July Market Insights Report
Welcome to the first edition of our monthly market insights report. This report will cover the economic standing and market of July 2025. Our goal is to provide a clear review of recent market activity and share insights to help investors frame their own decisions. Our focus will always remain on market facts and trends, touching on political developments only when they directly affect capital markets through tariffs, tax laws, or other government actions.
Economic Growth and GDP Volatility
The most recent GDP report showed the U.S. economy growing at a 3% annualized rate, well above the consensus growth expectation of 2.3%. GDP stands for Gross Domestic Product, and this measures the production in the domestic U.S. economy. Imported goods take away from GDP because consumers are swapping foreign-produced products for their domestically made counterparts.
Second quarter GDP was extremely strong and overcame the first quarter’s economic decline of 0.5%. The first quarter GDP report was artificially low, largely driven by a surge in imports ahead of expected tariffs. In the second quarter, imports were lower, and this caused a higher-than-anticipated increase in domestic production. Given the volatility in the economy due to tariffs, investors will need to adopt a longer-term focus to smooth out the quarter-to-quarter variability of GDP reports that may be driven by excessive imports or a strong decline in imports, and these large shifts will have a meaningful impact on domestic production statistics.
An obvious question is, why are we seeing such pronounced moves in GDP, given that the U.S. is the largest and most well-developed economy on earth? The answer is that the fluid nature of the tariff talk has caused businesses to make quick decisions to try and avoid paying tariffs on imported goods. This has been a very disruptive factor in the economy.
Federal Reserve Policy and Inflation
President Trump has been leaning on the Federal Reserve, demanding a rate cut, but on Wednesday, July 30th, the Fed voted to hold the Federal Funds rate steady. Immediate stock market action was a downward move as investors were hoping for a reduction in the Federal Funds rate, and a lower rate would have been a bullish factor for stocks. While the majority of Fed Governors were in favor of keeping interest rates steady, there were two dissenting votes.
The June Personal Consumption Expenditures (PCE) Index rose 0.3%, which was higher than expected and placed the Fed’s preferred inflation gauge at 2.8%, well ahead of their 2.0% target. Consumers continued to spend, and this fueled economic activity and inflation. This data release underscores the fact that inflation has not been tamed and is the primary reason the Fed decided to remain on hold at this week’s Federal Reserve meeting. Why is this important? Approximately 70% of consumption in the U.S. is driven by consumers.
The argument for cutting the Federal Funds rate is that inflation has been coming down, the employment market is slowing, and any lessening of mortgage rates could spur strength in the housing market. As everyone that ever bought a home knows, there is typically significant spending after the home purchase on houseware items, furniture, and tools. This consumer activity boosts the overall economy. However, with mortgage rates at multi-decade highs, many homeowners are staying put with their low-rate mortgages. The argument for maintaining the Fed Funds rate at its current level is that while inflation has subsided from the 2022 highs, it has not retreated to the 2.0% Fed target. Further, economic history has shown that a sort of echo-inflation period often follows bouts of high inflation, where, after an initial decline in inflation, there is a re-acceleration.
The Fed is likely gun-shy to reduce the Federal Funds Rate because they badly missed calling the current inflationary cycle. In fact, the Fed argued that inflation was “transient”, and this led them to very slow action to increase the Federal Funds rate to stave off this current bout of inflation. It is our assumption that the Fed wants to see concrete evidence that inflation has subsided before cutting rates. It also appears that they will risk an economic slowdown and some increase in the unemployment rate to ensure that inflation is truly brought under control. There is certainly more to come on this topic, and we will discuss inflation and its relative velocity as we move through the remainder of the summer and into the fall.
Market Performance and Key Indicators
For the month of July, the S&P 500 returned 2.17% and this brings the year-to-date return to 7.78%. The 10-year Treasury yield ended July at a yield of 4.36, and this represents a decline of 0.21% since the beginning of 2025. Oil has been volatile this year, and it is also a significant contributor to inflation and overall economic perceptions. Keep in mind that oil is not only an expense to fill your gas tank, but crude prices influence other energy prices for powering homes and businesses, and as a manufacturing input for fertilizer, plastics, and other petrochemicals. Oil closed on December 31, 2024, at $71.72 and is currently trading at $65.60. We closed at slightly above $80 on January 15th and oil was as low as $57.13 on May 5th. Overall, while oil prices have moved around based on tariffs and other geopolitical concerns, oil, in and of itself, has not been a significant inflation driver this year.
There is an old market adage that markets climb a wall of worry. We continue to believe that there is plenty of worry to go around. Domestically, we are still dealing with inflation above the Fed target, a cooling labor market, and a severely divided Congress. Globally, the war in Ukraine continues to grind on, the Israel/Hamas conflict continues, Iran is still looking to develop nuclear weapons, and relations with China are troubling to say the least.
A lot to digest, and we will be providing more commentary in the months to come. If you would like to discuss your portfolio, retirement planning, or other investment concerns, please contact us, and we can schedule a conversation.
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