August 1, 2025
Sameer Samana, CFA Head of Global Equities and Real Assets
Tariffs, earnings, and economic data hit markets
What’s moving markets
- This morning’s payrolls growth for July came in weaker-than-expected and continued the recent trend of a cooling labor market. An earnings miss from a large consumer-oriented company and tariff announcements overnight from the president are also weighing on sentiment, which had become overly optimistic.
- The S&P 500 Index was sharply lower on the news, as was the 10-year Treasury yield and crude oil futures. The U.S. dollar fell, mainly on the prospect that the Federal Reserve policy makers would cut rates.
Our perspective
- The pause on reciprocal tariffs supported an equity rally, while U.S. economic data showed slowing but no recession. This signal is clearest in service sectors, which we expect will resist direct tariff impacts.
- Slower job growth and a resumption of tariffs are denting that equity market rebound. The news reiterates our cautious guidance of recent weeks, namely, that new tariffs remain material risks to financial markets, especially when the announcements come as surprises.
- The S&P 500 Index is in an uptrend and may find support next at the 50-day moving average (6129), followed by the 200-day moving average (5901) and resistance at the recent high (6390).
Implications for investors
- The uncertainty is likely to promote range trading, and we favor neither chasing rallies nor selling on weakness. Instead, for long-term investment objectives we favor adding exposure incrementally on down days to high-quality U.S. equity asset classes and sectors and staying selective in fixed income (see below).
- If the risk-asset rebound resumes, we prefer to trim equities and commodities in favor of fixed income.
What to do now
For investors who have cash and are considering investment, even amid uncertainty, we would stick with quality in equities and selectivity in fixed income. In equities, international economies depend more on trade than does the U.S. economy, so we favor U.S. equities. Among the U.S. markets, we favor U.S. Large Cap and Mid Cap Equities and select sectors (Information Technology, Communication Services, Financials, Utilities and Energy). We also favor investment-grade fixed income and would focus on corporate bonds and essential-service municipal securities. In our view, the middle range (3 to 7 years) offers the best value at this time.
Risks Considerations
Forecasts and targets are based on certain assumptions and on views of market and economic conditions which are subject to change.
Each asset class has its own risk and return characteristics. The level of risk associated with a particular investment or asset class generally correlates with the level of return the investment or asset class might achieve. Stock markets, especially foreign markets, are volatile. Stock values may fluctuate in response to general economic and market conditions, the prospects of individual companies, and industry sectors. Foreign investing has additional risks including those associated with currency fluctuation, political and economic instability, and different accounting standards. These risks are heightened in emerging markets. Small- and mid-cap stocks are generally more volatile, subject to greater risks and are less liquid than large company stocks. Bonds are subject to market, interest rate, price, credit/default, liquidity, inflation and other risks. Prices tend to be inversely affected by changes in interest rates. Municipal bonds offer interest payments exempt from federal taxes, and potentially state and local income taxes. Municipal bonds are subject to credit risk and potentially the Alternative Minimum Tax (AMT). Quality varies widely depending on the specific issuer. Municipal securities are also subject to legislative and regulatory risk which is the risk that a change in the tax code could affect the value of taxable or tax-exempt interest income. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investing in a volatile and uncertain commodities market may cause a portfolio to rapidly increase or decrease in value which may result in greater share price volatility.
Sector investing can be more volatile than investments that are broadly diversified over numerous sectors of the economy and will increase a portfolio’s vulnerability to any single economic, political, or regulatory development affecting the sector. This can result in greater price volatility. Communication Services companies are vulnerable to their products and services becoming outdated because of technological advancement and the innovation of competitors. Companies in the Communication Services sector may also be affected by rapid technology changes, pricing competition, large equipment upgrades, substantial capital requirements and government regulation and approval of products and services. In addition, companies within the industry may invest heavily in research and development which is not guaranteed to lead to successful implementation of the proposed product. The Energy sector may be adversely affected by changes in worldwide energy prices, exploration, production spending, government regulation, and changes in exchange rates, depletion of natural resources, and risks that arise from extreme weather conditions. Investing in the Financial services companies will subject an investment to adverse economic or regulatory occurrences affecting the sector. Risks associated with the Technology sector include increased competition from domestic and international companies, unexpected changes in demand, regulatory actions, technical problems with key products, and the departure of key members of management. Technology and Internet-related stocks, especially smaller, less-seasoned companies, tend to be more volatile than the overall market. Utilities are sensitive to changes in interest rates, and the securities within the sector can be volatile and may underperform in a slow economy.
Definitions
An index is unmanaged and not available for direct investment.
S&P 500 Index is a market capitalization-weighted index composed of 500 widely held common stocks that is generally considered representative of the US stock market.
Investment Grade bonds - A rating that indicates that a bond has a relatively low risk of default. Bond rating firms, such as Standard & Poor's, use different designations consisting of upper- and lower-case letters 'A' and 'B' to identify a bond's credit quality rating. 'AAA' and 'AA' (high credit quality) and 'A' and 'BBB' (medium credit quality) are considered investment grade. Credit ratings for bonds below these designations ('BB', 'B', 'CCC', etc.) are considered low credit quality, and are commonly referred to as "junk bonds".
General Disclosures
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