July Market Update: Record Highs Amid Economic Volatility

July witnessed the S&P 500 achieving ten fresh all-time highs, propelled by robust corporate earnings, durable economic indicators, and successful trade agreements concluded before tariff implementation deadlines. Six straight record-setting closes in the month's latter half contributed to the index's 8.6% year-to-date advancement. 

Market volatility emerged as July concluded, however. New tariff announcements on July 31 sparked consumer price inflation worries, while employment data revealed the job market's greater weakness than previously recognized over recent months. 

Investors should maintain composure as markets process fresh trade policies and economic information. Recent months demonstrate how rapidly conditions can shift, reinforcing the importance of long-term investment perspectives for achieving financial objectives. 

 Source: The Wall Street Journal, Dimensional Returns
MTD returns: June 30, 2025–July 31, 2025
YTD returns: December 31, 2024–July 31, 2025
**in US dollars

Equity markets achieved fresh record levels

Second-quarter earnings season launched in July continued delivering positive results, propelling market gains. Despite some companies reporting tariff impacts, effects haven't been uniformly negative. Among S&P 500 companies reporting, 80% exceeded earnings-per-share expectations. Blended earnings growth reached 6.4% annually, below recent quarters but above analyst projections. 

Artificial intelligence enthusiasm boosted several Magnificent 7 stocks. Microsoft and Meta both surpassed earnings expectations amid substantial AI infrastructure investments. Microsoft consequently joined NVIDIA as only the second company achieving over $4 trillion market capitalization. Tesla, however, reported disappointing second-quarter results, pressuring its share price. 

Fixed income markets experienced modest declines as the Fed maintained rates between 4.25% and 4.50% for the fifth consecutive meeting, balancing tariff-related inflation concerns against economic growth needs. Notably, two Fed governors voted against this decision for the first time since 1993, preferring a quarter-point reduction amid ongoing tensions between President Trump and Fed Chair Powell regarding rate policy. 

Trade agreements and tariff policies dominate investor attention 

Multiple trade agreements emerged throughout July with the European Union, Japan, and South Korea, while China negotiations continue. These deals prevented worst-case scenarios many investors feared, though other nations still face potentially higher rates as negotiation deadlines expire. President Trump's July 31 executive order established new tariff rates effective August 7, replacing the original August 1 deadline. 

The Yale Budget Lab calculates consumers now face a 20.2% overall effective tariff rate, the highest since 1911. Companies have largely absorbed these additional costs rather than passing them to consumers, though sustainability depends on final tariff levels and corporate adaptation strategies. 

Cryptocurrency and tax legislation advance through Congress 

Bitcoin reached new peaks during July as Congress considered cryptocurrency regulation. Administrative support for broader cryptocurrency adoption has driven 2025 gains. The GENIUS Act, now signed into law, specifically addresses stablecoins typically pegged to the U.S. dollar. 

President Trump signed comprehensive tax and spending legislation on July 4, making numerous Tax Cuts and Jobs Act provisions permanent, including current rates and brackets. While providing investor certainty through maintaining low-tax conditions, the measure raises national debt sustainability concerns. The Congressional Budget Office projects over $3 trillion in additional debt over the next decade, as spending cuts were exceeded by tax revenue reductions.