It has been a few weeks since I made a post as the markets have gone into summer mode where volatility falls and prices edge higher – there hasn’t been much to write about that was notable. It certainly seems the sellers have hit the beach this summer and are enjoying some time off unlike we saw in April with the tariff tantrum and a fall in stock prices. The markets have largely shaken off the tariff risks, however, earnings reports for Q2 will be largely released over the next three weeks which means companies will provide guidance on how tariffs are impactful to their supply chains and future earnings. The results could be significant to how investors allocate capital for the remainder of 2025.
The S&P 500
Price action in stocks has been good since April. We can see on the right side of the chart below that the S&P 500 Index dropped in April and re-tested the high from 2022 at 4824. A re-test of a previous high is common in technical analysis so this level in the chart will be hard to break going forward. Follow-thru to the upside has continued the last several weeks and the RSI at the bottom of this weekly chart remains below an overbought condition so buyers are not exhausted (yet).
At this point, the market is looking for confirmation that tariffs will not be hampering economic growth and that the capital spending surrounding artificial intelligence remains on track. Stay tuned.
Fed Meeting Coming Up
The next Fed meeting is on the 30th and there was some economic data this week that they will need to consider. Below are the highlights:
- Retail Sales (July 17): June data showed a 0.6% increase month-over-month, exceeding the expected 0.1% and rebounding from a -0.9% drop in May, driven by gains in automobiles, building materials, and clothing.
- Jobless Claims (July 17): Initial claims for the week ending July 12 fell to 221,000, below the consensus of 233,000, indicating a resilient labor market.
- CPI Inflation (July 15): June headline CPI rose 0.3% month-over-month, aligning with expectations, with real weekly earnings dropping to -0.36%, the lowest this year.
- PPI Inflation (July 16): June year-over-year PPI was expected at +2.6%, though specific actual data is not yet available.
- Philly Fed Manufacturing Index (July 17): July index improved to 10.3, a significant rise from -9.8, suggesting a manufacturing sector recovery.
The next meeting will be interesting as some Fed Governors are becoming more vocal on cutting rates as they vie to become Fed Chair Powell’s replacement when his term expires next year. We could get some split voting and the PPI number would be the reason the FOMC would be close to another rate cut. In my opinion, they could go another 25bps but there isn’t much left in this rate cutting cycle.
The 10Yr Treasury Yield
A big question for the markets is where is the 10Yr treasury yield going? As you can see in the chart below, it has largely been unchanged over the last two years. I think we will see 10s push higher as the curve steepens in the coming year, which is based on completion of a chart-pattern. If I am right, will it be because of increased economic activity (think artificial intelligence) or because the inflation monster comes back to life (think tariff disruptions)?
Both scenarios remain viable right now but we will have a lot more information when the kids start getting back to school in September.
Hope you are enjoying your summer and thanks for reading!
Paul J McCarthy III CFA
President, Kisco Capital
