Weekly Newsletter 07/18/25

Good afternoon and best wishes to you and yours.

The U.S. markets were mixed in Friday trading, off the best premarket levels. Like last week, a higher Thursday session that saw the S&P and Nasdaq post fresh record closes. Big tech was mostly higher, with other outperformers including beverages, asset managers, software, semis, apparel, and machinery. Treasuries firmer with a touch of curve flattening; 30Y yield oscillating around 5%. The dollar index is down 0.5%. Gold up 0.6%. WTI crude up 1.7%, near the best levels.

Fed and rates are in the spotlight today. Overnight, Governor Waller continued to argue the Fed can cut in July based on recent inflation data, signs of downside risk to the labor market, and an argument that the Fed should look through one-off tariff price increases. Nevertheless, July rate-cut expectations remain low; note Waller said today it is probably not critical if the Fed waits six weeks to cut in September. Other Fed focus remains on Chairman Powell, who overnight released further details on the Fed's HQ renovation while also weathering a member of Congress saying she will criminally refer him to the DoJ for perjury. Fairly quiet in terms of trade headlines. Reports Treasury Secretary Bessent told Japan's PM Ishiba a good agreement on tariffs can still be reached. China's commerce minister said spring's Geneva discussions prove countries can negotiate rather than enter a trade war. In addition, President Trump's U-Turn on Nvidia sets off talk of grand bargain with China

Economists see lower US recession risk and increased growth, but trade and immigration uncertainties persist along with worry about negative trade-war impacts, but so far that's not the reality on the ground.

Investors are flocking to high-dividend stocks, with ETF inflows reaching $17.5B amid expected rate cuts. As a ratings service downgraded U.S. debt, foreign holdings of Treasuries hit a record high in May with China's holdings falling to Feb-2009 lows. I don’t believe China’s position is one of retribution to the U.S., but a need they have to try and stabilize their economy and real estate debacle. Further proof with Bloomberg reporting China's weekly liquidity injection reached its highest level since January to prevent cash crunch.

Next week marks the unofficial start of Q2 earnings season. According to the latest Earnings Insight report from FactSet, Wall Street looking for S&P 500 earnings to increase 5.0% y/y in Q2, down from 13.3% in Q1 and what would represent the lowest rate of growth since Q4 of 2023. Revenue growth is expected to slow to 4.2% from 4.9% in Q1. Net profit margin expected to fall to 12.3% from 12.7% in Q1. Bottom-up EPS estimate fell by 4.2% over the course of Q2 (to $62.35 from $65.55), worse than the average 5-, 10- and 15-year declines of 3.0%, 3.1% and 3.3%. Revenue growth expectations slipped 70 bp over the course of the quarter. Six of the eleven S&P 500 sectors are expected to deliver earnings growth in Q2, led by Communications Services and Tech. Semis the standout in the latter. The energy sector, not surprisingly, is the biggest drag on S&P earnings growth in Q2 with weakness in underlying commodities. Looking ahead, earnings are expected to increase 7.3% y/y in Q3 and 6.4% in Q4. For all of 2025, earnings expected to increase 9.1%.

Uncertainty expected to remain a big theme on Q2 calls while the reconciliation bill passage addressed tax cuts and debt ceiling increase, global trade shakeup still a big overhang. Tariff mitigation measures are likely to continue to come with a positive spin from a margin perspective. Somewhat mixed on the macro front as price increases play into the sticky inflation dynamic. A bigger issue may be whether mitigation measures continue to avoid workforce reductions. No surprise that AI will be one of the biggest areas of focus and plays into outsized earnings growth contribution from big tech, which also has meaningful index level implications given longstanding concentration dynamics. Q1 takeaways very positive with reiteration of blowout hyperscaler capex and more talk about improved monetization and productivity, all of which are expected to again be highlighted on Q2 calls. Bank earnings, which kick off next week, are expected to highlight net interest income (NII) growth, improved investment banking and loan trends and seemingly most important from a macro perspective, a continued benign credit backdrop. The consumer is another area of focus with a ton of moving pieces, including still healthy overall spending trends, tariff headwinds, and trade-downs. Elsewhere, rate-sensitive industries, like housing, are expected to remain weak. Transportation is another area of softness, and some previews highlighted downside risks to airlines' 2H outlooks amid slowing domestic travel trends and higher fuel. When it comes to the weaker dollar, a tailwind for earnings/guidance is expected to overshadow more macro-focused concerns about US exceptionalism and inflation.

The link below contains additional personal finance articles and information including information on the recently enacted spending bill. The actual spending bill is 900 pages! The spending bill highlights provide information on the most impactful changes for you.

General resources: https://www.raymondjames.com/evangelista/resources

Spending bill highlights:
https://www.raymondjames.com/evangelista/resources/2025/07/18/what-the-one-big-beautiful-bill-act-means-for-your-finances

“The hardest thing to understand in the world is the income tax.”
--Albert Einstein

Thank you and have a great weekend.

Kyle
KYLE CHRISTIANSON, CFP^®
Financial Advisor
Raymond James & Associates, Inc.
1421 Pine Ridge Rd, Ste 300
Naples, FL 34109
Toll Free (800) 843-2025 | Direct (239) 513-6525 | Main (239) 513-6500 | Fax (239) 596-5474
Kyle.Christianson@RaymondJames.com

Any opinions are those of Kyle Christianson and not necessarily those of RJA or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. This is not a recommendation to purchase or sell the stocks of the companies mentioned. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. Leading Economic Indicators are selected economic statistics that have proven valuable as a group in estimating the direction and magnitude of economic change. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Prior to making an investment decision, please consult with your financial advisor about your individual situation.