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Week in Review
Equity Markets:
The stock markets experienced broad positive gains last week as the earnings season continued to progress. Strength in corporate earnings announcements helped equity markets regain ground lost the previous week following a poor Nonfarm Payrolls employment report. Meanwhile, last week’s implementation of the White House’s ‘Reciprocal Tariffs’ did not negatively impact the broader equity markets as they did this past April. The markets were also receptive to an opportunity for a truce or ceasefire in the Russo-Ukrainian War. The S&P 500 Index ended the week rising 2.4%, up 9.5% YTD. The Nasdaq continues to lead the way up, having gained 3.9% last week, while the Dow Jones Industrial Average rose by 1.4%.
The current earnings season now encompasses 90% of S&P 500 component companies. So far, 81% of these companies have reported earnings that have beaten Wall Street estimates; further, 81% of companies that have reported revenues have also exceeded expectations. Should this positive EPS generation continue, we will recognize the third consecutive quarter of double-digit earnings growth1. The context is that Earnings for the Second Quarter of 2025 (which are reported in the Third Quarter) are expected to deliver 13.2% growth. So far, when excluding those of the Energy Sector, year/year earnings growth for the S&P 500 stands at 14.8%2.
Fixed Income Markets:
Yields on US Treasuries crept up last week, coinciding with the imposition of the “Reciprocal Tariffs”. The 10-Year Treasury yield rose 7 basis points for the week to read 4.28%. This reverses some of the lost ground from the previous week and the elevated market volatility recognized at the time. These developments come as both individual investors and the Federal Open Market Committee remain cautious towards bonds as the impacts of tariffs and inflation are still being recognized.
Economic:
The ISM Services Index read 50.1 in July, indicating economic expansion just barely above the 50-point threshold, below which economic contraction is indicated. July’s score is below June’s reading of 50.8 and missed Dow Jones’ forecast for 51.2. Still, it’s the 12th month in the past 13 that’s indicated expansion.
Concurrently, the US Trade Deficit narrowed to 16.0% in June. Valued at about $60.2BB, it’s the lowest it’s been in the past 21 years. June’s Exports came in at $277.3BB, down from May’s $278.0BB. Likewise, Imports hit $337.5BB last month, down from $350.3BB previously.
Looking Ahead
Equity Markets:
The Forward 12-Month Price/Earnings Ratio for the S&P 500 is currently 22.1. That’s above the Index’s 5-Year average of 19.9 and its 10-Year average of 18.5. Elevated P/E Ratios are indicative of higher premiums on expected stock performance; in other words, that stocks are more expensive than they’ve historically been. This reflects public expectations for continued growth, led by bullishness towards Generative Artificial Intelligence. Indeed, we are seeing the broader equity markets diversifying into two groups: the largest [a.k.a. ‘mega-cap’] companies, and everyone else. Indeed, the ten largest companies in the S&P 500 now account for $22.5 trillion in market capitalization, up $2.1TT (+10.2%) on a year-to-date basis. That accounts for a record 39.8% of the entire Index this past July3.
Markets with such excessive allocations into a small number of companies compel investors in the S&P 500 Index to be highly concentrated in those companies with the largest market capitalization. Investors should consider this as they determine their exposure to both the largest, momentum-driven companies, as well as more diversified allocations into those sectors and industries that do not necessarily correspond to the largest companies with the most excess overweight exposures.
Fixed Income Market
The Federal Reserve has been adamant that it will engage the economy based on data-driven responses and that it will not necessarily act ahead of incoming data. This has been especially prescient as the macroeconomic impacts of our new tariff regimes have not been readily forecasted. At the same time, the CME FedWatch tool now indicates an 86.5% expectation that the FOMC will cut the Key Rate (Fed Funds rate) by 25 basis points when it meets next month. Fed Vice Chair Michelle Bowman furthered this over the weekend when she indicated she could see three interest rate cuts taking place by the end of 20254.
It is also important that we remain mindful of the likely impacts of tariffs on the US economy, and through that, the Fixed Income markets. The imposition of the “Reciprocal Tariffs” presents a material economic risk to bond investments. Specifically, tariffs are likely to compress consumer spending and negatively weigh upon fixed investments by businesses
Economic:
The Consumer Price Index will be announced on Tuesday, and the Producer Price Index will be announced on Thursday. Together, these metrics will provide much-welcome indications of current levels of inflation, especially given the increasing impacts of our new tariff regime on consumer and producer prices. This week will also be notable for the planned meeting between US President Donald Trump and Russian President Vladimir Putin, which is set to take place on Friday in Alaska.
Sources:
1)FactSet Research Inc
2)LSEG I/B/E/S
https://lipperalpha.refinitiv.com/2025/08/this-week-in-earnings-25q2-august-8-2025/
https://lipperalpha.refinitiv.com/wp-content/uploads/2025/08/TRPR_82221_812.pdf
3)Voronoi
4)Charles Schwab
https://www.schwab.com/learn/story/stock-market-update-open
5)Nuveen Investments
https://www.nuveen.com/en-us/insights/investment-outlook/fixed-income-weekly-commentary
Important Disclosures:
Investment Advisory Services offered through Krilogy®, an SEC Registered Investment Advisor. Please review all prospectuses and Krilogy’s Form ADV 2A carefully prior to investing. This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein. An offering is made only by a prospectus to individuals who meet minimum suitability requirements.
All expressions of opinion are subject to change. This information is distributed for educational purposes only, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.
Diversification does not eliminate the risk of market loss. Investments involve risk and unless otherwise stated, are not guaranteed. Investors should understand the risks involved of owning investments, including interest rate risk, credit risk and market risk. Investment risks include loss of principal and fluctuating value. There is no guarantee an investing strategy will be successful. Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. The S&P data is provided by Standard & Poor’s Index Services Group.
Services and products offered through Krilogy® are not insured and may lose value. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein.
