Market Update | July 2025

• Stocks Rise. U.S. stock indices were higher in July as agreements on trade, positive economic data and strong earnings boosted shares. The S&P 500 rose by 2.4% while the Nasdaq 100 rose 3.3% and the Magnificent 7 rose nearly 8%. The Dow Jones Industrial Average fell 0.7% in July.
• Inflation and Interest Rates. The 10Y treasury yield rose in July to 4.4% as President Trump signed his Megabill into law on July 4. The bill extends the 2017 tax cuts, introduces deductions for tips and overtime, cuts Medicaid, and boosts spending on the military and immigration enforcement.
• Meme Stocks Rally. July was a month of meme stock euphoria as retail traders increased bets on speculative stocks like Kohl’s Corp. and Krispy Kreme Inc. These bets are often made because social media personalities promote the stocks. Here is our video on the topic.
• Texas Flooding. The Guadalupe River flooded in Kurr County, Texas as torrential rains caused the level of the river to rise sharply. Parts of the Hill Country, a rural area of about 20 counties west of Austin, were devastated with hundreds of residents killed or missing.

Large caps outperformed small caps in July. U.S. stocks outperformed developed international stocks, as economic data and earnings boosted investor confidence. U.S. and emerging market equities were higher in July while bonds and real estate were generally lower.

Retail sales rose in June by 0.6% month-over-month, far exceeding consensus forecasts of a 0.1% bump as consumers spent more on a variety of goods and services including cars and car parts, food and beverage services, clothes, and building and garden materials. Consumers also indicated that they felt better about the economy in July than in June as both the Conference Board Consumer Confidence Index and the University of Michigan Consumer Sentiment Index rose from their May levels and came in ahead of expectations for the month.

There were also positive sign in the manufacturing sector as durable goods orders and factory orders grew in line with expectations in May and industrial production grew in June by 0.3% month-over-month. Despite some positive trends in consumer data, July’s labor and inflation releases were more mixed. Nonfarm payrolls grew in June by 147K jobs, which was ahead of the expected 106K positions and May’s print of 139K, a solid clip. Initial jobless claims also fell throughout the month from 233K in the first week of the month to just 218K in the final week. Unemployment also fell during the month from 4.2% to 4.1%. Private payrolls, however, came in below expectations at 74K versus the forecasted 100K and May’s print of 140K. Hiring in manufacturing was even weaker as the sector shed 7K jobs versus the 2K decline that economists had expected. This was after an 8K decline in May.

The labor force participation rate also declined slightly from 62.4% in May to 62.3%. Job openings also declined from 7769K at the beginning of the month to 7437K at the end of the month. On the inflation side, June CPI rose to 2.7% from May’s 2.4% on accelerating food, medical care, and household supplies prices. Core CPI and Core PCE also rose slightly from 2.8% to 2.9% and from 2.7% to 2.8% respectively. At their July 30 meeting, the FOMC decided to keep their policy rate at 4.25%-4.5% despite some committee members dissenting in favor of a 25-bps cut. The U.S. trade balance rose in May after falling sharply in April as tariff delays made imports more feasible for companies.

Bottom Line: The Fed continued to maintain its policy rate at its July meeting. Consumers spent more during the month and consumer sentiment readings improved. Despite the positive sentiment and spending growth, higher inflation and certain labor market data could create some challenges through the rest of 2025.