Week In Review 

07.18.25 

Markets navigated a volatile but ultimately constructive week, with the S&P 500 and Nasdaq both notching fresh record highs. Despite persistent macro headwinds—including renewed tariff threats, uncertainty surrounding the Fed, and mixed earnings—investor sentiment remained resilient.

Economic data was generally supportive of the soft-landing narrative. June retail sales surprised to the upside, rising 0.6% in June, the first increase in three months and the strongest gain since March. The control group, which feeds into GDP, also beat expectations with a 0.5% advance. Initial jobless claims fell to 221K, the lowest since April, marking the fifth consecutive weekly decline. Continuing claims held steady at 1,956k. The July Philadelphia Fed Manufacturing Index surged to 15.9, its highest level since February, breaking a three-month streak of negative prints. Meanwhile, June housing starts rose 4.6% to a 1,321k annual rate, well ahead of consensus.

Inflation data remained tame, though tariff-related pressures are beginning to emerge. June headline CPI rose 0.3% month-over-month and 2.7% year-over-year, in-line with expectations. Core CPI increased 0.2% month-over-month, slightly below the 0.3% consensus. Notably, core goods prices—particularly in tariff-sensitive categories like apparel, furniture, and appliances—showed signs of upward pressure. PPI data came in lower than consensus estimates – core and headline readings were flat vs expectations for advances of approximately 0.3%. Import prices rose just 0.1% in June and were down -0.14% year-over-year, suggesting that foreign exporters are absorbing some of the tariff burden. However, with average tariff rates now exceeding 20% on tariff-eligible imports, the inflation buffer from pre-tariff inventory ramp-up may erode in the months ahead.

The Federal Reserve remained in focus amid political drama and mixed messaging. Fed Governor Waller reiterated support for a July rate cut, citing cooling inflation and emerging labor market risks. However, odds for a July cut remain very out-of-the-money, with futures implying just a 4.7% probability. The broader market continues to expect a September cut, with odds hovering around 58%. Meanwhile, speculation swirled around Fed Chair Powell’s job security following reports that President Trump had drafted a dismissal letter. Trump later denied any imminent plans to remove Powell, though political pressure remains elevated. News outlets focused heavily on the drama, but prediction markets like Polymarket, never assigned more than 30% odds of a Powell dismissal in 2025.

Corporate earnings were mixed but generally constructive. Big banks kicked off Q2 earnings season with JPMorgan, Citi, and Wells Fargo all beating EPS estimates. JPM and Citi raised full-year net interest income (NII) guidance, while Wells Fargo revised its NII outlook lower. Tech remained in the spotlight, with Nvidia receiving White House approval to resume H20 AI chip sales to China, reversing a prior export ban. The news lifted NVDA shares and provided a tailwind to sentiment across the semiconductor space. AMD also announced plans to resume MI308 chip exports. Meta, Amazon, and Google made headlines with AI-related investments and M&A activity, while Tesla’s executive turnover continued with the departure of its top North America sales leader.

Trade tensions remained a key overhang. President Trump reiterated threats of 30% tariffs on EU and Mexican imports, while also signaling potential new tariffs on pharmaceuticals and semiconductors. The EU responded by preparing retaliatory measures, including tariffs on U.S. services. Despite the rhetoric, markets appeared largely desensitized to the trade headlines.

Looking ahead, the path of least resistance for equities may remain higher, barring surprises from Washington or abroad. With inflation still well-behaved, labor markets stable, and earnings season ramping up, investors appear willing to look through near-term noise. However, elevated valuations, geopolitical uncertainty, and the potential for tariff-induced inflation remain key risks to monitor in the coming weeks and months. Economic data takes a backseat on next week’s calendar and makes way for peak reporting volume in Q2 corporate earnings. Highlights for next week’s economic calendar include (FactSet estimates in parentheses unless otherwise noted):

US Leading Indicators (-0.3%), US Richmond Fed Index (-1.0), US Existing Home Sales (4,055k), US Continuing Jobless Claims (prev. 1,956k), US Initial Jobless Claims (220k), US Markit (preliminary) Manufacturing PMI (52), US Markit (preliminary) Services PMI (prev. 52.9), US New Home Sales (650k), US Durable Goods Orders (m/m: -9.9%), US Durable Goods Orders ex-Transportation (m/m: 0.1%).