The Song Remains the Same: Big Tech, Fed, and Tariffs
If investors were expecting a different story in July, then they would have been disappointed. While we got some clarity on tariffs, much remained unresolved. The market moved higher, again led by tech. And we are still looking for clue among erratic data to help us understand the impact of tariffs, the direction of the economy, and the action of the Fed.
• The tech-heavy Nasdaq Composite continued its stratospheric charge by moving up another 4.6%. Tech stocks took the S&P500 to new highs, as well.
• The Fed met at the end of July and kept rates the same with hints of a possible September rate cut.
• We got some clarity on tariff levels for many trade partners including 15% for the EU. We are still waiting to see both short- and long-term tariff impacts on growth and inflation.
Let’s take a closer look at what else stayed the same and where we are starting to see a change in the economy and the market.
U.S. Stocks Moved Higher:
What a difference a few months make. Major indices reached new highs in July despite geopolitical tensions and volatile trade policy. The tech-heavy NASDAQ led broad index returns in July with a 4.6%gain, while the S&P 500 posted a solid 2.4% return.
Market concentration remained a key theme, with the "Magnificent Seven" technology companies driving much of the performance and earnings supporting some of the big moves. Notable performers included Nvidia (+31% YTD), Meta (+28.7% YTD), and Microsoft (+24.3% YTD), reflecting continued investor enthusiasm for artificial intelligence and cloud computing technologies.
The Dow Jones Industrial Average lagged with a 4.7% year-to-date gain, weighed down by industrial and traditional economy stocks facing tariff-related headwinds. This divergence highlights the market's preference for asset-light, technology-focused businesses over manufacturing and trade-sensitive sectors.
Despite the dollar strengthening, the foreign markets were able to hold on to most of the incredible performance year-to-date with the MSCI EAFE up 19% and Emerging Markets up over 18%.
As investors, we will need to continue to navigate the impact of the “Magnificent Seven”, the seven tech stocks that have soared in value in recent years, requiring us to stay invested to participate in the AI boom, but also maintaining diversification. We will continue to look for foreign stocks to provide some of this ballast along with the appropriate allocation to bonds which saw the 10-year treasury end July at a yield of 4.36%
The Fed Held Tight:
The Federal Reserve held interest rates steady at 4.25%-4.50% during its July meeting, marking the fifth consecutive meeting without a rate change. The most interesting element was that the decision was not unanimous with two dissenting in favor of a 25 basis point (one quarter of a percent) cut.
As is typical, the Fed is awaiting more data on tariffs’ impacts on inflation and employment data. So, we will be keeping an eye on unemployment, jobless claims and prices. August has already begun with an unexpected wrinkle, the dismissal of Bureau of Labor Statistics Commissioner, Erika McEntarfer after weaker job numbers were announced and prior months were revised downward. This will bring additional attention to future labor statistics releases.
Tariffs: Half-Empty or Half-Full
A significant development in July was the U.S.-EU trade agreement establishing a 15% baseline tariff on most EU exports to the United States. While this is less worrisome than the previous30% cap, it represents a significant increase from the 2023 trade-weighted tariff rate of 3.0% according to the WTO. At this point, the market seems to approve of certainty and will deal with the impact of the tariffs down the road.
Tax News:
The passing of the 'One Big Beautiful Bill Act' was big news at the beginning of July as congress raced against a self-imposed July 4th deadline. Most relevant for most Quotient clients is the bill keeping the 2017 TCJA tax rates in place. The biggest potential impact to investors is an expectation of continued high government deficits, pushing long-term rates higher which may weigh on the bond market. Otherwise, there was not a lot for investors to act on.
Moving Forward:
Investors who have been able to ignore the headlines and the jarring market moves this year have been rewarded with strong performance through seven months. One of our bigger challenges moving forward will be to manage the heavy market weightings to the Mag 7. This will require managing the fine line of continued participation in the AI boom while maintaining disciplined diversification. |
We will watch for economic signals on inflation and the job markets and await the Fed’s next move in September. If the Fed does cut rates as expected, we would not expect big moves from the market.
We will remain patient along with you. Please reach out to your Quotient Advisor if you have questions or concerns about how the markets might impact your plan.
Thank you for reading.
