Stocks Advance on Trade Deal News; Bonds Also Gain
Good morning, and welcome to the last week of July already. This summer has gone by fast!
The Dow (+1.3%), NASDAQ (+1.0%), and S&P 500 (+1.5%) each gained modestly for the week. Meanwhile, taxable bonds and tax-free municipal bonds gained about 0.4%. The 10-year Treasury yield fell 0.05% to finish the week at 4.38%.
Between last week and this week, we are amid a slew of economic data. However, that data is being overshadowed by two key issues: the looming trade deadline and corporate earnings reports. The (latest) trade deadline is August 1, and many key trade partners are now coming to the table. Last week, Japan inked a deal with the US and the Japanese stock market rallied by 5%. European stock markets also rallied last week in hopes of a trade deal between the US and the European Union (EU). Well, their hopes were fulfilled, as the US and EU inked a trade deal over the weekend. Thus, in the past couple weeks, the US has entered trade deals with many of its key partners, and the deal with China is still in the works, with an expected extension of another 90 days.
As for corporate earnings (FactSet), S&P 500 earnings growth currently stands at 6.2%, with 82% of companies beating their estimates (albeit their estimates were intentionally lower in Q2 due to tariff uncertainty). That said, the US earnings are the best game in town, as international earnings are expected to decline by 4.4%. While US corporate earnings are outpacing the rest of the world, it’s quite bifurcated. Six of the eleven sectors are on track for negative earnings growth, with the five positive sectors being communications (+34%), technology (+16%), financials (+10%), with real estate and healthcare up about 1%.
In the week ahead, the bulk of S&P 500 earnings report will be completed and will include four of the Magnificent 7 (AI-related stocks that have driven the markets the past 2+ years) – Apple, Amazon, Meta, and Microsoft. As noted earlier, the trade deadline is this Friday, and we are also expecting a slew of economic data reported this week, include the all-important jobs report on Friday and the Fed-favored inflation report – Personal Consumption Expenditures (PCE). Lastly, the Fed meeting is on Wednesday, and it is widely expected that the Fed will keep interest rates the same, despite pressure by President Trump to cut rates. If the inflation data continues to be tame, the Fed may lower rates to spur economic growth to offset signs of a slowdown in the US economy. If it does, it is usually met with exuberance in the stock markets. This will be a fun week (for geeks like us)!
I encourage you to check out the charts below, provided by our CFA consulting team. The charts show the health of the residential real estate market, as well as the “affordability index”. Until recently, I didn’t realize there was such an index, but those economists seem to figure out ways of tracking everything! Have a great day and terrific week!
Source: Yahoo Finance
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The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
