This week on 7 Market Movers, Portfolio Consulting Director Aya Yoshioka discusses the interplay between tariffs and inflation and the most recent trade deal with Japan. Aya also covers what we can expect from Q2 earnings reports over the next week. She anticipates that updates on capital expenditures and artificial intelligence will dominate headlines. Watch to hear more macroeconomic updates, including labor market and unemployment data and what those could signal for the markets.

TRANSCRIPT:

Hi. My name is Aya Yoshioka. I'm a portfolio consulting director and senior investment strategist here at Wealth Enhancement. Thanks so much for joining me today on another edition of 7 Market Movers, where we cover topics ranging from economic growth to interest rates, tariffs, inflation, and more, anything that will impact markets.

So, let's dive into key forces that have been impacting markets this week. Let's start with the tariff front. We've actually seen some positive developments, as we approach that August 1^st deadline. This week, we saw the US come to a trade deal with Japan, and we are imposing a 15% tariff rate on goods imported to the US. And this is actually a positive development because it was lower than the 25% tariff rate that the president had imposed via the letter that he sent to Japan several weeks ago.

Now we know that trade headlines will whipsaw markets, but each deal and each delay has actually helped investors push past the worst-case scenarios that were envisioned back in April. Turning to the US economy, the US economy continues to be very resilient. It is slowing a little bit, but it is muddling through. Inflation remains elevated, but it's rising less than expected, especially as we thought that the higher tariff rates would actually come through to higher prices and thus push inflation higher this year. So far, we haven't seen that, but the expectation is that we will see higher prices come through in the next 6 to 12 months.

However, given the passage of the tax bill, we may see some offsets to that. Additionally, higher prices really dampen demand and that softer demand is perhaps keeping inflation in check.

Turning to the labor market, we actually saw some initial jobless claim data today, which is Thursday, July 24^th. And today we got initial jobless claims come in at 217,000. This was below expectations, and it was the sixth straight week of lower numbers. So that's actually a positive thing there.

Continuing claims for those who are on unemployment remain relatively stable as well. And that means that while some are losing jobs, hence a softening labor market, these people and many of them are still able to find some jobs, which is why the unemployment rate remains relatively low at 4.1%.

Turning to interest rates, all eyes will be on the Fed next week when they meet. Expectations remain for a rate cut sometime in 2025, but the timing certainly remains uncertain. We know that the Fed has been on hold for the first half of 2025, and we'll have to see whether or not the Fed is contemplating the same things we are. When will we see higher inflation? Will we even see it? Or is it time to cut interest rates because we haven't seen that higher inflation rate just yet?

The other thing that we're seeing continuing to propel markets higher to new record all-time highs is the AI theme, which remains constant and dominant.

We've actually only seen a little less than 20% of companies so far report earnings. We are in the thick of earning season now. And most are actually beating numbers.

However, the earnings reactions in terms of the price reaction in the stock market has been a little bit more muted than what we saw in the first quarter as expectations going into the second quarter were a little bit more elevated as we've rallied from those lows.

Tech is still leading the charge here. And we saw that with Alphabet's earnings in which they actually increased guidance on their CapEx spending, meaning that they're going to be spending more, actually $10 billion more than they had initially guided to last quarter on more data centers. This is the proliferation of AI. You need more data centers, which means you need more cooling, you need more power, and that has continued to be a dominant theme across US equity markets.

Now, as we head into the final week of July, we do have some pretty major catalysts next week. First and foremost, as I mentioned, is the Fed meeting next Wednesday, where we'll see what kind of comments they make, whether or not they take action, on interest rates, which is probably unlikely, but it is the commentary that markets will react most to.

We will also get a labor report, on Friday, August 1, and that will give us some additional information as to the labor market and how that's shaping up.

Lastly, it is chock full of earnings next week. We get a lot of earnings from a lot of the major tech companies in those Mag 7 names. Apple is reporting, same with Microsoft and Meta, and so and as well as Amazon. And so we'll get a lot of color from those tech companies in terms of their CapEx spending and their views on artificial intelligence as well. With that, thank you so much for joining me today. And if you have any questions, please reach out to your financial advisor here at Wealth Enhancement. Thank you so much, and have a great day.

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. 

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