July 2025 Market Commentary

Summer Breeze

Summary

S. large-cap stocks, as measured by the S&P 500, gained 2.2% in July while small-cap stocks rose 1.7%. U.S. intermediate-term bonds declined by 0.3%.
The Fed’s decision to hold interest rates steady led to two dissents—the most since 1993.
Mega-cap tech stocks drove S&P 500 earnings growth expectations higher. Artificial intelligence continues to fuel record-high tech company capital expenditures while contributing to increased job cuts in the sector.
A global minimum 10% tariff has been introduced by the U.S., and some countries will experience higher rates. With little retaliation, the effective U.S. tariff rate has risen to 8.85%, boosting tariff revenues and creating uncertainty around future inflation.
July brought a summer breeze of calm to markets, but policy shifts, AI disruption, and changing consumer behavior signal a more complex rest of the year.

Overview

U.S. large-cap stocks, as measured by the S&P 500 Index, gained 2.2% in July, marking the third consecutive month of gains. The Russell 2000 Index of U.S. small-cap stocks ended the month up 1.7%. In contrast, U.S. intermediate-term bonds, represented by the Bloomberg U.S. Aggregate Bond Index, finished July roughly flat, down 0.3%.

Preliminary second-quarter GDP estimates showed that the U.S. economy grew at an annualized 3.0% quarter-over-quarter—a notable improvement from the 0.5% contraction reported in the first quarter. Consumer and government spending were the main drivers of this recovery.¹ Consumer spending rose 1.4%, compared to 0.5% in the first quarter, while government spending increased by 0.4%, reversing a 0.6% decline. However, not all signals were strong: the ISM Manufacturing PMI remained in contractionary territory in July, with a reading of 48. The employment component within manufacturing dropped to its lowest level since July 2020. According to the Institute for Supply Management, “for every comment on hiring, there were two on reducing headcounts.”²While the ISM Services PMI showed service sector activity continuing to expand, the prices paid component rose to 69.9% in July—the highest reading since October 2022.³ Tariffs and tariff-related costs were cited as the key reason for rising costs.³

The Federal Reserve held interest rates steady at 4.25% – 4.50% at the July 30 Federal Open Market Committee (FOMC) meeting. The decision generated two dissents, the most since 1993. Fed Governors Christopher Waller and Michelle Bowman favored a 0.25% rate cut; both cited labor market concerns as reasons for their dissent.⁴ In a statement on August 1, Waller noted:

“Data suggest that the downside risks to the labor market have increased. With underlying inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate…I believe that the wait-and-see approach is overly cautious… and could lead to policy falling behind the curve.”⁵Both Waller and Bowman’s concerns were validated by the July jobs report, released on August 1. The U.S. added 73,000 jobs in the month, missing expectations by 31,000.⁶ More significant, there were notable downward revisions to the prior two months: May and June payrolls were revised down by a combined 258,000 jobs—the largest two-month revisions ever outside of the 2020 pandemic.^6,7

After easing to 2.3% year-over-year in May, headline inflation edged back up to 2.7% in June. Although the inflationary impact of new tariffs has so far been more muted than expected, price increases are becoming more visible in specific categories. The price for household furnishings rose 1% month-over-month in June, the highest since January 2023. Toy prices climbed 1.4% for the second consecutive month, and major appliance prices jumped 2.3%, the highest increase since January 2024. Despite inflation pressures on some goods, other areas appear to be experiencing easing pricing pressures. For example, housing inflation (which makes up over 30% of the inflation calculation) continues to ease. In June, shelter inflation increased by 0.2%, the lowest since February 2021.⁸ Despite remaining near all-time-highs, national average home prices in some major cities (Dallas, San Francisco, and Seattle) have started to decline.⁹ Further, the cost of renting continues to decline, dropping nearly 2% year-over-year in May across the 50 largest metro areas.¹⁰ Easing rent prices point to potentially slower shelter inflation and may help ease headline inflation in the coming months.

The FOMC is now on a “summer break” and will reconvene on September 17. In the interim, policymakers will receive two more inflation and employment reports, which will further inform their rate decisions. For context, when the Fed cut interest rates by 0.5% in September 2024, headline inflation was at 2.6% year-over-year, and the most recent available jobs report at the time (August 2024) showed the U.S. economy adding a modest 71,000 new jobs. Arguably, current conditions are similar to those that supported an interest rate cut in September 2024. Market expectations for a 0.25% interest rate cut in September skyrocketed from 38% to 88% following the July jobs report.¹¹

Summer Breeze

Markets spent most of July in a summery mood. On July 28, the S&P 500 set a record high, reaching 6,388 for the first time. From its April 8 low through July 31, the index gained 27%. U.S. small-cap stocks also rebounded strongly, rising 26% over the same period. Although it is still more than 6% below its all-time high, the small-cap index ended July just 0.1% in the red for the year.

This year’s “summer slowdown” (a summertime phenomenon where the stock market exhibits lower trading volumes and price volatility) was reflected in the muted movement of the CBOE Volatility Index (or VIX), which measures market expectations for volatility. Despite ongoing tariff negotiations and a flurry of executive orders (15 in total), the VIX averaged just 16.4 in July, well below the five-year average of 20.1 and the year-to-date average of 20.4. It reached a low of 14.9 on July 25.¹² For context, the lowest-ever VIX reading was 9.5, recorded on September 29, 2017.¹²

Corporate earnings helped underpin the market’s strong performance. Through the end of July, year-over-year second-quarter earnings growth expectations for the Russell 2000 Index rose to 66.4%.¹³ Over 70% of small-cap companies beat second-quarter earnings expectations.¹³ Full-year S&P 500 earnings growth expectations steadily rose over the month, from 9.0% to 9.9%, buoyed by better-than-expected earnings results from U.S. large-cap companies.¹⁴ Perhaps unsurprisingly, the Magnificent Seven group of mega-cap technology companies (Alphabet, Amazon, Apple, Microsoft, Meta, Nvidia, and Tesla) continue to dominate the growth picture. For the second quarter, this group is expected to report earnings growth of 14%, compared to just 3.4% for the other 493 S&P 500 companies.¹⁵ This trend is expected to persist throughout the rest of the year, and the Magnificent Seven stocks are projected to deliver 9.5% and 11.0% year-over-year earnings growth in the third and fourth quarters of 2025 and 11.2% in the first quarter of 2026.¹⁵ The rest of the S&P 500 is also expected to see earnings growth improve. Forecasted year-over-year growth is expected to reach 6.8%, 5.3%, and 10.8% over the next three quarters.¹⁵

Capital expenditure trends reflect this tech-led momentum. Mega-cap firms are continuing to ramp up investment in artificial intelligence (AI) infrastructure. Spending in 2025 is already at record highs, and executives have signaled more to come. During its second-quarter earnings call on July 23, Alphabet said it expects to spend $85 billion on capex in 2025—$10 billion more than its earlier estimate of $75 billion.¹⁶ In their second quarter earnings call, Meta’s CFO noted:

“We currently expect another year of similarly significant capex dollar growth in 2026 as we continue aggressively pursuing opportunities to bring additional capacity online to meet the needs of our AI efforts.”¹⁷

AI has started to drive shifts in the labor market. Job cuts in July rose to 62,075—the second-highest for a July in the past decade, behind only 2020. Technology firms led the way. According to Challenger, Gray & Christmas, AI and tariffs were the most commonly cited reasons for layoffs. Year-to-date, tech companies have announced 89,251 job cuts (up 36% year-over-year) with 10,375 of those directly attributed to artificial intelligence.¹⁸ At the same time, the JOLTS report showed job openings in the tech sector increasing by 4.1% in the first six months of 2025, the largest six-month jump in history—reflecting the shifting priorities for tech businesses.¹⁹

Also in July, President Trump signed 15 executive orders, and the One Big Beautiful Bill Act (OBBBA) on July 4, including two orders related to furthering U.S. artificial intelligence and data center advancements.²⁰ Trade policy was another major focus. As of the August 1 deadline, only a minority of countries had finalized new trade agreements.²¹ The administration introduced a global minimum 10% tariff, along with targeted country-specific rates aimed at nations with large trade surpluses with the U.S.

Trade agreements secured this far—with the European Union, Japan, South Korea, the United Kingdom, Vietnam, Indonesia, and the Philippines—are notably U.S.–friendly. For example, the EU has committed to investing $600 billion in the U.S. and purchasing $750 billion in U.S. energy products.²² South Korea has said that it will invest $200 billion in semiconductors and buy $100 billion in U.S. energy.²³ Japan pledged $550 billion in investment and agreed to open its markets to American cars, rice, and agricultural goods, although these pledges are non-binding and rice commitments remain within existing quotes.^24,25 The effective U.S. tariff rate has climbed to 8.85%, and tariff revenues are growing.²⁶ A record $29 billion was collected in July, bringing the fiscal year-to-date total to $151 billion.²⁷ The additional revenue could help partially offset the $1.34 trillion federal deficit, which is expected to widen further due to the OBBBA.²⁸

Retail investors have been unusually active in 2025, and inflows picked up sharply after President Trump announced new tariffs in early April. Over the past three months, their share of total individual stock trading has reached the highest levels since the meme-stock peaks of 2020 and 2021.^29,30 Retail traders tend to chase high-performing, high-value names with a short-term mindset.

Outside of markets, it appears that (so far) summer vacations in 2025 have been a little cooler than in recent years. According to the Bureau of Economic Analysis, the number of people who took time off work in July dropped to its lowest level since the pandemic.³¹ Bank of America reported a sharp drop in big-ticket airline spending, to its lowest since June 2021, as many consumers opted for more affordable travel.³² Still, over 70% of survey respondents said they planned to travel over the summer, with domestic road trips topping the list.³³ That trend aligns with falling gas prices and the recent jump in auto purchases, driven by consumers seeking to front-run impending tariffs. At $3.15 for a gallon of regular gas, national average gas prices are at the lowest level since the summer of 2021.³⁴ And yet, air travel hasn’t vanished. As Delta Air President Glen Hauenstein noted in the company’s recent earnings call:

“We had our highest cash sales day for the month of July in a 100-year history yesterday [July 9]. So advanced bookings are doing well. I think at the beginning, when people were fearful, we saw the further out bookings going away. We see those starting to return again and hopefully, those trends continue.”³⁵

Markets

U.S. large-cap stocks ended July up 2.2%, outperforming their foreign peers by 3.6%, as international developed market stocks ended the month down 1.4%. U.S. small-cap stocks ended the month up 1.7% while international developed market small cap stocks ended the month flat.

Gold, which remains a top performer year-to-date (gaining 27% since January), ended the month up 0.9%, at $3,289 per ounce. Copper prices plummeted by 18% on July 30 as the U.S. implemented 50% tariffs on imports of semi-finished copper products, but not the raw material itself.³⁶ West Texas Intermediate (WTI) crude oil prices traded between $65 per barrel and $70 per barrel throughout the month, while national average gas prices remained at a three-year low for this time of year. U.S. crude inventories sit at 426.7 million barrels—around 6% below the five-year seasonal average.³⁴

Looking Forward

July brought a summer breeze of calm to markets, even as deeper undercurrents—policy shifts, AI disruption, and evolving spending patterns—remain key forces shaping markets into year end. Fiscal support for the economy remains strong, and markets now expect rate cuts at the next FOMC meeting. But any growth will not necessarily be evenly distributed. Certain areas, like healthcare, remain under political and regulatory scrutiny—evidenced by declining earnings expectations and most recently by the most-favored nation (MFN) letters sent out by the Trump administration in late July. Still others, such as infrastructure and utilities, are direct beneficiaries of secular trends.

Bond yields, which we have long viewed as the potential constraint on fiscal excesses, have remained contained, partially due to softening in the labor market. But the signal may be muddied. AI is reshaping the labor market, but it also may deliver productivity enhancements that could support corporate margins in some areas. As Microsoft CFO Amy Hood noted in their second-quarter earnings call, “We expect Q1 capital expenditures to be over $30 billion…driven by the continued strong demand signals we see.”³⁷ Inflation, meanwhile, continues to flow through via tariffs and targeted goods, but there are offsets, including low energy prices and a cooling in housing inflation. Although most risky assets are substantially higher than their April lows and their valuations are more elevated, we still believe investors should maintain a healthy level of risk—balanced, not excessive, and tilted to areas with fundamental and policy tailwinds.

Performance Disclosures

All market pricing and performance data from Bloomberg, unless otherwise cited. Asset class and sector performance are gross of fees unless otherwise indicated.

Citations

Asset Class Definitions

Asset class performance was measured using the following benchmarks: U.S. Large Cap Stocks: S&P 500 TR Index; U.S. Small & Micro Cap: Russell 2000 TR Index; Intl Dev Large Cap Stocks: MSCI EAFE GR Index; Emerging & Frontier Market Stocks: MSCI Emerging Markets GR Index; U.S. Interm-Term Muni Bonds: Bloomberg 1-10 (1-12 Yr) Muni Bond TR Index; U.S. Interm-Term Bonds: Bloomberg U.S. Aggregate Bond TR Index; U.S. High Yield Bonds: Bloomberg U.S. Corporate High Yield TR Index; U.S. Bank Loans: Morningstar LSTA US LL TR Index; Intl Developed Bonds: Bloomberg Global Aggregate ex-U.S. Index; Emerging & Frontier Market Bonds: Bloomberg EM USD Aggregate TR Index; U.S. REITs: MSCI U.S. REIT GR Index, Ex U.S. Real Estate Securities: S&P Global Ex-U.S. Property TR Index; Commodity Futures: Bloomberg Commodity TR Index; Midstream Energy: Alerian MLP TR Index; Gold: LBMA Gold Price, U.S. 60/40: 60% S&P 500 TR Index; 40% Bloomberg U.S. Aggregate Bond TR Index; Global 60/40: 60% MSCI ACWI GR Index; 40% Bloomberg Global Aggregate Bond TR Index.

Disclosures and Definitions

‌Advisory Persons are dually registered with Thrivent Advisor Network, LLC (“TAN”) and SBE LLC dba Cedar Cove Wealth Partners (“Cedar Cove”) for advisory services. This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor. The information contained may have been compiled from third-party sources and is believed to be reliable. Advisory Persons dually registered with TAN provide advisory services under a “doing business as” name or may have their own legal business entities. However, advisory services are engaged through Thrivent Advisor Network, LLC, a registered investment adviser. Cedar Cove Wealth Partners and Thrivent Advisor Network, LLC are not affiliated companies. Advisory Persons dually registered with Cedar Cove provide investment advisory services offered through SBE LLC dba Cedar Cove Wealth Partners, a registered investment advisor with the U.S. Securities and Exchange Commission.

Clients will separately engage an unaffiliated broker-dealer or custodian to safeguard their investment advisory assets. Review the TAN Financial Planning and Consulting Services, Investment Management Services (Non-Wrap) and Wrap-Fee Program brochures (Form ADV Part 2A and 2A Appendix 1 brochures) for a full description of services, fees and expenses, available at Thriventadvisornetwork.com and CedarCoveWealth.com. TAN and Cedar Cove financial advisors may also be registered representatives of a broker-dealer to offer securities products. Visit Investment Adviser Public Disclosures or FINRA’s Broker Check for more information about our Advisory Persons.

The material presented includes information and opinions provided by a party not related to TAN or Cedar Cove. It has been obtained from sources deemed reliable; but no independent verification has been made, nor is its accuracy or completeness guaranteed. The opinions expressed may not necessarily represent those of TAN, Cedar Cove, or their affiliates. They are provided solely for information purposes and are not to be construed as solicitations or offers to buy or sell any products or services. They also do not include all fees or expenses that may be incurred by investing in specific products. Performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested and cannot invest directly in an index. Opinions expressed are subject to change as subsequent conditions vary. TAN, Cedar Cove, and their affiliates accept no liability for loss or damage of any kind arising from the use of this information.

The return assumptions in Third-Party Materials are not reflective of any specific product, and do not include any fees or expenses that may be incurred by investing in specific products. The actual returns of a specific product may be more or less than the returns used. It is not possible to directly invest in an index. Financial forecasts, rates of return, risk, inflation, and other assumptions may be used as the basis for illustrations. They should not be considered a guarantee of future performance or a guarantee of achieving overall financial objectives. Past performance is not a guarantee or a predictor of future results of either the indices or any particular investment. Investing involves risks, including the possible loss of principal. ‌

This communication may include forward looking statements. Specific forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and include, without limitation, words such as “may,” “will,” “expects,” “believes,” “anticipates,” “plans,” “estimates,” “projects,” “targets,” “forecasts,” “seeks,” “could’” or the negative of such terms or other variations on such terms or comparable terminology. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and that could cause actual results to differ materially.

Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable. A summary description of the principal risks of investing in a particular model is available upon request. There can be no assurance that a model will achieve its investment objectives. Investment strategies employed by the advisor in selecting investments for the model portfolio may not result in an increase in the value of your investment or in overall performance equal to other investments.

Index Benchmarks presented within this report may not reflect factors relevant for your portfolio or your unique risks, goals or investment objectives. Past performance of an index is not an indication or guarantee of future results. It is not possible to invest directly in an index.

The Alerian MLP Index is the leading gauge of energy infrastructure Master Limited Partnerships (MLPs). The capped, float-adjusted, capitalization-weighted index, whose constituents earn the majority of their cash flow from midstream activities involving energy commodities, is disseminated real-time on a price-return basis (AMZ) and on a total-return basis (AMZX).

The Bloomberg Commodity® Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Index Services Limited.

The Bloomberg EM (Emerging Markets) USD Aggregate Index® is a flagship hard currency Emerging Markets debt benchmark that includes fixed and floating-rate U.S. dollar-denominated debt issued from sovereign, quasi-sovereign, and corporate EM issuers.

The Bloomberg Global Aggregate® Index is a flagship measure of global investment grade debt from twenty-four local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers.

The Bloomberg Global Aggregate ex USD Index is a measure of investment grade debt from 24 local currency markets. This multi-currency benchmark includes treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging markets issuers. Bonds issued in USD are excluded.

The Bloomberg U.S. Aggregate Bond® Index, or the Agg, is a broad base, market capitalization-weighted bond market index representing intermediate term investment grade bonds traded in the United States. Investors frequently use the index as a stand-in for measuring the performance of the U.S. bond market.

The Bloomberg U.S. Corporate High Yield Bond® Index measures the USD-denominated, high yield, fixed-rate corporate bond market. Securities are classified as high yield if the middle rating of Moody’s, Fitch and S&P is Ba1/BB+/BB+ or below.

The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

The LBMA (London Bullion Market Association ) Gold Price Index measures the performance of setting price of gold, determined twice each business day on the London bullion market by the five members of The London Gold Market Fixing Ltd.

The MSCI ACWI (Morgan Stanley Capital International All Country World Index) is a stock index designed to track broad global equity-market performance. Maintained by Morgan Stanley Capital International (MSCI), the index captures large and mid cap representation across 23 Developed Markets (DM) and 24 Emerging Markets (EM) countries.

The MSCI EAFE® (Morgan Stanley Capital International Europe, Australasia, and the Far East) Index is a broad market index of stocks located within countries in Europe, Australasia, and the Middle East.

The MSCI (Morgan Stanley Capital International) Emerging Markets® Index is a selection of stocks that is designed to track the financial performance of key companies in fast-growing nations.

The MSCI (Morgan Stanley Capital International) US REIT Index is a free float-adjusted market capitalization weighted index that is comprised of equity Real Estate Investment Trusts (REITs). The index is based on the MSCI USA Investable Market Index (IMI), its parent index, which captures the large, mid and small cap segments of the USA market.

The Morningstar LSTA (Loan Syndications and Trading Association) US Leveraged Loan Index is designed to deliver comprehensive, precise coverage of the US leveraged loan market.

The Russell 2000® Index measures the performance of the 2,000 smaller companies that are included in the Russell 3000® Index, which itself is made up of nearly all U.S. stocks. The Russell 2000® is widely regarded as a bellwether of the U.S. economy because of its focus on smaller companies that focus on the U.S. market.

The Standard & Poor’s 500 (S&P 500) is a market-cap weighted index comprised of the common stocks of 500 leading companies in leading industries of the U.S. economy. You cannot invest directly in an index.

The S&P Global ex-U.S. Property Index is a free-float-adjusted, market-capitalization-weighted index that measures the equity market performance of international real estate stocks in both developed and emerging markets.

The American Association of Individual Investors (AAII) Sentiment Survey is a weekly poll (indicator) of its members’ opinion on where the market will be in six months, is often written about by financial bloggers and other personal investment organizations, who consider the survey to be among the best of contrarian indicators.

The Bureau of Labor Statistics (BLS) is an agency of the United States Department of Labor. It is the principal fact-finding agency in the broad field of labor economics and statistics and serves as part of the U.S. Federal Statistical System. BLS collects, calculates, analyzes, and publishes data essential to the public, employers, researchers, and government organizations.

Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.

The ISM Services (formerly Non-Manufacturing) Index released by the Institute for Supply Management (ISM) shows business conditions in the US non-manufacturing sector.

The Federal Open Market Committee (FOMC) is the branch of the Federal Reserve System that determines the direction of monetary policy. The FOMC has 12 voting members, including all seven members of the Board of Governors and a rotating group of five Reserve Bank presidents. The Chair of the Board of Governors also serves as Chair of the FOMC.

Capitalization (Cap) is used to describe the size of the company, by market capitalization as follows:

mega-cap: market value of $200 billion or more;
large-cap: market value between $10 billion and $200 billion;
mid-cap: market value between $2 billion and $10 billion;
small-cap: market value between $250 million and $2 billion; and
micro-cap: market value of less than $250 million

CNBC is an American business news television channel, formerly called Consumer News and Business Channel until 1991.

The CBOE (Chicago Board Options Exchange) Volatility Index®, or VIX, is a real-time market index representing the market’s expectations for volatility over the coming 30 days.

The Magnificent 7 stocks are a group of mega-cap stocks that drive the market’s performance due to their heavy weighting in major stock indexes such as the Standard & Poor’s 500 and the Nasdaq 100. The group’s seven stocks earned their name in 2023 due to their strong performance and ability to power indexes higher seemingly without help from smaller stocks. The Magnificent 7 includes the following: Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG and GOOGL), Amazon (AMZN), NVIDIA (NVDA), Tesla (TSLA), and Meta Platforms (META).

Summer Breeze: July 2025 Market Commentary

July 2025 Market Commentary

Summer Breeze

Summary

Overview

Summer Breeze

Markets

Looking Forward

Performance Disclosures

Citations

Asset Class Definitions

Disclosures and Definitions

Chase Abell

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