The Setup & Where to Focus

Stocks rose each day last week, closing Friday at a record high. 

• The S&P 500 added 1.5% over the period, its fourth winning week of the last five; low volatility was the story with price action. The tech-heavy Nasdaq Composite underperformed slightly, with just a 1.0% advance. 

• For the year, the S&P 500 is up 8.6% and the Nasdaq is higher by 9.3%.

The Cboe Volatility Index (VIX) drifted under 15 by Friday afternoon, marking its softest reading going back to mid-February. 

• The calmness came ahead of a big macro week to close out July and begin August. We’ll get all the usual data on the labor market, culminating with Friday’s July jobs report, a first look at Q2 GDP, a Fed meeting (no interest rate change expected), PCE inflation, and the August ISM Manufacturing PMI. 

• Oh, by the way, Friday is President Trump’s new reciprocal tariff deadline, although with a key deal inked with the EU, there shouldn’t too much drama there. Tossed in the mix are earnings from four of the Mag 7 stocks. 

Digging into the sectors, Health Care (XLV) snatched the top spot. 

• Health insurance stocks, big pharma, and even biotech all rallied, and the group’s collective gain made for XLV’s best week since October of 2022; opening near the low of the week and settling close to the top made for a strong upward thrust. 

• Eli Lilly (LLY) added 5.3%, supporting the sector’s climb, but strong earnings results from Health Care Diagnostics and Research companies finally brought about beaten-down bulls in what remains the S&P 500’s weakest-performing sector YTD. 

• But for macro investors, perhaps the biggest tell was a 4.5% rally in the iShares Biotechnology ETF (IBB). Although Health Care is thought of as a defensive slice of the stock market, biotech is among the most risk-on of all industries. Its rally, coupled with a revival of meme-stock mania, underscores the degree of investor risk appetite. 

• Fundamentally, Health Care as a whole reported strong top-line results last week; Communication Services and Health Care were the top contributors to the increase in the S&P 500’s overall Q2 revenue growth rate for the week, according to FactSet.

Health Care’s vital signs are looking better, but other sectors were feelin fine too. 

• Materials (XLB), Industrials (XLI), Real Estate (XLRE), and Communication Services (XLC) each increased by more than 2%. As stocks break records, it’s encouraging to see such broad participation, particularly after a busy week of earnings. 

• Let’s zoom in on Industrials, as 22 S&P 500 companies posted Q2 profit numbers from that cyclical space last week. Despite a soft reaction to Honeywell’s (HON) earnings report, there was a generally upbeat tone within some of this year’s winning themes. 

• GE Aerospace (GE), the Industrials sector’s biggest stock, tacked on 3.2% and is now up 70% from its post-Liberation Day low in April. Also in the Aerospace & Defense industry, RTX Technologies (RTX) rallied significantly after its quarterly report was released last Tuesday. Lockheed Martin (LMT), on the other hand, dropped post-earnings. 

• But deals might be churning up among the railroad stocks, which could be a positive sign for the macro; Union Pacific (UNP) and Norfolk Southern (NSC) are said to be in advanced talks to combine, potentially creating the nation’s first transcontinental rail operator. Then, two days before CSX (CSX) reported its second-quarter results, the Florida-based company said it was seeking bankers for a possible M&A move of its own. 

• A brew up of deals could be the next wave of this apparent macro upswing.

Weakest among the 11 S&P 500 sectors last week was Consumer Staples (XLP). 

• It’s the most risk-off corner of the market these days. Despite a beat on revenue and earnings, shares of Philip Morris (PM) went up in smoke, dropping 10% in what was a strong overall tape. Costco (COST) and Coca-Cola (KO) finished in the red, too. 

• KO has been in the spotlight lately amid the MAHA (Make America Healthy Again) movement. President Trump and Robert F. Kennedy, Jr., Secretary of the Department of Health and Human Services (HHS), were even able to nudge KO enough for the company to begin production of a pure-can sugar version of Coca-Cola. The American brand reported mixed Q2 results last Tuesday.

Interestingly, Information Technology (XLK) finished second-worst last week. 

• Ho-hum gains in NVIDIA (NVDA), Microsoft (MSFT), and Apple (AAPL) tempered tech’s climb, and earnings blow-ups from the likes of IBM (IBM), Texas Instruments (TXN), and Intel (INTC) pressured semiconductor stocks and shares of some tech services firms. 

• Palantir (PLTR) built on its year-to-date lead, as the AI-defense darling is now up a stunning 110% in 2025. GE Vernova (GEV), an AI power-generation company, is next best with a 96% return so far this year. Take a step back, perhaps tech investors were merely girding themselves for a very busy earnings week—the action gets underway Wednesday night with MSFT and META. 

• In all, 38% of the S&P 500’s market cap reports Q2 earnings this week, and the current EPS beat rate is a very high 80%, above the 5-year average of 78%. 

Small- and mid-cap stocks also took part in the rally. 

• The S&P MidCap 400 ETF (MDY) was up 1.4%, while the iShares Russell 2000 ETF (IWM) tacked on 0.9%. It was a topsy-turvy week for the SMID space, but there’s no denying that investors are buying dips in these more economically sensitive parts of the total market. 

• Over the past three months, MDY is up 13% and IWM is higher by 16%. Compare those robust gains to a 17% total return in the S&P 500 ETF (SPY). Thus, it’s not just the Magnificent Seven stocks that are carrying the bullish torch. 

• Historically, the period from August through early October has seen bearish trends. However, past performance is not indicative of future results.

Turning to international stocks, major macro news broke on Tuesday night into Wednesday morning with the announcement of a trade framework agreement between the US and Japan. 

• The deal imposes a 15% tariff on Japanese exports to the US, down from a threatened 25% rate set to take effect on August 1. Japanese steel and aluminum exports remain subject to a 50% tariff, as they were not included in this deal. Japan also agreed to open its markets to US-made cars, trucks, rice, and other agricultural products, and the nation committed to a $550 billion investment in the US, a big win for Trump’s trade agenda. 

• Lots of details, but price action told the story. The iShares MSCI Japan ETF (EWJ) climbed 5% on Wednesday after the deal was announced, its third-best session since March 2020, and closed the week at an all-time high. 

• The Nikkei 225 Index rose 4.1% for the week, closing at a record on the weekly chart. Japan’s jolt helped send the Vanguard FTSE All-World ex-US ETF (VEU) to a new high of its own; VEU was up 2.0%, outperforming SPY. The US Dollar Index’s (DXY) 0.8% drop supported foreign equities writ large.

Over in the bond market, a data-light week kept interest rates in check. 

• The benchmark 10-year Treasury note yield dipped five basis points to 4.386%, though there was a Wednesday and Thursday back-up in rates. The Treasury market has been in a holding pattern, despite the drama between President Trump and Fed Chair Jerome Powell. 

• A classic Trump-made-for-TV moment occurred on Thursday afternoon when the president and Fed chair, both donned in hard hats, toured the ongoing renovations to the Federal Reserve complex in Washington, D.C. Trump even pulled out a report from his suit pocket, informing Powell of the latest cost-overrun numbers. Powell shook his head, inspected the printout, and replied to Trump that a third building had been added. Moments later, a reporter asked the POTUS what it would take for him to cease chastising Powell. Trump responded, “Well, all he has to do is lower interest rates!” He proceeded to give Powell a friendly slap on the back. 

• Yes, it was a show, but it actually seemed to bring down the temperature between the White House and the Fed. President Trump reaffirmed that he had no plans to fire Powell, despite the eye-popping Fed building rehab budget. Things are more serious this week with the July FOMC meeting and jobs report front and center.

Wrapping up with commodities, oil (USO) fell 3% as it continues to struggle on approaches to the $70 per barrel mark. 

• Natural gas (UNG) was hit even harder, plunging 13% for its worst weekly decline since January. Copper (CPER) climbed for a sixth consecutive week, though. High tariffs on imports from Brazil have driven up US prices, and the industrial metal neared $6 per pound for the first time. 

• Gold (GLD) struggled, remaining below its April all-time peak. The precious metal gave back 0.3% after taking a mid-week run at new highs. Finally, bitcoin (IBIT) hit a two-week low last Friday morning, but recovered to $118,000 by the weekend as it wraps around its all-time high just above $123,000.

Weekly Calendar Look Ahead

A pivotal macroeconomic period lies ahead. The data-heavy week begins quietly on Monday but then ramps up mid-week with the Fed's interest rate decision and concludes with the July jobs report. Earnings from big-cap tech are likely to underscore the power of the AI revolution, despite uncertainty surrounding tariffs and the steady but soft employment picture. Let’s get to it.

Monday is an easy start. 

• The only notable news item is the July Dallas Fed Manufacturing Index, which we expect to print negative once again. 

• Treasury auctions occur, as well as the quarterly Treasury Refunding estimate (not market-moving).

•  The media’s focus will be on the data to be released later in the week and, of course, meme stocks. Figma (FIG) also begins trading after its IPO.

Tuesday could be busy early. 

• Treasury Secretary Scott Bessent meets with his Chinese counterparts in Sweden for further trade talks, however the August 12 deadline was pushed back another 90 days over the weekend. 

• We’ll get a first look at the June Goods Trade Balance, Johnson Redbook retail sales for last week, and S&P/Case-Shiller Home Price data before the bell. 

• But more-important data come at 10 a.m. ET. That’s when the June JOLTS report, which gauges the number of job openings, and The Conference Board’s Consumer Confidence survey are released. Recall in May featured a surprise jump in the number of open positions—a sign of strength in the employment market. We expect the figure to fall. Conversely, Consumer Confidence should rise, which would be on par with better vibes seen in the July University of Michigan Consumer Sentiment report issued earlier in the month. 

• Visa (V) reports after the bell, which may provide color on the consumer backdrop, too.

Wednesday is loaded. 

• The action gets going with the July ADP Private Payrolls survey, expected to show a 75,000 jobs add, which would be a climb from the surprise -33,000 print for June. 

• Fifteen minutes later, at 8:30 a.m., the advance read on Q2 GDP crosses the wires. The consensus calls for a 2.5% real economic growth rate from April through June, but it will be key to see how Final Demand came in, along with second-quarter PCE prices. 

• That broad macro report tees up the Fed’s interest rate decision in the afternoon. No policy rate change is expected to be announced at 2 p.m., but all eyes will be on the number of dissents. Two Fed Governors will likely vote for cuts (Waller and Bowman), which would be the highest number since 1993. Of course, the statement’s redlines from the June meeting will be scrutinized before Chair Powell takes the podium at the bottom of the hour. 

• After the close, MSFT and META report earnings.

Thursday’s focus shifts back to the labor market and inflation. 

• Challenger Job Cuts comes at 7:30 a.m., and with three straight monthly declines, there are no signs of mass layoffs right now. A slight uptick to 70,000 from 48,000 in June is expected. 

• Along with Initial and Continuing Claims at 8:30 a.m., June’s Personal Income and Spending report is released. Within it comes the PCE Price Index update, the Fed’s preferred inflation gauge. We expect a modest rise from 2.3% headline YoY, 2.7% core in June, with limited impacts from tariffs. Our team also thinks consumer spending numbers improved to close out the second quarter after a May slump. 

• AAPL and AMZN report after the close.

Friday is the August 1 reciprocal tariff deadline, but that shouldn’t draw much volatility with most major pacts already announced. 

• More important will be the jobs report. Expectations are for a 102,000-employment gain, which would be below June’s 147,000 stout figure. With deportations and slower immigration growth, the breakeven pace of monthly job additions is likely near 70,000. So, even a sub-100k figure could actually drop the unemployment rate. As it stands, the jobless rate is seen ticking up slightly to 4.2%; it fell sharply in June.

• Manufacturing PMI survey numbers from the ISM and S&P Global arrive later in the morning, along with an unimportant second read on UMich sentiment.

Fiscal Policy Framework

The House is in recess, and Senators are set to depart Capitol Hill, too. Lawmakers will reconvene after Labor Day ahead of a very possible September 30 government shutdown date. House Republicans will demand a spending freeze, but that will obviously run into issues with Senate Democrats. Get ready for a showdown toward the end of the quarter, and we’ll see how stocks and bonds respond to that uncertainty.

Last week, President Trump hosted tech leaders at an “AI Action Plan” summit in the nation’s capital. NVIDIA CEO Jensen Huang was on hand and lauded by Trump during the president’s “Winning the AI Race” speech. He announced a plan to increase funding for AI infrastructure, innovation, and diplomacy. The gathering came after the GENIUS Act for stablecoin adoption was signed into law on July 18.

On the trade front, a framework agreement with the Philippines was secured, along with the aforementioned Japan deal. Then on Sunday, the US and EU came to terms to avoid tariff hikes, with the EU promising to buy $750 billion of US energy. Speaking of tariffs, a federal appeals court is set to hear arguments this week on the International Emergency Economic Powers Act (IEEPA), which could heavily impact the fate of Trump’s tariffs. Over the weekend, the US and China agreed to extend their tariff pause by another 90 days.

Risks & Opportunities

• At more than 22x earnings on the S&P 500, much optimism is baked in ahead of a weak seasonal stretch. A consolidation of huge gains off the April low would make sense.

• Tame inflation data this week, along with healthy jobs numbers, would further depress recession chances and support stock prices.

• The Fed's statement on Wednesday will be critical, as will Powell's remarks during his press conference. The bulls would welcome hints at a September rate cut. There’s a 62% implied chance of a September ease.

• While Sunday’s US-EU trade pact brings optimism, rising tensions after Bessent’s meeting with Chinese trade officials could erode hope on the broader trade front.

• Expectations are likely elevated regarding this week’s tech earnings, namely, AI capex plans among the hyperscalers.

Quick Hits

• Call option volume hit 70% of total volume, the highest since 2021, in a sign of high investor enthusiasm.

• S&P 500 liquidity hit an all-time high, thanks to a record money supply, also supporting equities.

• More than 80% of country ETFs are above their respective 200-day moving average, the most in more than a year.

• The S&P 500 is collectively tallying a cycle-high 12.8% Q2 profit margin, despite the impact from tariffs.

• The SPX rose each day last week, printing new closing highs every day. A so-called “golden week.”

• The S&P 500 Equal Weight Index notched a record close last Friday, its first of the year.