For those of you who would prefer to listen:
This has been an impressive record run for the Stock Market. It continued to hit new, all-time highs in July. The fear from the trade wars and the April crash are deep in the rear-view mirror. America’s Economy has proven, time and again, its resiliency. And the Market has swiftly climbed that wall of worry. Consistent with 2025, there’s a ton going on. Here’s another rapid rundown:
It is Earnings Season again. More than anything else, it’s earnings that drive stock prices. The Big Banks usually lead things off. Financials made up half of the 38 S&P 500 companies that reported quarterly results this week. Included were 9 of the 10 largest banks by asset. They provide a great deal of insight into the health of Corporate America. It’s pretty simple: Follow the money.
JP Morgan kicked things off with a double-beat. America’s largest bank saw strength across the board. Revenues from both commercial and investment banking led the strength. Perhaps even more important, JP Morgan raised its guidance for the rest of the year. CEO Jamie Dimon always catches Market attention when he speaks. He had this to say: “The U.S. Economy remained resilient in the quarter. The finalization of tax reform and potential deregulation are positive for the economic outlook”. Dimon did remind everyone that significant risks persist. The Market sure has been ignoring those.
Double-beat was the theme for all of the Big Banks. BofA did it. Goldman did it. Citi did it. Morgan Stanley did it. Looser regulations have led to more activity. Consumer credit is still solid, and the IPO Market has been white hot. It was a similar theme from BlackRock, the largest asset manager in the world. Things on Wall Street have been humming. Financials ran fast into Earnings Season, seemingly pricing in the good news. There was a bit of a sell-the-news response. That’s pretty normal, and healthy. Things can get a little frothy.
Earnings can provide a great deal of insight about the health of the Consumer too. The data is akin to vital signs. Consumer spending accounts for over two-thirds of America’s Economy. It matters. It matters a lot.
American Express reported earnings this week. There were few signs of a slowdown. The company saw record spending in Q2. Cardholder spending rose 7% from a year earlier. This, despite sticky high prices and uncertainty about tariffs. Card fees grew a whopping 20%. Demand for premium cards remains strong, reflective of the health of the high-end consumer. 70% of AmEx spending goes to daily goods and services. That continues to grow at a stable pace. Interestingly, travel actually came in a little light. So that’s one sign of slowing. But restaurants are still strong.
Schwab reported its results too. There were over 1 Million new brokerage accounts opened last quarter. The company has over $10 Trillion in assets now, of which $80 Billion of new assets came in the quarter. Interestingly, $25 Billion of Schwab accounts are currently in crypto. It was zero not that long ago. That accounts for 20% of all exchange-traded products in cryptocurrencies. How about this: Schwab experienced the 2 largest trading days, by volume and Dollars, ever in April. That was during the crash. Keep in mind the company has been around since the 1970s. That’s a long time. Individual investors continue to be Bullish. That was definitely reflected in Schwab’s report card. Schwab paid down debt during the quarter and its balance sheet appears to be in strong shape. We keep close tabs on our custodian broker, where your accounts are.
Pepsi is another company that reflects the current state of consumers. The company beat some pretty low expectations. Pricing was up, but volume was down 2%. Even though Pepsi beat Street expectations, earnings contracted compared to a year ago. PepsiCo splits its business between beverages and snacks. Pepsi’s beverage business has been losing Market share to Coke and others, while its snack business has struggled due to shrinking demand for salty snacks. The expansion of GLP drugs seem to be playing a role too. Demand for zero-sugar beverages was a clear bright spot. The weak Dollar was a tailwind for international sales.
Staying on the beverage front, there was news out of the White House that Coke was going back to sugar cane. Coca-Cola’s original recipe used cane sugar as its sweetener. That goes back to 1886, when Doc Pemberton created the elixir in an Atlanta pharmacy. The company changed in the 1980s, due to rising sugar prices and tariffs on imported sugar. High fructose corn syrup emerged as a more cost-effective alternative. Starting in 1984, all Coke in America was made with government-subsidized domestic corn syrup. Sugar is more expensive in the US than it is in the rest of the world. Naturally, the corn industry is a major proponent of keeping things the way they are. However, studies have shown that high fructose corn syrup has contributed to the advancement of childhood obesity.
The Coca-Cola Company was a little coy this week on the American President’s declaration. In fact, Zero Sugar is the route that is seeing the most growth. But Mexican Coke is still the true “real thing”, with cane sugar. If you know, you know.
People continue to cut the cable cords at home and stream content they want, anytime from anywhere. Netflix is the king here. The company grew revenue 16% in Q2. That was well ahead of expectations. The streaming leader also raised its guidance for the rest of the year. Advertising and user growth were the drivers. Original content has driven strong demand for Netflix subscribers. Demand is so strong that the company has been able to raise prices. Netflix has also expanded into live sports, which brings premium pricing. The company has experimented with the NFL, Formula 1 and wrestling. It seems to be working, which will likely lead to more live sporting events. Netflix has certainly been a Market driver.
Americans are still shopping at a solid rate. Retail sales rose 0.6% in June. That was 3X the Wall Street estimate. Consumers have seemingly shrugged off the trade wars that brought a freeze to spending in the Spring. Vehicle sales showed the biggest increase among retailers. Americans spent more on cars, clothes, do-it-yourself projects and restaurants in June. Consumers seem to be over the tariff shock from April and are back at the mall and shopping online. It’s definitely a sign of confidence. People tend to go out to eat more if they feel secure in their jobs and don’t think a recession is coming. There is some evidence that tariffs are playing a role. Sales of furniture and consumer electronics, most of which are imported, fell last month.
The Consumer drives America’s Economy. Nothing else comes close. But it’s Tech that’s been driving the Stock Market. There will be an outsized earnings growth contribution from Big Tech in Q2. AI will naturally be one of the biggest areas of focus. The Street is looking for S&P 500 earnings to grow by 5% for Q2. That would be a sharp decline in pace compared to the 13.3% growth reported in Q1. It would also represent the lowest rate of growth since Q4 of 2023.
Based on that earnings growth, it should come as no surprise that Market leadership continues to be narrow. There has not been broad stock participation of late. In fact, just 6 of the 11 S&P 500 sectors are expected to report earnings growth for Q2. Case in point: Half of those earnings are expected to come from the Tech Titans. Semiconductors and Communication Services companies will likely be standouts too. The Tech Titans will deliver their Q2 report cards starting next week.
Inflation is still an issue. Tariffs are contributing. The cost for appliances jumped the most in nearly 5 years. Toy prices increased at the fastest pace since early 2021 while household furnishings and sports equipment climbed by the most since 2022. The Bond Market is paying attention. The Yield curve is steepening. The front-end is anchored below 4% and is slowly slipping as we move to an eventual rate cut by the Fed. Conversely, the 30-Year Treasury yield has been rising, hitting 5% again. Inflation remains sticky.
The Fed is caught in a quandary. Despite the solid economic footing, growth is slowing. But inflation is still present. The President has been hammering the Fed Chair to cut rates. It’s been a daily dose. A President frustrated with the Fed is nothing new. But the antics displayed today are. Fed independence from politics is essential for the system to function properly.
Further complicating the situation, there’s a bit of a divide developing within the Fed on when to cut. The Market still expects the central bank to leave rates unchanged once again at its meeting in 2 weeks. And it’s looking less likely that a cut in September occurs. At this stage, a September cut is slightly better than a coin flip. It’s much more likely to occur in October. Of course, there’s a lot of road between now and then. Anything can happen.
This was Market-moving news this week: Nvidia received assurances from the White House that it can resume selling its H20 AI chip in China. These are not the most advanced chips Nvidia makes. The H20 chip was originally designed to meet export control restrictions imposed by the US. In April, the Commerce Department restricted sales. That was in the heart of the trade wars.
This action seems to have cracked the ice in trade talks with China. Nvidia CEO Jensen Huang is proving to be one of America’s most strategic diplomats. China is making concessions too. Rare earth shipments from China jumped 32% in June. They are needed for digital devices. Diplomatic talks are back on. Both sides say they want to reach a deal before the August 12 deadline for the pause. The United States and China are economically interdependent upon each other. Talking and compromising are generally good things. The Market certainly likes it.
Nvidia is the most valuable company in America. Its Market cap punched above $4 Trillion, closing the week at $4.2 Trillion. That means Nvidia’s Market cap is over 14% of America’s Gross Domestic Product. It’s nearly 4% of Global GDP. Nvidia is more valuable than both the German and British Stock Market. Then there’s this: Nvidia was just an $18 Billion company a decade ago. Its ascent and influence is truly remarkable.
There’s been a significant pivot from the Oval Office. It appears President Trump is starting to play hardball with Russia. That’s new. The President threatened to slap 100% sanctions on anyone who trades with Moscow if it doesn’t end the war in Ukraine. This plan complicates his trade deal goals with China and India. Both are big buyers of Russian Oil. China has been reportedly stockpiling supplies for security, which translates to a burst in revenue for Moscow. As one would expect, Russian officials said Moscow does not care about Trump’s “theatrical ultimatum”.
Europe just tightened the screws on Russia. The EU agreed on an 18th package of sanctions since its invasion of Ukraine which includes lowering the G7 price cap for buying Russian Oil to $47 per barrel. It’s been at $60. It also bans ships carrying Russian crude from accessing European ports, blacklists a large refinery part-owned by Russia in India, and includes new banking restrictions. The EU will no longer import any petroleum products made from Russian crude.
OPEC+ has been aggressively increasing production to take advantage of the recent Oil price rise. Saudi Arabia crude exports in the first half of July averaged 6.4 Million barrels per day. That was a 16-month high. 2.1 Million went to China daily. That was a 5-year high. This helps explain why Oil prices have stayed elevated despite recent global demand slipping. Higher Oil prices lead to higher prices elsewhere. That’s inflation.
The Dollar just finished its worst first-half for a year in 5 decades. It fell 13% against the Euro currency and 6% against the Japanese Yen. Trade wars, ballooning debt and lower interest rates have contributed to the fall. The weak Dollar has created a major headwind for international travel. It’s much more expensive to vacation overseas. But the weak Dollar has fueled exports. American products are much more competitively priced overseas. That’s been a big driver for the Market as 40% of S&P revenues come overseas. The weak Dollar also lifts commodity prices as global supplies are largely priced in the American currency.
Back to the Market:
There’s nothing like price to change sentiment. The measured 40% Bulls this Summer are double what they were in the Spring. The panic in April has been replaced by the most Bullish attitudes on Wall Street since the previous all-time highs reached back in February. Does that mean that this rally is coming to an end? Not necessarily. A period of digestion, with some back-and-filling would be healthy. The sell-the-news event for Financials could definitely continue with already elevated expectations for Tech. The Fed meeting will likely bring some volatility back too. That said, there’s nothing Bearish about hitting fresh, all-time highs. We’d just like to see broader participation and some more leadership rotation. Perhaps that’s what August brings.
Thanks for sticking with me throughout this piece. I realize my rundowns aren’t always as rapid as they used to be. But there’s certainly no shortage of material to cover. And of course we’ve learned, time and again, that anytime, anything can happen. It’s the 2020s.
Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
