Weekly Market Update: July 28, 2025
The nation’s gross domestic product (GDP) likely rebounded in the second quarter. (Note that the Commerce Department was scheduled to release its initial estimate on July 30th.) A good deal of the recovery was probably due to a sharp decline in imports during the three-month period, which statistically adds to the GDP calculation. Recall that many businesses and consumers bought imported goods ahead of the Trump tariffs, which were announced on April 2nd, to avoid paying additional levies. This likely reversed in the second quarter. The U.S. consumer sector also has proven resilient amid the tariff uncertainty, with retail sales rising in June.
The impact of the Trump Administration tariffs on prices for goods has yet to meaningfully materialize. On point, the Producer Price Index (PPI) was unchanged in June. The benign PPI reading is note-worthy, as it is used to calculate the Personal Consumption Expenditures (PCE) Price Index, which is the assessment of inflation most closely tracked by the Federal Reserve. That said, the Consumer Price Index (CPI) came in slightly hotter than expected in June, and most economists feel that the true effect of the tariffs, which will include additional duties on August 1st, will be seen in the current quarter. General Motors reported a $1.1 billion impact from tariffs on its June-quarter profits.
Meanwhile, second-quarter earnings season got off to a good start, led by strong profit growth from the big money center banks. Shortly thereafter, the average earnings growth forecast for the S&P 500 companies was ratcheted up, to around 6%. We think that with the economy recovering in the second quarter and the tariffs not yet having as big of a negative impact as one would have expected in early April, profit growth will easily exceed expectations. In general, many of the big businesses were able to absorb the extra costs to avoid significantly raising prices and risk losing customers.
Conclusion: A favorable earnings performance from Corporate America could provide a tailwind for a stock market where valuations look elevated. However, with the Federal Reserve still on a restrictive monetary policy course and the continued global trade uncertainty, a diversified portfolio led by stocks of high-quality companies with reliable cash flows may prove astute in the near term.
Source: ValueLine.com
