Weekly Market Update: July 8, 2025

Inflation increased modestly in May. The Personal Consumption Expenditures (PCE) Price Index, the assessment of inflation most closely watched by the Federal Reserve, increased 0.1% on a month-to-month basis in May, matching the previous-month pace and the consensus forecast. However, the core PCE, which excludes the food and energy components, rose 0.2%, which was above forecast. It was a similar picture on a one-year basis, with the PCE (+2.2%) matching the April pace, but the core PCE (+2.7%) moving higher. The PCE data came on the heels of a slightly more-hawkish stance on interest rates from the Fed at its June monetary policy meeting. 

The central bank is taking its time to assess the impact of the Trump Administration tariffs on the pace of price growth. The Federal Reserve wants to avoid a period of stagflation, which is when inflation and rising unemployment occur while economic growth is slowing. The gross domestic product (GDP) contracted by an estimated 0.5% in the first quarter. 

Wall Street is more sanguine about near-term economic prospects. This was behind the strong performance for equities in the second quarter, despite concerns about the impact of the Trump tariffs. The Street is still pricing in at least two interest-rate cuts this year and the possibility of more reductions in 2026. There also is building confidence among market pundits that economic growth may soon get a boost from a new budget deal on Capitol Hill, the announcement of some trade deals with major trading partners, and the rollback of regulations in the banking and energy sectors. Some of these had yet to materialize as of press time. 

Second-quarter earnings season is at hand. This event will be closely watched by Wall Street as it will provide an early snapshot of the impact of the Trump tariffs on Corporate America and the overall health of the economy. The consensus earnings growth forecast for the S&P 500 Index is around 5.0%, which would be the lowest advance for the index since the final quarter of 2023. 

Conclusion: The major averages continue to move higher, with the S&P 500 Index and NASDAQ Composite finishing the first half of the year at record highs. 

Source: ValueLine.com