- Based on the Bureau of Economic Analysis’ most recent estimate, U.S. real GDP growth rebounded sharply in Q2, growing at a 3.0% annualized rate after contracting 0.5% in Q1, largely driven by resilient consumer spending and a slowdown in imports.
- Following its July meeting, the FOMC held interest rates steady for the fifth consecutive time, despite dissent from two governors who advocated for a 0.25% rate cut, which highlights growing division within the central bank over the potential economic impact of President Trump’s tariffs.
- June inflation data was supportive of the FOMC’s decision, as Core PCE, which excludes food and energy, increased by 0.3% for the month and climbed to 2.8% year-over-year, remaining above the Fed’s 2% target and slightly outpacing forecasts.
- The most recent jobs report, however, showed cracks in the labor markets, with nonfarm payrolls rising by only 73,000 in July, well below consensus expectations of 110,000.
- Perhaps more importantly, revisions to May and June cut the cumulative job gain for those two months by 258,000, so the average monthly job gain for the last three months is now just 35,000. President Trump responded to the revisions by calling for significant rate cuts in the near-term, and the market reacted similarly, now pricing in a 90%+ probability of a cut in September.
- After trending higher early on, the S&P 500 lost momentum in the last week of July but finished up 2.2% for the month, leaving the YTD tally at 8.6%. U.S. equities subsequently fell on August 1st as the underwhelming jobs report surprised investors and renewed recession concerns.
- International equities lagged in July but continue to meaningfully outpace their U.S. counterparts year-to-date, benefitting from a weaker U.S. dollar and more attractive valuations as some investors have rotated away from richly valued U.S. large cap stocks.
- After a steep decline to start the year, the U.S. Dollar Index (DXY) modestly rebounded in July but remains down ~9% year-to- date. Relatively higher rates in the U.S. have been supportive, but the forward direction of the greenback remains clouded by trade policy uncertainty and the potential for domestic interest rate cuts in the near-term.
- Bond market performance was mixed with broad indices finishing slightly negative while high yield issues posted modest gains. The U.S. 10-year Treasury yield ended July at 4.37%, up slightly from 4.24% in June, indicating upward pressure on long-term rates, which is likely a symptom of persistent concerns regarding inflation and budget deficits.
- Despite reaching some trade agreements in recent months, President Trump aggressively expanded his tariff regime by signing executive orders to resume reciprocal tariffs on imports from nearly 70 countries on July 31st, ranging from 10% to 41%. The latest deadline to reach trade deals is now August 7th, but the situation remains fluid.
- The announcement led to a sell off across equity markets, and investors should assure portfolios are risk appropriate and aligned with long-term financial planning goals as heightened volatility may persist in the coming months.
