could nudge the July rate cut door ajar just slightly, but we think the Fed won’t resume monetary policy easing until at least September. 

• Import/export price data will impact that thesis, and those June trade pricing figures come at the same time as Retail Sales. 

• Also at 8:30 a.m. ET are the always-critical Initial and Continuing Claims data. Last week, Initial Claims fell for a fourth consecutive time, but Continuing Claims hit a fresh high going back to November 2021. The “slow to fire, slow to hire” corporate mindset endures. 

• Thursday’s data deluge also includes Philly Fed, the NAHB Housing Market Index (a July read), and Business Inventories. 

• The day wraps up with a speech from Waller, a potential successor to Chair Powell.

Friday is quieter. Leading housing market indicators (Building Permits and Housing Starts) for June come before the bell, while a first look at July University of Michigan Consumer Sentiment prints at 10 a.m. ET.

Fiscal Policy Framework

With the OBBBA signed into law, DC-watchers must find new focal points. We will always have tariffs. Last week, President Trump extended his deadline for implementing reciprocal tariffs from July 9 to August 1. Trading partners were notified of new rates, mainly ranging from 25% to 40%, and very close to the percentages listed on Liberation Day. Brazil was hit with a much steeper 50% potential levy, primarily due to political rifts and the treatment of former President Jair Bolsonaro. And Canada, previously exempt from reciprocal tariffs, may see its duty jump to 35% if no deals are reached by next month. The third tariff surprise last week was the announcement of a sudden 50% tax on imported copper, which benefited domestic producers and caused a wide gap between prices on US and London exchanges.

Venturing from the White House to Capitol Hill, it’s Crypto Week in Congress. Three bills are in play: The Clarity Act (establishing a federal framework for digital assets), the GENIUS Act (regulating payment stablecoins), and the Surveillance State Act (barring the Federal Reserve from issuing a central bank digital currency). All are likely to pass, and the recent crypto rally reflects such legislative optimism.

Finally, while the OBBBA secured tax cuts and detailed new spending plans, it did not alleviate the risk of a government shutdown. September 30 is a potential ex-date, and with rising worries about federal debt, this could turn into a material macro risk by quarter’s end.

Risks & Opportunities

We haven’t touched on the dollar. The US Dollar Index (DXY) has rallied for seven straight sessions. All the while, Energy has been the best stock market sector, and Materials scores well on several momentum metrics we track. Typical intermarket analysis suggests that resource stocks should lag when the greenback gains, but we aren’t seeing that. And with so much focus on high-growth glamour stocks, we would not be surprised to see Energy and Materials continue to trend higher.

In crypto, bitcoin’s rally makes its previous all-time high of $112,000 important technical support. The chart certainly appears constructive, but seasonality is about to turn bearish. Over the past 15 years, August and September have been the lone down months, on average. 

The bond market also bears watching. The 30-year yield is creeping back toward the 5% mark. To us, 5.15% is the line in the sand—above that, and stocks may struggle. And as mentioned earlier, global fixed income interplay is a wildcard.

In the near term, how Financials stocks respond to this week’s earnings could be a good tell on how Q3 goes. As always, bullish responses to lukewarm bottom-line numbers is one of the most positive things that can happen during earnings season. 

Quick Hits

• Carson Group’s Ryan Detrick notes that when the S&P 500 rallies 5-10% at the mid-year mark, the back half is higher 13 of 15 times, with an average gain of 6.4%.

• Total crypto market cap is back at its all-time high of $3.64 trillion.

• Health Care’s P/E matches Energy’s at 16x, tying for the lowest in the S&P 500.

• NVDA is up in 11 of the past 12 weeks, good for a 63% gain in that stretch.

• Treasury rate volatility fell to its lowest levels since early 2022.

• The correlation between the DXY and S&P 500 is back positive, which is a healthy macro sign after the “sell America” trade narrative reached a zenith in Q2. 

• BofA reports that their private clients are 64% allocated to stocks, the highest since March 2022, and 10.7% in cash, the lowest since Oct 2021.