Market Overview: July Highlights
Stock Performance and Economic Context
July continued the upward trend for major stock indices, with the S&P 500 achieving gains for the third consecutive month and the Nasdaq for the fourth month. Notably, the S&P 500 experienced stable movement without significant fluctuations, marking its calmest month since July 2023. The VIX, reflecting market volatility, averaged around 17, indicating a serene trading environment. While tech giants drove the momentum, sectors such as housing, banking, automotive suppliers, and oil demonstrated considerable strength, contrastingly, logistics, entertainment, and media struggled.
This month’s robust rally propelled both the S&P 500 and Nasdaq to record highs, rebounding from post-Liberation Day downturns. Factors influencing this rally included alleviated tariffs, substantial earnings reports, and a steady macroeconomic climate. The positive reception of developments in artificial intelligence and increased trading activities complemented the uplifting market sentiment. Despite concerns surrounding rising interest rates, positive economic indicators kept investor confidence buoyant.
Trade Developments
Trade agreements significantly impacted the market’s trajectory. Several notable agreements were reached by the U.S. prior to the August 1 deadline, particularly with the EU and Japan, and negotiations with China showed progress. Treasury Secretary Bessent voiced optimism around these discussions, although tensions with Canada persisted. Investors primarily focused on reduced trade policy uncertainties, de-prioritizing the specifics of tariff levels as the momentum from AI developments offered a buffer against potential tariff impacts.
Economic Data Insights
Economic reports for July presented a mixed picture. The June payrolls surpassed expectations, and unemployment dropped to 4.1%. However, job growth forecasts for July remained subdued. Initial jobless claims fell for six weeks before a slight increase, while ongoing claims remained elevated. Consumer Price Index (CPI) and Producer Price Index (PPI) data were lower than expected, with housing data generally underwhelming. During the Federal reserve’s July meeting, a stringent stance was observed without an intention for rate cuts in September, amidst growing tensions between the administration and the Fed chair.
Digital Asset Developments
July ushered in anticipation for “Crypto Week,” held from July 14-18, focused on pivotal digital asset legislation. A key highlight was the passage of the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), which received a decisive 308-122 vote in the House and was signed into law. This legislation pioneered a federal regulatory framework for payment stablecoins, introducing a tiered licensing system. Smaller stablecoin issuers under a $10 billion market cap can obtain state licenses, while larger entities require federal oversight.
In parallel, the Digital Asset Market Clarity (CLARITY Act) passed with a 294-134 vote, aiming to resolve jurisdictional ambiguities between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). This act also seeks to establish clearer market regulations.
On a state level, Texas made headlines by implementing the first state-managed Bitcoin reserve. Managed by the Texas Comptroller, this reserve is restricted to Bitcoin, thus propelling Texas as an influential player in statewide crypto adoption.
Earnings Season Overview
As nearly 60% of S&P 500 companies released their second-quarter earnings, results have generally surpassed expectations. Approximately 83% of companies reported earnings per share (EPS) above estimates, surpassing the historical averages. The earnings surprise currently averages +7.3%, notably below the five-year average but higher than the ten-year. The energy sector leads with a 12.7% surprise, followed closely by financials and communications.
Although growth across sectors has varied, the overall earnings growth rate remains above recent historical trends at 9.5%. Six sectors recorded EPS growth, highlighted by technology and financials, while consumer discretionary and healthcare lagged behind.
Sector Performance Trends
The ongoing earnings reports reflect mixed trends in sales and growth. Nine sectors reported positive sales growth, with only energy and consumer discretionary showing declines. The average sales growth currently rests at 6.6%, with the energy sector leading the sales surprises.
Looking Ahead
As we enter August, the conclusion of the second-quarter earnings season approaches along with critical economic indicators, including job statistics, inflation data, and GDP growth. Although the Federal Reserve is not scheduled for another meeting until mid-September, August’s economic data will play a vital role in shaping their policy decisions. Historically, August has seen average returns of -0.45%, making it a month to watch closely as market dynamics unfold.
