July 21, 2025

“In investing, what is comfortable is rarely profitable.”

Robert Arnott

Another big week on many fronts last week, but first here are the numbers. The S&P 500 finished the week up .67%, the Dow Jones Industrial Average was flat off a slight .01%, and the Nasdaq led up 1.47%. Internationally, the FTSE 100 finished gaining .57% and the MSCI-EAFE was off a fraction, down .02% . The 2 -year treasury paid 3.87% and the 10-year yield was 4.47%.

So what happened? Investors appear to be rotating out of high-growth names and back into defensive, dividend-rich sectors, with the utilities index showing the first signs of a technical breakout after months of consolidation. While tech and consumer discretionary stocks continue to dominate headlines, a clearer setup in utilities has some traders eyeing the sector for stability amid persistent market volatility.

On the policy front, U.S. trade and regulatory moves are still rippling through markets. Asian buyers are weighing increased U.S. imports to ward off higher tariffs, even as China vows to crack down on illicit rare-earth exports under pressure from Washington. And in Washington, tensions flared again between President Trump and Fed Chair Jerome Powell over renovation costs at the Fed’s headquarters, stoking speculation that political pressure could influence future rate decisions.

The U.S. stock market ended mixed last Friday, with the S&P 500 and Nasdaq Composite logging weekly gains as companies reported their latest quarterly earnings. Big Tech stocks mostly rose on Friday, but the S&P 500’s 11 sectors ended the trading session mixed. Investors continued to monitor tariff-related risks, with consumer-price-index data released earlier this week showing some early signs of inflationary pressures from tariffs.

The S&P 500 finished Friday just shy of its all-time high on last Thursday, according to Dow Jones Market Data. The technology-heavy Nasdaq climbed on the week, after rising for a fifth straight day. The Dow had a slight weekly loss, booking back-to-back weekly losses.

President Donald Trump said he’s not thinking about firing Federal Reserve Chair Jerome Powell despite reports to the contrary. This was well received by the market. President Trump has criticized Powell for months because the chair has kept the short-term interest rate the Fed controls at 4.3% this year, after cutting it three times last year. Powell says the Fed wants to see how the economy responds to Trump’s sweeping tariffs on imports, which Powell says could push up inflation.

Powell’s caution has infuriated Trump, who has demanded the Fed cut borrowing costs to spur the economy and reduce the interest rates the federal government pays on its debt, and bring relief to home buyers by reduced mortgage rates. With the on-going good economic numbers and data supporting low inflation, prices declining, and little tariff effect, the President is impatient as he moves at light speed on his economic agenda.

And on the consumer front, the driver of this market, data shows that Americans are spending at a healthy clip, which helped the S&P 500 and Nasdaq Composite post fresh record closes last week. The strong performance came on the heels of a rebound in retail sales, according to report released last Thursday by the Census Bureau. As Barrons’ Sabrina Escobar reports, retail sales increased 0.6% in June from May. Economists surveyed by FactSet expected a 0.2% increase following a 0.9% decline in May. “The consumer came back to life in June after a weak performance in May. Other data like initial jobless claims and Philly Fed also painted the picture of a strong economy,” wrote David Russell, global head of market strategy at TradeStation. Sales at retailers rebounded in June after the White House dialed back high U.S. tariffs. Consumers appeared to temporarily shrug off the trade wars and spent more on cars, clothes, do-it-yourself projects and dining out. Receipts at retail cash registers rose 0.6% last month, the government said last Thursday, based on seasonally adjusted numbers. That was three times the Wall Street estimate. The surge in spending was likely helped by solid labor conditions—which seem to be continuing into July.

And Inflation? The headline readings of the consumer price index and producer price index data released last week revealed softer inflation gains than many feared. A lack of significant gains in auto prices and ample inventories may be masking the extent of the shift. Frugal consumers may also be making it hard for businesses to raise prices. The Federal Reserve’s latest Beige Book, released last Wednesday, showed businesses’ margins are coming under pressure as a result. Notable increases appeared in categories such as furniture, sports equipment, appliances, clothing, and toys in June. The breadth is important, said Omair Sharif, founder and president of research shop Inflation Insights. He points out that nearly all core goods prices outside of autos increased slightly in June but nowhere as large as the “experts” expected, suggesting that companies in general are starting to pass tariff costs on to customers. This “belies” the narrative that tariffs aren’t flowing through into consumer prices, wrote Michael Hanson, economist for J.P. Morgan. “The three-month increases for a range of goods, including household appliances, window and floor coverings, sporting goods, and other household and recreational items, are approaching—if not already well above—10% annualized,” he said. That would be boosting headline inflation, if not for a few patterns that are unlikely to last through the summer. Declines in the costs of cars and travel are a factor. But that may not persist. expect airlines to align capacity more closely to demand, which could lead to firmer readings on core services prices in the second half of the year. Translation, Prices are going down despite tariff causing inflation so talked about ad nauseum in the media. What is not mentioned is the fact that the US achieved a budget surplus in June, due largely to the economic policies and substantial increase in tariff revenue, coupled with the passage of the “Big Beautiful Bill’ and the codification of the tax cuts.

On the labor front, the number of Americans filing for unemployment benefits for the first time during the week of July 12 was 221,000, according to data released Thursday from the Labor Department. That was below forecasts for 232,000 and was even lower than the 228,000 people who filed the week prior.

What to do? For us, discipline means staying focused on fundamentals. While we can’t control market gyrations and valuations, we can focus on our anchor of value: earnings! Speaking of which, three more megabanks reported earnings last after good numbers from JP Morgan Chase last Wednesday: Bank of America, Morgan Stanley, and Goldman Sachs. All three had high bars to clear, and clear them they did, topping earnings projections, and only one –BofA– missed revenue expectations. Earnings season may be in full swing, but last week felt like a much-needed summer rally is in progress.

On the international front, the significant news is the U.S. depends on foreign suppliers for 100% of 12 critical minerals and more than 50% of 29 others, threatening economic security. President Donald Trump’s National Energy Dominance Council proposes a three-part action plan: boost domestic mining, strengthen international partnerships and improve market transparency to reduce import reliance and enhance supply chain resilience.

What about the bond market? It’s been a volatile few months for US debt and the dollar, with sudden shifts in trade and fiscal policy raising some concerns about the safe haven status of dollar-denominated assets. With US policy questions likely to remain front and center, we think bond investors wrestling with tariff-related volatility may want to lean into a more global approach.

In other news, the approximate loss that ​​“The Late Show with Stephen Colbert” takes a year, according to a person familiar with its budget is $40 million a year. As such, last Thursday, CBS pulled the plug on the show and an entire franchise launched in 1993, making it the biggest casualty yet among late-night talk shows contending with cord-cutting, changing tastes among younger viewers and declining ad revenue. It signals a return to things that should matter, profitability in media.

In short, for six turbulent months, equity investors faced a daunting combination of technological disruption, policy uncertainty and geopolitical tension. Reviewing lessons from the first half can help prepare for volatility that’s likely to recur in the quarters ahead.

We have not diminished our belief in Global stocks which touched record highs at the end of the second quarter, after a very bumpy ride. Stocks plunged in early April after President Trump escalated the trade war, muddying the earnings and growth outlooks. Later that month, equities rebounded sharply when a 90-day pause was announced on most tariffs.

Extreme volatility in the second quarter put even the most resilient investors to the test. Trump’s sweeping tariff announcements on April 2 sent markets tumbling 12% over the next week. But after the tariff delay was announced on April 9, global stocks surged by nearly 25% through quarter end.

History suggests that stocks have performed well after volatility peaks, in both developed and emerging markets. Our research shows that when the VIX Index of US equity market volatility reached unusually high levels between 40 and 50, returns for the MSCI World and S&P 500 averaged 37.4% and 34.4%, respectively, over the next 12 months. We believe that peak VIX levels—as seen in early April—reflect a fear of worst-case scenarios that often don’t materialize. When markets adjust to less extreme outcomes, equities typically recover. That’s why it’s important to stay disciplined in adverse conditions. Valuations in Europe, Asia and emerging markets are much lower than in the US. The extraordinary performance of US stocks since 2011 has been led by mega-caps, which has created significant concentration and imbalances in global markets that are ripe for reversal. What’s more, even after we strip out the Magnificent Seven companies, we find that the valuation of the MSCI EAFE Index continues to trade at its lowest multiples in over two decades. Outside the US, we see many opportunities to find highly profitable companies. Catalysts for a resurgence of non-US stocks could include increased fiscal spending in Europe and Japan, concern about the vulnerability of US companies to tariffs, a weakening dollar and eroding confidence in the US as a safe haven. These trends could spur fund flows toward markets outside the US.

As a whole, we believe the second half will continue to be bullish both at home and abroad, especially if we get some rate cut action from the Federal Reserve.

Mike