Economic Update 7-21-2025

Economic data included gains in industrial production, retail sales, housing starts, and consumer sentiment. Inflation came in a bit higher than expected on the consumer side, surpassing the minimal change in producer inflation.

Equities were mixed globally, with gains in the U.S. and emerging markets offset by declines in foreign developed. Bonds were little-changed, along with minimal change in yields. Commodities were also mixed, as crude oil prices fell back.

U.S. stocks experienced a positive week, as positive economic data and in-line inflation were coupled with a decent start to earnings season that outweighed continued trade uncertainty. As the week began, markets began to digest the potential 30% tariff on the EU, which would put a significant strain on European growth, but perhaps not as much as the headline figure suggests.

By sector, gains were strongest in technology (helped by Nvidia receiving permission to sell AI chips to China) and utilities; these were offset by declines in energy, healthcare, and materials. Real estate also gained a fraction of a percent. Earnings season for Q2 began to ramp up, with 12% of firms now having reported, per FactSet, and higher-profile early positive surprises from JP Morgan Chase and Citigroup in the financial sector, as well as Pepsi and Netflix. Of firms reporting, nearly 85% have shown positive revenue and/or earnings surprises, with the blended earnings growth rate having risen to 5.6% from just under 5% at quarter-end and again led by communication and technology. With a substantial number of reports in the coming weeks, expected growth remains just below long-term trend levels.

Threats from the U.S. administration about firing Fed Chair Powell continued, although most were walked back. Speculation about the purpose of such comments involves a desire to lower interest rates to improve the refinancing prospects of U.S. debt, and improve deficits to counter the increase in spending from the recent tax bill. It could also serve to encourage an early resignation by Powell, which would allow the President to nominate a more ‘friendly’ Fed Chair amenable to more dovish policy. The candidate list continues to evolve, with current Treasury Secretary Bessent potentially taking the lead over Kevin Hassett (Director of the National Economic Council) and Kevin Warsh (former Fed governor). The latter two are well-known in conservative circles, albeit not always necessarily dovish in tone from the standpoint of always being pro-lower interest rates. Last week, Fed Governor Waller argued his support for a July Fed cut, which was taken with a grain of salt it appeared, as other members continue to hint at cuts later in the fall.

Foreign stocks performed negatively for the week, held back by a stronger U.S. dollar in developed market regions and no concrete progress on a U.S.-European trade deal. On the other hand, emerging markets saw gains of nearly 2%, led by strength in China and Taiwan, which offset weakness elsewhere.

Bonds were little-changed last week, in keeping with minimal changes in yields across the U.S. Treasury curve. Investment-grade corporates and high yield outperformed, with slightly positive returns. Foreign bonds also saw flattish returns, other than unhedged debt, which fell back due to a sharply higher U.S. dollar.

Commodities were mixed, as gains in agriculture and industrial metals were offset by declines in energy. Crude oil prices fell by nearly -2% last week to $67/barrel, with OPEC+ production increases, while natural gas prices rose 8% upon especially hot summer weather as we move into a peak cooling period.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.