Week of July 7, 2025

The Setup & Where to Focus

Stocks rose for a second straight week ahead of the long holiday weekend. 

• The S&P 500 (SPX) gained 1.7% to close at a new record last Thursday. The Nasdaq Composite also printed an all-time high, ending up 1.6% over the short week of three and a half trading sessions. 

• Optimism surrounded President Trump’s One Big, Beautiful Bill (OBBB), which was signed into law on target just ahead of the Washington D.C. fireworks show on the fourth of July. 

• The other major macro storyline of the week was Thursday morning’s healthy June jobs report. It’s clear that, so far, the US economy is absorbing tariffs well. 

• This week is crucial, as Wednesday is the deadline for the reciprocal tariff pause. 

The Cboe Volatility Index (VIX) was subdued to begin the third quarter. 

• It ended the week at 16 and change, implying tame stock market action over the next month. Futures did trade on Independence Day, though, and stocks inched lower, with the VIX rising back above 17. 

• Some negative sentiment emerged regarding trade discussions between the US and the European Union (EU). We expect a flurry of trade deals to be agreed upon this week. Considering that dips have been shallow over the past couple of months, traders do not anticipate a significant downside risk around the key July 9 date. 

• It’s also possible, however, that complacency has set in. Both the CNN Fear/Greed Index and BofA’s Bull/Bear Indicator ticked to greedy levels. What’s more, the latest AAII Investor Sentiment Survey featured a steep rise in the number of net bulls.

Digging into the sectors, a switch was flipped to begin the second half. 

• Value areas and cyclical industries outperformed. The best of the 11 S&P 500 groups was Materials (XLB), which rose 3.7%, its best week since January. 

• Often, precious and industrial metal miners drive performance in that small slice of the US large-cap arena, but gains were impressive among firms in the Specialty Chemicals and Agricultural Inputs industries. 

• There was no major news lifting Materials; it appeared to be a classic rotation out of high-momentum areas into some underperforming spots.

Still, Information Technology (XLK) outperformed the SPX, climbing 2.4%. 

• The star last week wasn’t NVIDIA (NVDA) or Microsoft (MSFT), though. Apple (AAPL), like many value sectors, sharply underperformed in Q2, and the rotation trade likely aided now the world’s third-largest publicly traded company to a 6% thrust. 

• Elsewhere in tech land, Oracle (ORCL) surged another 13% and has doubled from its April low. The gain was good enough to make its founder Larry Ellison No. 3 on the world’s richest list, behind only Elon Musk and Mark Zuckerberg. 

• Pulling back was Palantir (PLTR), the top-performing S&P 500 stock so far in 2025. The AI-defense darling has become the poster child of this cycle’s themes, but when momentum turns, money can quickly flee such winners.

Weakest last week was Communication Services (XLC). 

• Meta Platforms (META) paused at its February all-time high, dipping a modest 2%. Netflix (NFLX), another YTD winner, shed 2%, as well, in a news-light week. 

• Utilities (XLU) and Consumer Discretionary (XLY) lagged. The former was dinged by a rise in interest rates and a cooling-off of the AI trade that coincided with a minor momentum unwind. 

• There was drama with Tesla (TSLA), however. President Trump took umbrage with Elon Musk’s criticism of the OBBB, at one point saying he’d “look” at deporting the Tesla CEO. Tesla shares finished off the week’s low but retreated 2.6% over the four sessions. The POTUS told the media that “not everyone wants an EV,” suggesting that Tesla and Musk have benefitted far too much for far too long from taxpayer subsidies. 

In all, 10 of the 11 S&P 500 sectors were positive, but significant alpha was seen among US small and mid-cap stocks. 

• The iShares Russell 2000 ETF (IWM) rose 3.5% to $223, marking a 6.6% rally over the past two weeks. Technical analysts were giddy since IWM, at long last, eclipsed its 200-day moving average. It could mark a bullish turning point for the embattled part of the market. Zoom out the chart, and you’ll find that IWM is still 9% below its November 2021 high of $244. That’s also where small caps petered out immediately after the 2024 election. 

• Nevertheless, IWM has outperformed the S&P 500 since the April stock market bottom. An 11% thrust in the SPDR S&P Regional Banking ETF (KRE) supported small caps, along with a third-consecutive weekly rise among niche retail stocks. 

The SPDR S&P MidCap 400 ETF (MDY) outperformed the SPX, too. 

• Value and cyclical sectors, which have led the charge in the past two weeks, have benefited MDY, as its top sector weights are Industrials and Financials. Information Technology accounts for just 14% of the allocation, whereas the S&P 500 allocates 34% to I.T. 

• What made the SMID cap rally all the more impressive was that interest rates crept higher; we usually see shares of small and mid-sized companies struggle when yields rise, since they have more short-term debt relative to their market cap than large companies. 

• The takeaway? US GDP growth expectations appear to have increased, with implied recession risks ebbing. 

International stocks, meanwhile, kept pace with domestic equities. 

• The Vanguard FTSE All-World ex-US ETF (VEU) tacked on 0.7% to end the week at an all-time high. The foreign index is off to its best start to a year since 1993. Doubters are sure to call out weakness in the US Dollar Index, down 10% YTD, but even in local currency terms, most non-US markets are having great years. Poland (EPOL) and Greece (GREK) are the two best of the 45 country ETFs Allio tracks. 

• Mexico (EWW) has stepped up lately, too, up eight straight weeks with a 34% return in 2025, dividends included. 

• Shares of international companies underperformed last Thursday, partly due to a stronger greenback in response to the June jobs report. 

• The first full week of July could be a crucial one for many countries—hopefully, we’ll have more clarity on the tariff situation by the weekend.

Turning to the bond market, interest rates rose in each of the second half’s three sessions.

• The yield on the benchmark 10-year Treasury note rallied from 4.21% last Tuesday morning to 4.35% by Thursday afternoon. 

• US economic data wasn’t incredibly strong, but the June nonfarm payrolls report beat estimates on the headline number of jobs added, with the unemployment rate falling to its lowest level since January. The sequential decline in the jobless rate was the largest since last December. 

• President Trump touted the clear rise in the number of native-born workers, while foreign-born employment fell sharply in June. Also bullish was a significant increase in total employment, per the household survey, which is used to calculate the unemployment rate. 

• What wasn’t so sanguine was the low number of private payrolls, just 74,000. While that was significantly higher than what ADP estimated, it signals a still sluggish labor market. State and local governments contributed the most to employment growth in June, and that was likely due to quirky teacher employment shuffling. 

• Furthermore, average hourly earnings and average weekly hours worked were weaker than expected. The Manufacturing sector lost 7,000 positions, too. 

• So, while the market interpreted the jobs report as strong (higher interest rates, higher stock prices, July Fed rate cut odds dashed), it wasn’t a 10 out of 10. 

• But simultaneous with the June NFP, the timelier jobless claims report was better than expected, with just 233,000 initial claims, the lowest in six weeks.

Wrapping up with commodities, WTI crude oil (USO) found its footing in the mid-$60s after plunging from its June peak above $78. 

• The number of active US oil rigs fell for a 10th consecutive week, suggesting that lower-48 energy production could tail off in the second half, but much depends on what OPEC+ decides. The cartel met last Saturday, opting to increase output for August. 

• As for gold (GLD), the precious metal continues to consolidate under its $3,500 record high on April 22. Copper (CPER), in fact, is now beating gold in 2025, though both are up 27-28%. Outperforming both has been platinum, up by more than 40% since mid-May. 

• Bitcoin (IBIT), meanwhile, remains quiet, hovering a few percentage points below its all-time high.

Weekly Calendar Look Ahead

Traders come back from the Independence Day weekend to a quiet macro data stretch. The highlight will be the release of FOMC Minutes on Wednesday afternoon. We’ll get a pair of small inflation reads on Tuesday: the NY Fed’s Consumer Inflation Expectations survey and the Manheim Used Vehicle Value Index. Watch out for potential volatility from Fed speak throughout the week, along with Treasury auctions.

Though the data slate is light, macro volatility could be heavy, thanks to the expiry of the July 9 reciprocal tariff relief. We expect many deals to hit the wires over the next few days. Countries that don’t reach out to the president may face stiffer levies, supposedly set to commence on August 1. 

Monday’s data schedule includes just Treasury bill auctions and an update on the Fed’s shrinking balance sheet. 

Consumer stocks will be in the spotlight on Tuesday. 

• Amazon’s (AMZN) four-day Prime Day event begins. Other major retailers hold their own sales events to compete with Amazon, including Target’s (TGT) Circle Week. 

• Before the bell, we’ll get the June NFIB Small Business Optimism Index, an economic survey of small domestic companies, which tends to lean Republican. We’ll see how firm owners and entrepreneurs feel about future growth, inflation, and employment. 

• Year-over-year Johnson Redbook retail sales growth, which has declined lately, prints later in the morning. There are emerging signs that consumers are beginning to pull back, which could be a key trend shift ahead of the all-important back-to-school shopping season. 

• The NY Fed’s Consumer Inflation Expectations survey crosses the wires at 11 a.m. ET, a more accurate gauge of households’ inflation perceptions compared to the University of Michigan’s distorted and essentially useless semi-monthly survey.

Wednesday features the usual weekly MBA Mortgage Applications update and the EIA’s oil storage report. 

• For the former, mortgage rates have been flirting with their lowest levels since last October but remain closer to 7% than 6%. 

• Two potentially market-moving events are scheduled for the afternoon. The first is a 10-year Treasury note auction at 1 p.m. ET. The second is the release of the minutes from the June Fed meeting. Governor Chris Waller and Vice President for Supervision Miki Bowman came out dovish two weeks ago, so our team will be curious to see if they spoke up or even garnered support for faster rate cutting from other FOMC voting members at the June FOMC gathering.

Thursday marks the unofficial start of Q2 earnings season. 

• We’ll get company-level perspectives on the macro from Delta Air Lines (DAL), Conagra Brands (CAG), and Levi Strauss (LEVI). Big bank quarterly reports don’t begin rolling in until Tuesday, July 15. 

• Initial Claims will, of course, be in focus in the premarket. 

• Fed speak is also loud; Musalem, Waller, and Daly all have public engagements.

Barring breaking news on the trade front, it should be a quiet summer Friday. 

• Just the monthly Treasury budget statement comes out in the afternoon. But next week is a doozy, with CPI, PPI, Retail Sales, and an onslaught of major Q2 earnings reports.

Fiscal Policy Framework

Fireworks lit up the Beltway’s skies on the fourth of July, and champagne corks may have been popping at the White House (although the POTUS doesn’t drink) and on Capitol Hill (at least among House and Senate Republicans). The $3.8 trillion OBBB cleared the Senate, was approved by the House, and was signed into law on the North Lawn on Independence Day evening. 

The reconciliation package is largely an extension of Trump’s 2017 signature Tax Cuts and Jobs Act (TCJA), with some additions, including a tax exemption on tips and overtime, as well as an increased standard deduction for seniors. Unfortunately, plenty of pork was tacked on, too. Lisa Murkowski (R-AK) had to be particularly wooed with handouts for residents in The Last Frontier.

Markets expected it to pass, but getting to the finish line by the fourth of July was a clear win for President Trump. Between the OBBB and ending the Israel-Iran conflict, he has gained significant political capital. That's critical as tariff deals get crafted in the days and weeks ahead. Also helping Trump’s and Treasury Secretary Scott Bessent’s goodwill is the surprisingly high amount of tariff revenue already collected. According to the US Treasury, import duties are currently generating over $300 billion in annualized revenue, an increase from $80 billion a year ago.

The first significant bilateral trade agreement was reached with Vietnam last week. The terms are a 20% tariff on Vietnamese imports and a 40% tariff on goods transshipped from China through Vietnam (0% tariff rate on the US). The deal should benefit US retailers relying on Vietnam for sourcing, and we saw names like Nike (NKE) and Under Armour (UAA) rally last week as a result. The White House hopes that pact lays the groundwork for more deals. 

Last week, Bessent indicated that extensions might be granted to countries negotiating in good faith, with the hope of concluding the trade agenda by Labor Day. However, some tariffs, including Section 232 sectoral tariffs that impact major auto-importing economies, such as Japan, South Korea, and the EU, remain in limbo. The EU, specifically, faces a July 14 deadline for retaliatory tariffs if no agreement is reached.

Risks & Opportunities

As we have pointed out, July has been the best month for the S&P 500 over the past 15 years, but investors may have front-run the widely telegraphed seasonal strength. Today, with US large caps trading at a collective 22.2x forward earnings estimate, very close to the February cycle peak in the price-to-earnings multiple, the bulls must work to keep the possession arrow. 

Perhaps the earnings season will be the catalyst. Recall in April, during the throes of tariff-related macro volatility, incredible bottom-line numbers from the likes of Microsoft (MSFT) and Apple (AAPL) helped support the entire equity market. Importantly, guidance from the Mag 7 companies was upbeat just when sturdy outlooks were needed most. 

Back then, the P/E was 18-19x, not 22-23x. We could see a bit more upside, but seasonal tendencies assert for a more defensive posture come August and September. Moreover, the four-year election cycle points to more volatile price action from mid-July through Q3 of 2026.

Our team is watching small caps. Their technical advance in recent sessions was impressive, and when they get going, ascents can be fast. There could be a catch-up trade if/when IWM eclipses its all-time high. For that to happen, we’ll need soft summer inflation readings, and with economists widely expecting tariffs to seep into consumer prices, a downside inflation surprise could occur.

Finally, the dollar’s move will be key. On the heels of a solid payrolls report, if the DXY holds its June low, then that could be the spark for a rebirth of the US Exceptionalism trade, which may cause international ETFs to tap the brakes.

Quick Hits

• In a slow-to-hire, slow-to-fire labor market, US private payrolls growth was the weakest since October 2024.

• Challenger Job Cuts unexpectedly fell in June and are now down YoY.

• Chances of a July rate cut are largely off the table.

• Based on announced policies, the effective US tariff rate has risen from 10% to 13%.

• In Q2, the growth style beat value by the most since data has been kept (the mid-1990s). But growth and value are up an identical 7-8% so far in 2025.

• The OBBB’s passage means each US newborn will receive a $1,000 S&P 500 starter account.