By Pete Biebel, Senior Vice President, Senior Investment Strategist
The stock market has been flying high since its Liberation Day touch-and-go in early April. Three months ago, no one expected or predicted the flight plan upon which the market was then about to set off. While the initial steep climb has more recently shown signs of leveling off, it’s still on a heading that has taken the major averages to new heights. Perhaps the most surprising aspect of this leg northward is that it has covered so much ground in spite of geopolitical turbulence and occasional administration-inspired wind shear.
Corporate earnings growth, which hasn’t been spectacular but has been consistently better than consensus, has been the primary fuel for this voyage. Inflation data hasn’t improved enough to provide much lift, but it hasn’t been bad enough to be a drag on the market. In recent years, anticipation of U.S. Federal Reserve (Fed) changes (or lack thereof) in its target interest rate (for overnight interbank loans) has acted like a rapidly approaching cold front, often forcing the market to change course. But so far in 2025, any market impact caused by Fed news has been more of the political variety as opposed to economic. The randomly timed but all-too-frequent lightning bolts of tariff threats are the phenomena that have most disrupted the directional stability of the flight.
It was again tariff proclamations that contributed to the market’s bumpy ride early last week. News over the previous weekend of higher proposed tariffs on imports from Canada, Mexico and the European Union brought a gap-down opening last Monday. The opening prints turned out to be the lows of the day as the averages regained much of their lost altitude over the balance of the session. That pattern was inverted on Tuesday. The averages gapped higher that morning on not-so-bad Consumer Price Index (CPI) data and big bank earnings. Both the S&P 500 Index (SPX) and the NASDAQ Composite Index (COMP) soared to new all-time highs in the early minutes of trading, but glided lower for the rest of the day, ending near their lows of the day and with very small net changes.
The market was in a holding pattern through the first hour or so of trading on Wednesday only to be buffeted by another of those gut-wrenching air-pocket plummets midmorning. When news reports hit that President Trump was preparing to oust Jerome Powell as chairman of the Fed, the major averages dove nearly 1% in about 20 minutes. Shortly thereafter, the president denied the report, and the market climbed steadily through the afternoon to finish with healthy gains for the day.
Thursday was the best day of the week. Before the opening, the Initial Jobless Claims report provided a tailwind: Initial claims in the prior week came in at 221,000, well below the consensus expectation of 234,000, and the lowest weekly total in three months. In addition, the Advanced Retail Sales report was much better than expected. The preliminary report indicated that retail sales in June increased by triple expectations: +0.6% month-over-month versus a consensus expectation of +0.2%. Stocks were off to a flying start at the opening bell, climbing steadily through the session, with SPX and COMP setting new closing highs at the end of the day.
Friday was a replay of Tuesday’s action: A gap-up opening that touched new highs for COMP and SPX but immediately stalled and gave back all of the initial gain. Net for the week, COMP gained 1.51%, SPX added 0.59%, but the Dow Jones Industrial Average (DJIA) couldn’t quite stick the landing. DJIA finished with a net 0.07% loss for the week. The technology sector was the wind beneath COMP’s wings, gaining nearly 2% for the week, easily the best of the 11 S&P industry sectors. Meanwhile, the healthcare sector and the energy sector were flying below the radar. Among the biggest losers were companies in the healthcare providers and services subsector. Stocks of companies including Elevance Health, Molina Healthcare and Centene Corporation had losses of between 10% and 20% for the week. Crude oil prices were essentially flat on the week, yet the S&P Energy Select Index fell 3.56%. SLB (-10.69%) and Halliburton Company (-8.06%), two of the big oil services companies, that had just recently been gaining altitude after long declines, were the worst performers in the group.
Beyond the fog of potential tariffs obscuring our outlook, one fundamental factor that has contributed to the market’s slower rate of climb has been higher longer-term interest rates. Since July 1, SPX has added a mere 100 points or so. During that time, the yield on the benchmark 10-year Treasury notes has climbed from 4.2% to over 4.4% and was very near 4.5% early last week. Falling back much below 4.4% would break the short-term uptrend and reduce the immediate potential for higher rates. But climbing above the 4.5% level in the coming weeks would be the first blip on the radar that stocks might be due for a course correction.
There are no signs that the market is going to immediately divert from its current course. With the averages essentially at all-time highs we have unlimited visibility and no ceiling overhead. Upward momentum is good, market breadth is okay and even small-cap stocks are beginning to act better. In addition to those technical factors, we also have favorable conditions on investor sentiment. It seems that traders have had less and less negative reaction to negative tariff headlines. Investor sentiment has been bolstered by continuing good economic news, relatively strong and stable employment data as well as an inflation rate that, while not decreasing, doesn’t seem to be increasing by much. It also seems that economists are becoming less pessimistic about the outlook for the rest of the year. The consensus for annualized real economic growth has nearly tripled from +0.8% to +2.2% in the past quarter.
Still, the market is currently very richly valued. Investors are counting on substantial earnings growth in 2026 to justify current prices. As analysts at one mutual fund company wrote, “There are times to play offense and times to play defense. We feel that we are not being paid to play offense in the current valuation environment.” I’m not saying it’s time to foam the runway, but if you haven’t rebalanced your portfolio in a while, then you might want to do so now.
SPX ended last week just a few points below 6300. Some consolidation of the recent advance seems likely. Just a little breather now could map a course for the 6400 area in the coming weeks. By my dead reckoning, the index could retrace all the way back to the 6100 level without doing any serious technical damage. However, if SPX takes out the 6000 level, you might want to start looking for a parachute.
This week brings a fairly light menu of economic reports. Only Thursday’s unemployment data is likely to spark any significant reaction. Thankfully, we’ll have a jam-packed week of earnings reports to sink our teeth into. Among the 100-plus S&P 500 companies due to report this week are the mega-caps Alphabet and Tesla.
| Economic Calendar (7/21/25 – 7/25/25) | Previous | Consensus | |
| Monday 7/21/2025 | U.S. Leading Economic Indicators, June, M/M | -0.1% | -0.2% |
| Tuesday 7/22/2025 | No Reports Scheduled | ||
| Wednesday 7/23/2025 | Existing Home Sales, June, SAAR | 4.03mm | 4.00mm |
| Thursday 7/24/2025 | Initial Jobless Claims | 221K | 229K |
| Continuing Claims | 1,956K | 1,960K | |
| U.S. Services Flash PMI, July | 52.9 | 53.2 | |
| U.S. Manufacturing Flash PMI, July | 52.9 | 52.2 | |
| New Home Sales, June, SAAR | 623K | 650K | |
| Friday 7/25/2025 | Durable Goods Orders, June Preliminary, M/M | +16.4% | -10.8% |
| Durable Goods Orders ex-Transportation, June Preliminary, M/M | +0.5% | +0.1% | |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market