Monthly Market Update – July 2025

Key Takeaways

• UNCERTAINTY RETREATS, SENTIMENT RECOVERS U.S. equities rose in July, driven by positive developments including tariff agreements, passage of the budget bill, resilient economic data, and a strong start to Q2 earnings season. The S&P 500 gained +2.2%, hitting ten record highs. Small caps underperformed large caps but still posted a third consecutive monthly gain. Internationally, emerging markets outpaced developed markets, and Treasury yields rose modestly, pressuring bond prices.
• TRADE DEALS TONE DOWN TARIFF TURBULENCE President Trump’s evolving tariff policies have dominated headlines, but their impact on markets has lessened, especially after several trade agreements were reached in July with countries including Japan, the EU, and South Korea. While peak trade uncertainty may be behind us, August remains active and dynamic for those without agreements like Canada, India, and Switzerland.
• RESILIENT ECONOMIC DATA The U.S. economy grew at a stronger-than-expected annual rate of +3.0% in Q2, rebounding from a -0.5% contraction in Q1. The surge was largely driven by a sharp drop in imports, which boosted net exports, along with modest gains in government spending and personal consumption. Private investment declined significantly, though this was distorted by inventory fluctuations tied to tariff activity. Labor productivity also improved, while unit labor costs rose less than expected, easing inflation concerns.
• ROBUST EARNINGS AND REVENUES Markets have remained resilient in the face of tariff uncertainty and mixed economic data, thanks to exceptionally strong corporate earnings in Q2. Companies are beating both revenue and EPS estimates at rates higher than historical averages. For S&P 500 firms, the blended growth rate of +11.8% is more than double the +4.9% forecast expected at the quarter’s start.
• REDUCED “RECESSION” CITATIONS Corporate sentiment has improved notably, with far fewer mentions of “recession” on earnings calls compared to previous quarters. From June 15 to August 7, only 16 S&P 500 companies cited the term, down 87% from Q1 and well below the 5- and 10-year averages. Just 4% of companies mentioned it, with Financials and Industrials sectors accounting for the most mentions.
• BUYBACKS ARE BACK U.S. companies are repurchasing shares at a record pace, with $166 billion in buybacks announced in July—more than any July in history and nearly double the previous July record. Year-to-date buybacks have reached $926 billion, surpassing the prior record set in 2022, with financial and tech firms leading the surge.
• MARKET RETURNS HIDE DISPERSION UNDERNEATH Despite a nearly +9% year-to-date gain for the S&P 500 Index, underlying performance has been highly uneven, with the median stock still -12% below its 52-week high. Investors have concentrated on themes like AI, large-caps, and Industrials, while avoiding small-caps and defensive sectors, leading to historically high dispersion in stock-level returns.

Market Summary

Asset Class Total Returns

Source: Bloomberg, as of July 31, 2025. Performance figures are index total returns: US Bonds (Barclays US Aggregate Bond TR), US High Yield (Barclays US HY 2% Issuer-Capped TR), International Bonds (Barclays Global Aggregate ex USD TR), Large Caps (S&P 500 TR), Small Caps (Russell 2000 TR), Developed Markets (MSCI EAFE NR USD), Emerging Markets (MSCI EM NR USD), Real Estate (FTSE NAREIT All Equity REITS TR).

UNCERTAINTY RETREATS, SENTIMENT RECOVERS

Major U.S. equity indices posted positive results in July as several key tariff agreements were struck, the One Big Beautiful Bill (budget bill) was passed, economic data showed continued resilience, and the second quarter earnings season got off to a solid start. All those developments helped take a lot of uncertainty off the table for investors, and markets responded. The S&P 500 Index reached ten record highs in July on the way to a +2.2% gain. It was the third positive month in the last four months for the benchmark U.S. large cap index. At the sector level, performance was more mixed, with six of the S&P 500 sectors positive and five negative. Information Technology was the leader, advancing +5.2% in July, with Utilities, Industrials, Energy, Consumer Discretionary, and Communication Services also posting gains. Health Care was the big laggard, dropping -3.3%, joined by Consumer Staples, Materials, Real Estate, and Financials on the downside. Small-cap stocks still haven’t had any new all-time highs this year and have trailed large caps in seven of the last ten months. But the Russell 2000 Index did rise +1.7% in July to mark a three-month win streak. 

Overseas, stocks were mixed as developed market international stocks fell while emerging market stocks rose. After beating the S&P 500 in the first four months of the year, the MSCI EAFE Index has now trailed the S&P for the last three months after declining -1.4% in July. The MSCI Japan and MSCI Europe ex-UK indices were down -4.4% and -2.5% respectively, weighing down the EAFE Index. On the other hand, the MSCI Emerging Markets Index was up +1.9%, to extend its winning streak to seven straight months. It was the second straight month that emerging markets have beat developed international markets after trailing them in four of the first five months of the year.

Beyond equities, Treasury yields rose moderately across the yield curve in July. Yields were pressured higher from rising fiscal concerns from the passage of the One Big Beautiful Bill, continued concerns over inflation from tariffs, and resilient economic activity. Bond prices move in the opposite direction of yields, and the Bloomberg Aggregate U.S. Bond Index saw a modest loss of -0.3% for the month, only the second monthly decline in 2025. The credit sectors of the bond market rose along with equities, but the interest rate exposure in bonds more than offset the credit exposure gains. 

Despite starting July by falling to its lowest level since February 2022, the U.S. Dollar Index (USD) rebounded to end the month up +3.2%, its first positive month of the year. That marked the best monthly return since April 2022 for the greenback. While the dollar remains down -7.9% year to date, the resilient U.S. economy and reduced expectations for Federal Reserve rate cuts boosted the USD in July.

Source: Bloomberg. Data as of July 31, 2025.
Price Returns for Equity, Total Returns for Bonds.
* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

TRADE DEALS TONE DOWN TARIFF TURBULENCE

President Trump’s tariff policies have taken numerous twists and turns this year, and tariff headlines continue to dominate the news cycle. However, the impact to capital markets has clearly diminished since the initial “Liberation Day” reciprocal tariffs were originally announced on April 2. That is particularly true after several key trade deals were struck in July. The White House announced trade agreements with Japan, the European Union, Vietnam, Philippines, and South Korea before the end of July. They also extended the deadline for Mexico for another 90 days. The U.S. and China are also discussing a possible extension to a tentative deal currently in place until mid-August. 

Peak trade policy uncertainty is likely behind us, but August is still shaping up to be another busy month of tariff activity. August 1 was supposed to be the cutoff for a number of countries to reach trade deals with the U.S. But on July 31, President Trump signed an executive order that pushed the deadline to August 7, but also drastically increased levies on a number of countries, such as Canada, New Zealand, and Switzerland, that now face new tariff levels above 30%. Taken together, the average U.S. tariff rate will rise to 15.2% if rates are implemented as announced, according to Bloomberg Economics. That’s up from 13.3% earlier and significantly higher than the 2.3% in 2024 before Trump took office. Trump is expected to unveil separate “sector tariffs” on imports of pharmaceuticals, semiconductors, critical minerals, and other key industrial products in the coming weeks, so some ongoing uncertainty for companies and investors remains. Markets have appeared unfazed by the latest tariff threats, with the S&P 500 sitting near record highs and trading at historically high valuations.

Average tariff rate on U.S. goods imports for consumption

Duties collected / value of total goods imports for consumption, estimates

Data are as of July 21, 2025. Source: Evercore Investment Research, U.S. Department of Treasury, U.S. International Trade Commission, J.P. Morgan Asset Management. The current tariff rate includes all tariffs currently in effect. Estimates about which goods are USMCA compliant come from Evercore Investment Research. Imports for consumption: goods brought into a country for direct use or sale in the domestic market. Tariff rate data sourced from the U.S. ITC are estimates and may differ from data from the U.S. Department of Treasury. *Figures are estimates based on 2024 import levels and assume no change in demand due to tariff increases. Forecasts, projections and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections or other forward-looking statements, actual events, results or performance may differ materially from those reflected or contemplated.

RESILIENT ECONOMIC DATA

The U.S. economy grew at a better-than-expected rate in the second quarter as real Gross Domestic Product (GDP) increased at a +3.0% annual pace, according to the initial estimate. That was above the +2.6% annual rate Wall Street was expecting, and up sharply from the -0.5% annual contraction in the first quarter. The strong growth was driven by a sharp decrease in imports, which detracts from the GDP calculation, following the surge of imports ahead of the Trump administration’s tariffs in Q1. Indeed, Net Exports contributed +4.99 percentage points to Q2 GDP growth with Exports down -1.8% after increasing +0.4% in Q1, while Imports plummeted -30.3% after increasing +37.9% in Q1. Also contributing to Q2 GDP was Government Spending, which increased +0.4% after falling -0.6% the prior quarter (adding +0.8 percentage points to the GDP calculation). Of concern, Private Investment sank -15.6% after a +23.8% increase the prior quarter (detracting 3.09 percentage points from growth), although that data has been distorted by Inventories fluctuating due to all the tariff activity. Another positive aspect beneath the headline GDP number was Personal Consumption, which rose +1.4% in Q2 versus +0.5% in Q1 (contributing +0.98 percentage points to the GDP calculation). Like GDP, Labor Productivity was stronger than expected, rebounding to a +2.4% rate in the second quarter after contracting -1.8% in the first quarter. At the same time, Unit Labor Costs, a key inflation indicator, increased +1.6%, which was lower than expected and down sharply a +6.9% surge in the prior quarter.

U.S. Economic Growth and Labor Productivity Surprise to the Upside

Real GDP grew at a +3.0% rate in Q2 after falling -0.5% in Q1

Source: Bespoke Investment Group.

ROBUST EARNINGS AND REVENUES

Another reason the market has been so resilient despite continued tariff uncertainty and questionable economic data is very strong earnings by corporate America. So far, about three-quarters of the more than 2,000 companies whose earnings the Bespoke Research Group tracks have reported. This Q2 earnings season has seen both revenue beat rates and earnings per share (EPS) beat rates (reported results beating Wall Street analysts’ estimates), are in the top 6% of all earnings seasons for which Bespoke has data back to 2001. EPS and revenue beat rates are both over 70%. As shown below, only one brief period in 2004 and the post-COVID surge in beat rates (thanks to stimulus and economic recovery) have seen stronger beat rates overall. The uptick is also a big change from 2024 when revenue and earnings beat rates had both cooled significantly from that post-COVID surge. Forward guidance rates have also been impressive, and guidance cuts are in the bottom 11% of all earnings seasons.

With regards to S&P 500 companies, with more than 90% having reported Q2 earnings, FactSet reports that 81% have beaten consensus estimates, with a blended earnings growth rate of +11.8%. That compares to an expected earnings growth rate of just +4.9% at the end of the second quarter (June 30) and to 5-year and 10-year average beat rates of 78% and 75% respectively. If 81% is the final beat rate for Q2, it will be the largest percentage of S&P companies reporting a positive quarterly EPS surprise since Q3 2023 (also 81%). If +11.8% holds as the actual earnings growth rate for the quarter, it will mark the third consecutive quarter of double-digit earnings growth for the index. Moreover, S&P 500 companies are beating estimates by about +8%, which is above the 10-year average of 6.9%. 

 Exuberant Earnings and Robust Revenues

Earnings and Revenue Beat Rates have both topped 70% (rolling 90-day basis)

Source: Bespoke Investment Group.

REDUCED “RECESSION” CITATIONS

It’s not just investors whose sentiment has improved lately. Corporate managements appear to be much less concerned about an economic slowdown than they were during the last quarterly earnings season. FactSet searched for the term “recession” in the conference call transcripts of all the S&P 500 companies that conducted earnings conference calls from June 15 through August 7. Overall, the term “recession” was cited on 16 earnings calls conducted by S&P 500 companies during this period. This number is far below the 5-year average of 74 and the 10-year average of 61. In fact, this number reflects a quarter-over-quarter decline of -87% compared to Q1 2025, when the term “recession” was cited on 124 earnings calls (March 15 through June 14). On a percentage basis, the term “recession” has been cited on just 4% of the 442 earnings calls conducted by S&P 500 companies from June 15 through August 7. At the sector level, the Financials (5) and Industrials (5) sectors have the highest number of earnings calls where “recession” was cited, while the Real Estate (10%), Financials (7%), and Industrials (7%) sectors have the highest percentages of earning calls where “recession” was cited. In 6 of the 11 sectors, no companies have cited the term “recession” on their earnings calls for Q2 to date.

87% Fewer S&P 500 Companies Mentioned “Recession” On Q2 Earnings Calls

Number of S&P 500 companies citing “recession” on quarterly earnings calls.

Source: FactSet.

BUYBACKS ARE BACK

American companies are repurchasing their shares at a record pace, boosting their balance sheets and fueling the U.S. stock rally. U.S. companies announced $166 billion in stock buybacks last month, the most for any July on record for data going back to 1982. This surpassed the previous record of $88 billion in 2006. This is more than three times the 2021-2023 average and more than double the amount seen last year. Year-to-date through July, announced buybacks stand at $926 billion, which is $108 billion above the previous year-to-date record set in 2022. Financial and technology firms have been the main drivers of the surge. Some skeptics of corporations using capital to buy back company shares cite when they repurchase when share prices have already risen rather than when they are relatively cheap. But beyond the July surge in buybacks, S&P 500 firms bought $293.5 billion worth of their stock during the first three months of 2025, when prices were generally lower. That marked a quarterly record according to S&P Dow Jones Indices data.

Corporate Buybacks Reach July Record

Announced buybacks see highest dollar volume for July at $166 billion

Source: Birinyi Associates, The Wall Street Journal.

MARKET RETURNS HIDE DISPERSION UNDERNEATH

The S&P 500 has risen nearly 9% year to date, but Goldman Sachs points out that dispersion within the equity market has been extremely high. While the S&P 500 is right at its record high, the median stock remains -12% below its 52-week high. Investors have favored select themes and sectors, including Artificial Intelligence (AI), large-caps, and Industrials, while avoiding others, such as small-caps and most defensive sectors. This divergence has been reflected in historically high dispersion of stock-level returns. The 3-month return dispersion (the difference of the highest and lowest returns for stocks in the group) for the S&P has surged to 36 percentage points, ranking in the 82nd percentile relative to the past 30 years. Return dispersion ranks above the 70th historical percentile in 9 of 11 sectors. For instance, at the top end of the return distribution, a basket of AI-exposed stocks has returned +26%, among the strongest of any investment theme. Investors have also leaned into themes such as Cyclicals vs. Defensives (+7% vs. +3%) and large-caps vs. small-caps (+8% for the S&P 500 vs. -1% for the Russell 2000). Performance has also diverged within themes. Among defensives, the strong performance of the AI-exposed Utilities sector (+15% on an equal-weighted basis) contrasts with the weak performance of the Health Care sector (-5%). Commodity-exposed cyclicals Energy (-4%) and Materials (-2%) have lagged other cyclicals such as Industrials (+9%).

Headline Index Returns Hide Dispersion Underneath

Divergence in YTD returns across various slices of the U.S. equity market

Source: FactSet, Goldman Sachs FICC and Equities, Goldman Sachs Global Investment Research
Goldman Baskets shown, developed by GBM: equal-weighted sectors; AI-exposed = GSTMTAIP, Cyclicals = GSXUCYCL, Defensives = GSXUDEFS, High Quality = GSX1BFQL, Low Quality = GSX1BFQS

Asset Class Performance

The Importance of Diversification. Diversification mitigates the risk of relying on any single investment. It offers many long-term benefits, such as lowering portfolio volatility, improving risk-adjusted returns, and helping investments to compound more effectively.

Source: Bloomberg.

Asset‐class performance is presented by using market returns from an exchange‐traded fund (ETF) proxy that best represents its respective broad asset class. Returns shown are net of fund fees for and do not necessarily represent performance of specific mutual funds and/or exchange-traded funds recommended by The Retirement Planning Group. The performance of those funds may be substantially different from the performance of the broad asset classes and to proxy ETFs represented here. US Bonds (iShares Core US Aggregate Bond ETF); High‐Yield Bond (iShares iBoxx $ High Yield Corporate Bond ETF); Intl Bonds (SPDR® Bloomberg Barclays International Corporate Bond ETF); Large Growth (iShares Russell 1000 Growth ETF); Large Value (iShares Russell 1000 Value ETF); Mid Growth (iShares Russell Mid-Cap Growth ETF); Mid Value (iShares Russell Mid-Cap Value ETF); Small Growth (iShares Russell 2000 Growth ETF); Small Value (iShares Russell 2000 Value ETF); Intl Equity (iShares MSCI EAFE ETF); Emg Markets (iShares MSCI Emerging Markets ETF); and Real Estate (iShares US Real Estate ETF). The return displayed as “60/40 Allocation” is a weighted average of the ETF proxies shown as represented by: 30% US Bonds, 5% International Bonds, 5% High Yield Bonds, 10% Large Growth, 10% Large Value, 4% Mid Growth, 4% Mid Value, 2% Small Growth, 2% Small Value, 18% International Stock, 7% Emerging Markets, 3% Real Estate.

* The term basis points (bps) refers to a common unit of measure for interest rates and other percentages in finance. One basis point is equal to 0.01%. Bond prices and bond yields are inversely related. As the price of a bond goes up, the yield decreases.

Chris Bouffard is CIO of The Retirement Planning Group (TRPG), a Registered Investment Adviser. He has oversight of investments for the advisory services offered through TRPG.

Disclaimer: Information provided is for educational purposes only and does not constitute investment, legal or tax advice. All examples are hypothetical and for illustrative purposes only. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed. Please contact TRPG for more complete information based on your personal circumstances and to obtain personal individual investment advice.