Three themes dominated the markets this week: tariff tensions, the Fed, and the latest GDP report. As we reach the August 1 tariff deadline, a tentative deal with the European Union and a preliminary deal with Japan provided a midweek lift in sentiment. Watch as Wealth Enhancement’s Deputy Chief Investment Officer Doug Huber breaks down the latest tariff news, the internal division within the Federal Reserve around rate cuts, and how the latest GDP report might be misleading.

TRANSCRIPT:

Hello everyone and welcome to this week's 7 Market Movers. My name is Doug Huber and I'm the Deputy Chief Investment Officer here at Wealth Enhancement. Over the past several days, equity and rates markets have been driven by three major themes. We've had mounting tariff uncertainty, the Federal Reserve's announcement and their subsequent kind of what we’d call “cautious stance” and an eye catching GDP report that isn't quite as strong as it seems. 

So let's unpack this week's developments and what they mean for investors. A big one this week is tariff headlines intensify, right? We know that August 1 is the tariff deadline. And with broad new levies looming unless bilateral deals are finalized, there's a lot of attention being paid to what's getting done. Specifically, people are looking at the EU, which we heard this week did reach a tentative deal. Canada, Mexico, India, where we put a little bit more pressure on them for dealings with Russia and other items, Korea, Japan, a big one was the Japan deal. We did strike a preliminary deal with Japan scaling back those proposed tariffs from 25% to 15% in exchange for a $550 billion investment commitment. And that did lift sentiment midweek. 

However, the commodity markets reacted sharply, to tariff changes on what was originally just on raw materials, but they were revised to only semi-finished goods triggering a 19% drop in copper futures this week. So very volatile commodity markets on the back of those copper tariff changes. 

On the corporate side and earnings, we've definitely heard from several consumer-oriented companies. So Procter and Gamble, GM, Stanley, Black & Decker, all warned that they're going to have to raise prices to absorb some of these tariffs. Consumer brands like Walmart and Nike echoed similar pricing moves. And so we actually saw a recent study this week out of Credit Karma saying that 62% percent of Americans surveyed are already feeling an inflation hit. So interestingly, we haven't seen that quite leak into the data. We'll talk about that in a little bit. 

But, you know, lurking underneath the surface, it appears that, you know, we're starting to see some early signals. Federal Reserve came out this week and while they're holding the line, but watching the data and so as expected, they definitely held their benchmark rate steady in this meeting at that 4.25% to 4.5% for the fifth straight meeting. However, notably two Fed governors, both Waller and Bowman dissented calling for a rate hike. This is the first time since 1993 there's been a dual dissent. And I think that highlights the growing division within the Fed. 

There's a lot of competing data points, and a lot of competing agendas that are certainly showing themselves at the Fed now. I think the chair Jerome Powell, he struck a cautious tone. He's acknowledging those upside risks to inflations, particularly on the back of tariffs. And he's making clear that rate cuts are going to remain on hold until we can get inflation to move convincingly towards that 2% number. The markets responded to this. They definitely, they pared back their expectations for a September rate cut. 

Prior to this meeting, markets were, a majority of markets were assuming that we were going to see a rate cut in September. After the meeting, those expectations have fallen to less than a coin flip somewhere in that 40% to 50%. So we will see what data comes out between now and then, but the expectation is potentially those rate cuts are being be pushed more towards the end of the year, if at all. So watching that there. 

Good news, at least seemingly to start the week was we've got the Q2 GDP report and the headline was very strong, showed 3% annualized growth up sharply from the first quarter, which actually showed negative 0.5%. That being said, if you take a deeper look, it was heavily skewed by a 30% drop in imports, largely related to the tariff-related trade distortions. 

And so, if you adjust for that artificially inflated net export number, that added roughly 2% to that 3% figure. And so, while growth was positive at 1%, you know, 1% trade distortion removed, you know, 3% headline grabber isn't what it seems. And so consumer spending was relatively strong at plus 1.4%, which was a modest recovery from about 0.5% in the first quarter, but business investments remained weak. 

And inventory drawdowns have actually subtracted a lot from growth. So we're seeing people use the inventory on the shelves as opposed to pulling in new product from overseas. And so we really think that if you strip out all the distortions, the real final GDP number is probably close to plus 0.5%. So while it's positive and certainly better than the negative 0.5% we saw in the first quarter, it is nowhere near that headline grabbing 3% that you saw. 

On the equity side, it's been a relatively flat week as of recording this on Thursday afternoon, the S&P 500 is down ever so slightly on the week, fixed incomes up ever so slightly on the week, but relatively flat with underlying bouts of volatility in there. 

Today, we saw really strong earnings from Meta, Microsoft, Apple, Amazon, Alphabet, you know, all very good earnings out of the tech sector. But the market breadth has been narrow. It's really been trying to hang on to those handful of names that have had good quarters. 

Consumer names have been tough. They didn't have great quarters and they're pulling guidance or really, you know, markedly reducing future guidance. And so, will be interesting to see if this tech-led rally can hold on. Looking ahead, obviously, August 1 is the tariff deadline. So, we're certainly watching what deals get done if we get a potential extension and if not, you know, at least some guidance as to what's in the pipe that could potentially get done. 

We've heard some rumors that there is, we're close to a deal on China. Obviously, China is our largest trading partner. Is definitely going to be a headline deal. It would take years to hammer out a true bilateral change on that trade deal. But any kind of idea of moving towards some certainty will help the markets. 

Next week, we do have a heavy slate of macroeconomic data. We have a July jobs report. We have the PC inflation number, which will be very important to watch. And we have our ISM manufacturing survey. So we're seeing kind of what's going on in the industrial side of things. Any signs of a weakening labor condition or hotter than expected prices could definitely make an impact on the equity and rates markets. And so, the market is going to be watching that in anticipation of what that will mean for what the Fed might do in September. 

So in short, this week's markets have definitely balanced a strong tech earnings news against ongoing macro risks. Again, the GDP number while on paper looking very hot from a headline perspective was less good when you dug through it. Trade distortions and tariff concerns are definitely continuing to rattle the markets. We have not seen, you know, the potential impacts of these making, you know, firm kind of the hard data. We've seen it in soft data, but we're looking for it in the hard data. And so, we'll be paying attention for that next week. 

Appreciate you tuning in this week. I hope everybody has a great weekend. I look forward to coming back to you next week. And as always, in the meantime, if you have any questions or would like to dive into any of these topics further, please reach out to your advisor team. Thanks so much.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances. Investing involves risk, including possible loss of principal.

2025-8696