Weekend Update #240
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Amid a wave of Big Tech earnings and mounting macroeconomic concerns, the S&P 500 fell 1.6% on Friday, marking its largest single-day decline since May and erasing over $1 trillion in market value. Mixed results from several major tech companies weighed on investor sentiment, while renewed fears over economic weakness and escalating trade tensions added to the pressure. The drop capped a volatile week as markets digested soft labor data, sticky inflation, and the announcement of broad new U.S. tariffs.
Despite notable progress on trade deals with the EU, China, Japan, and South Korea, President Trump signed an executive order expanding “reciprocal” tariffs on roughly 66 to 70 countries, raising the average U.S. import rate to 15%, with some nations, like Canada and India, facing rates as high as 35% and 25%, respectively. Although the tariffs were initially set to take effect on August 1, implementation was postponed to August 7 to give importers time to adjust.
Labor market data showed continued softening. Job openings fell to 7.437 million in June, missing expectations, while the ratio of openings to unemployed workers slipped to 1.06. Total hires declined sharply for the second consecutive month—particularly in Education & Health Services and Leisure & Hospitality—though quits and layoffs held steady, suggesting stability in job separations. Friday’s nonfarm payrolls data showed U.S. job growth slowed significantly in July, with payrolls rising by just 73,000—well below expectations and accompanied by a steep two-month revision that erased 258,000 prior job gains. The unemployment rate edged up to 4.2%, reinforcing signs of a cooling labor market amid broader economic uncertainty. Weakness was especially notable in government employment, possibly reflecting the impact of federal spending cuts.
Consumer confidence rose to 97.2 in July, beating expectations, with gains driven by improved future expectations for business conditions, employment, and income. June’s reading was also revised higher, but the present situation index declined slightly due to worsening views on current job prospects. The labor differential fell to a post-March 2021 low of 11.3, while inflation expectations eased to 4.7% and the income differential continued to rebound. Overall confidence is trending upward amid better-than-expected trade developments, though concerns about the labor market persist.
On the macro front, real GDP grew at a 3.0% annualized pace in Q2, rebounding from a 0.5% contraction in Q1. The recovery was largely driven by a sharp drop in imports—likely tied to earlier tariff-related front-loading—and modest consumer spending growth (~1.4%), though business investment remained soft.
The Federal Reserve’s preferred inflation gauge, the core PCE price index, rose 0.3% month over month and 2.8% year over year in June, marking one of the fastest monthly increases so far in 2025. The annual gain indicates limited progress in curbing inflation since June 2024. At the same time, inflation-adjusted consumer spending posted only a slight uptick after declining the previous month. The data underscore the challenge the Fed faces as it navigates persistent inflation alongside subdued consumer demand, making the path forward for interest rates more uncertain.
On Wednesday, Federal Reserve officials held interest rates steady but downgraded their outlook on the U.S. economy, signaling growing openness to cutting rates. While the pause was widely expected, the decision revealed rare internal division, with two governors dissenting—the first such split since 1993. Following Friday’s weak payroll report, market expectations for a 25 basis point rate cut in September surged to 88%, up sharply from 40% just a day earlier.
Next week, markets will focus on key earnings reports and important economic data like ISM manufacturing and durable goods orders, which will help clarify inflation and growth trends. Additionally, investors will closely monitor developments in U.S. trade policies and any new signals from the Federal Reserve regarding potential interest rate cuts, all of which could contribute to market volatility.
Friday’s Close (Weekly Performance)
S&P 500 6,238.01 (-2.36%)
Nasdaq 20,650.13 (-2.17%)
Dow Jones 43,588.58 (-2.92%)
Thank you Blue Room Senior Analyst NICK PEART.
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