The S&P 500 stock index reached ten new record highs in July. This strong performance was driven by good company earnings reports, solid economic data, and new trade agreements made before the tariff deadline. The index closed at record levels six days in a row during the second half of the month. For the year so far, the S&P 500 has gained 7.8%.
But market and economic uncertainty returned at the end of July. On July 31, the announcement of new tariff rates worried investors about higher prices for everyday goods. Also, the July jobs report showed that the job market has been much weaker over the past three months than we previously thought.
In this situation, it’s important for investors to stay calm as markets react to new trade news and economic information. The past few months remind us that things can change quickly in just a few weeks. Keeping a long-term view is still the best way to reach your financial goals.
Important Market and Economic Information
- The S&P 500 went up 2.2% in July, the Dow Jones Industrial Average rose 0.1%, and the Nasdaq increased 3.7%. For the year so far, the S&P 500 is up 7.8%, the Dow is up 3.7%, and the Nasdaq is up 9.4%.
- The Bloomberg U.S. Aggregate Bond Index (which tracks bond performance) fell 0.3% in July. The 10-year Treasury yield rose slightly to end the month at 4.38%.
- International stocks had mixed results. The MSCI EAFE index (developed markets) fell 1.5% and the MSCI EM index (emerging markets) gained 1.7%.
- GDP (the total value of goods and services produced) grew at a 3.0% annual rate in the second quarter. This was mainly due to changes in business investment and import activity because of tariffs.
- The U.S. dollar index bounced back from 96.88 at the end of June to 99.97 at the end of July. It is still down significantly this year.
- Bitcoin hit a record high of $120,198 in the middle of the month before ending July at $116,491.
- The price of gold stayed strong but is below its recent peak, ending the month at $3,293.
- Copper prices surged to record levels due to targeted tariffs, but then had its biggest single-day drop of 22%.
- The Consumer Price Index (which measures inflation) rose 2.7% compared to the same time last year in June, matching what economists expected.
- The economy added only 73,000 jobs in July. Big downward changes to the May and June numbers mean the economy was much weaker than originally reported. The unemployment rate stayed low at 4.2%.
Stock markets hit new record highs
The second quarter earnings season that started in July continues to show positive surprises, pushing markets higher. While many companies have reported some impact from tariffs, the effects have not been consistently bad. With over a third of S&P 500 companies reporting their earnings, 80% had better-than-expected earnings per share. The combined earnings growth rate is now 6.4% per year, which is lower than recent quarters but higher than what Wall Street analysts expected.1
Excitement about artificial intelligence helped several Magnificent 7 stocks. Both Microsoft and Meta reported better-than-expected earnings while making major investments in AI technology. As a result, Microsoft joined NVIDIA as the second company ever with a market value of over $4 trillion. Meanwhile, Tesla reported disappointing results for the second quarter, causing its stock price to fall.
While technology stocks have had ups and downs so far in 2025, the Information Technology sector is up over 13% for the year. Only the Industrials sector has done better with returns over 15% so far in 2025. Health Care and Consumer Discretionary stocks have performed poorly and are showing losses.
In the bond market, it was a relatively quiet month, with bonds falling slightly overall. The Federal Reserve (the central bank) kept interest rates steady between 4.25% and 4.50% for the fifth meeting in a row. They are balancing concerns about inflation due to tariffs with economic growth. However, for the first time since 1993, two Fed governors voted against this decision, preferring a quarter point cut. This follows ongoing public tension between President Trump and Fed Chair Powell as the White House continues to push the Fed to lower interest rates.
New data after the meeting showed that hiring slowed in July, with 73,000 jobs added during the month. Previous reports were revised downward, meaning there were 258,000 fewer jobs added in May and June than originally reported. The three-month average is now only 35,000 new jobs per month, far below the historic average. This suggests that the Fed may have to focus more on the employment part of its job, increasing the possibility of rate cuts, possibly starting in September.
Investors wait for new trade deals and tariff announcements
The White House announced several new trade deals throughout July, including with the European Union, Japan, and South Korea. Trade talks with China are still ongoing. These deals avoid the worst-case scenario that many investors feared in April, but many other countries are still facing potentially higher tariff rates as the deadline to negotiate expires. On July 31, President Trump issued an executive order with new tariff rates for many trading partners set to start on August 7 (the previous tariff deadline was August 1), as shown in the chart above.
As of July 23, the Yale Budget Lab estimates that consumers face an overall effective tariff rate of 20.2%, the highest since 1911. So far, it appears that companies have managed to absorb much of this extra cost rather than pass it on to consumers. Whether this continues depends on where tariffs ultimately end up and how companies manage to adapt.
The government passed major laws on taxes and cryptocurrencies
Bitcoin reached new highs in July as Congress considered new laws to regulate cryptocurrencies (digital currencies like Bitcoin). The perceived friendliness of the administration toward wider use of cryptocurrencies has resulted in gains for Bitcoin in 2025. Separately, the GENIUS Act, which has been signed into law, focuses on stablecoins which are often tied to the U.S. dollar.
On July 4, President Trump signed a comprehensive tax and spending bill that made many provisions from the Tax Cuts and Jobs Act permanent, including current tax rates and brackets. The bill provides more certainty to investors by maintaining the current low-tax environment, but also raises concerns about the sustainability of the growing national debt.
The Congressional Budget Office estimates the bill will add over $3 trillion to the national debt over the next decade. While there were spending cuts to major programs in the bill, they were more than offset by reductions to tax revenue.
The permanent nature of many of these tax changes removes uncertainty that has affected long-term financial planning, since many provisions from the TCJA were scheduled to expire this year. This could help support business investment and consumer spending in the near term.
The bottom line? The market reached many new highs during a busy month of tariff changes, a new tax bill, and earnings reports. As we head into August, trade deals and earnings will likely remain a focus for investors.
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