Week Ending 8/1/2025

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MARKET RECAP

  • US stocks -2.53%, international stocks -3.18%, bonds +1.04%.It was the worst week since May. Stocks declined in spite of solid earnings by MSFT, META, and APPL.
  • Remarkably, Trump announced trade deals with the EU and South Korea, which will have a 15% tariff on imports coming into the US and a zero-tariff for US exports. You have to give Trump credit for getting the EU and South Korea to agree to this; it would appear as a Trump “win”. But 15% is about 5x the current rate, and that will be a tax on those imports. Who ends up paying for it? Time will tell, but someone will. In addition, a tariff is about as inefficient a tax as you can get. While the previously announced tariffs since “Liberation Day” have not resulted in substantial inflation (yet), they have had an economic impact (see further below).
  • Trump also announced a sweeping tariff plan imposing high “reciprocal tariffs” on imports from nearly 70 countries, including Canada (35%), India (25%), and Switzerland. (39%). These would be on countries for which no deal has been made.
  • GDP in Q2 was up by 3%, a significant improvement over the 0.5% contraction in Q1, mainly due to a pullback in imports and modest increases in consumer spending. For the first six months, growth was 1.2%.
  • The Fed kept interest rates steady, but two governors dissented, which is highly unusual. It would appear the Fed will cut in September, but higher prices might complicate the decision.
  • The PCE inflation index was released and it was up by 0.3%, and 2.6% annualized. The core PCE had a year-over-year rate of 2.8%. These numbers were higher than expected and might have been influenced by tariffs.
  • Payroll increased by 73,000 in July, less than the 100,000 estimate. Revisions to May and June meant that job growth was only 19,000 and 14,000, respectively. Tariffs, workplace raids, and cuts to the Federal workforce are all impacting the economy and hiring. In response to the news and in a typical Trump move, he fired the head of the Bureau of Labor Statistics, because, of course, the job numbers must have been manipulated and not the result of some of his policies!
  • The unemployment rate increased to 4.2% from 4.1%.
  • The ISM Manufacturing Index fell to 48 in July, marking five months in a row below 50.
  • According to the Challenger Job Cuts Report, there were 62,075 job cuts announced in July, a 29% increase from June and up 140% from July of 2024.

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