Market Recap: July 2025

Market commentary

• Beneath volatile headlines, growth remains modest. Q2 GDP rebounded to 3.0% but was largely driven by trade and inventory distortions. Final domestic demand was up just 1.3% in the first half of 2025.
• Private sector job growth is slowing, with July payrolls rising just 73,000 — well below consensus. Structural labor constraints continue to limit supply and keep unemployment low.
• Tariff-related price pressures remain contained, with core PCE inflation steady around 2.8%.
• Manufacturing is beginning to show signs of recovery after a prolonged downturn, whereas the housing sector continues to face headwinds from elevated interest rates and persistent labor shortages.

Select economic and market data

Equities

• Equities rallied in July, fueled by strong corporate earnings, positive trade negotiations, and helpful economic data.
• Margin debt — where investors borrow against holdings to buy more stock — has now bested levels seen in 2000 and 2007.

Fixed income

• The Fed kept rates steady at its July 30 meeting. Chair Powell cited inflation risks tied to trade policy as a key reason.
• Bond yields edged higher in July, with the 10-year U.S. Treasury closing at 4.38%, up from 4.23% the previous month.

Strategic outlook

• Some caution is warranted on equities in the near term, particularly in large-cap stocks with above-average valuations; currently favoring small-cap and mid-cap domestic stocks longer-term.
• Near-average expected returns are projected for fixed income with the Fed on pause and rates reflective of conditions.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.