Market Performance 7/21/25

Equity Markets

Last week, U.S. equity markets displayed a mixed performance amidst tariff-related uncertainties and economic data releases. The S&P 500 closed slightly down by 0.01% at 6,296.79, reflecting intraday volatility driven by tariff rumors. The Dow Jones Industrial Average fell 0.32% to 44,342.19, while the Nasdaq Composite gained a modest 0.05%, closing at 20,895.66, buoyed by tech sector optimism. Over the week, the Nasdaq outperformed with a 1.51% gain, followed by the S&P 500 at 0.59%, while the Dow saw a slight decline of 0.07%. Financial and technology stocks led gains, supported by encouraging earnings reports, particularly from large-cap tech firms. However, tariff concerns, especially following announcements of potential 25% tariffs on Canada and Mexico effective March 4, 2025, and a 10% tax on Chinese imports, contributed to a late-week dip in equities. The Russell 2000, representing small-cap stocks, fell 1.3%, indicating sensitivity to trade policy uncertainties.

Bond Markets

In the bond market, U.S. Treasury yields experienced upward pressure. The 10-year Treasury yield rose to 4.46%, just below its May peak of 4.60%, while the 30-year Treasury yield climbed to 5.07% on Tuesday, marking its fourth consecutive weekly gain. This increase was partly driven by tariff-related inflation concerns, which pushed yields higher as investors anticipated potential price pressures. Municipal bond yields were mixed, with short-term maturities dropping by 7 basis points and long-end yields increasing by 1 basis point. Investment-grade corporate bonds outperformed Treasuries, with issuance largely oversubscribed, though high-yield corporates saw a weekly loss of -0.22%, underperforming Treasuries by 21 basis points. Fund flows showed positive inflows into municipal bonds ($432 million) and emerging market bonds ($664 million), while high-yield funds experienced outflows of $304 million. The bond market remained volatile, with tariff uncertainties and expectations of Federal Reserve policy decisions influencing investor sentiment.

Influences on U.S. Equity and Bond Markets This Week

Equity Markets

Several factors are expected to shape U.S. equity markets this week:

First, corporate earnings will remain a focal point, with investors closely monitoring reports from major companies following a strong start to the Q4 earnings season, particularly in the financial sector. Robust earnings could continue to support tech-heavy indices like the Nasdaq, though any disappointments, as seen with Nvidia’s (-11%) decline after forecasting lower gross margins last quarter, could trigger volatility.

Second, tariff-related developments will be critical, as markets remain sensitive to policy announcements from the Trump administration. The extended tariff deadline to August 1, 2025, keeps uncertainty elevated, potentially impacting small-cap and trade-sensitive sectors.

Third, economic data releases, including leading economic indicators, Purchasing Managers’ Index (PMI), and home sales, will provide insights into economic health, influencing investor confidence.

Finally, Federal Reserve policy expectations will play a role, with markets pricing in a 64% chance of a 25-basis-point rate cut in September, though firm economic data may temper these expectations. A resilient labor market, as indicated by initial jobless claims falling to 221,000 last week, could further reduce expectations for near-term rate cuts, potentially pressuring equity valuations.

Bond Markets

The bond market this week will likely be influenced by several key factors. First, Federal Reserve policy expectations will continue to drive Treasury yields. Investors are anticipating two quarter-point rate cuts by year-end, with the first expected in mid-September, though firm economic data and tariff-related inflation concerns may push yields higher. The Fed’s July 30 meeting is unlikely to result in a rate cut, as indicated by interest rate futures, which could maintain upward pressure on yields.

Second, tariff policies will remain a significant driver, as higher tariffs could accelerate inflation, reducing the appeal of fixed-income assets and pushing yields upward. Third, municipal bond markets are expected to remain well-bid, supported by robust demand (over $50 billion in reinvestment money in early July) and attractive tax-exempt yields of 4% for intermediate bonds and 5% for long bonds. Finally, global developments, such as Japan’s upper house election and potential fiscal policy shifts, could introduce volatility in global bond markets, potentially spilling over into U.S. Treasuries. Investors will need to navigate these uncertainties while assessing opportunities in sectors like municipal and investment-grade corporate bonds, which continue to show resilience.

Conclusion

Last week’s U.S. equity markets showed resilience despite tariff-related volatility, with tech and financial sectors driving gains, while bond markets saw rising Treasury yields amid inflation concerns. This week, corporate earnings, tariff developments, economic data, and Federal Reserve policy expectations will be key drivers for both markets. Equity investors should monitor earnings and trade policy updates, while bond investors should focus on yield movements and opportunities in municipal and investment-grade bonds amidst ongoing uncertainties.

I will pay particular attention to the ongoing trade negotiations between the US and our favorite trading partners, the EU and Japan. The EU is over a barrel (in my opinion) with Great Britain in a very favorable position, having already inked a deal with the US. Whatever the EU gives up in negotiations, the British will gain. Also, elections in Japan over the weekend have weakened the leadership of PM Ishiba, and the currency/trade negotiations have new importance for Japanese politics. I’ll watch closely for quick deal announcements and with the potential for the Fed policy easing, the second half of the year could be building momentum.

References

• Manulife John Hancock Investments. (2025, July 17). Weekly market recap. https://www.jhinvestments.com
• MarketGPS. (2025, July 19). US market weekly wrap (W/E July 19, 2025) [Post]. X. https://t.co/gBpVebCkuq
• FED_Policy. (2025, July 21). Weekly market preview: Earnings heavy, tariff fears linger [Post]. X. https://t.co/BRepLMHaDe
• Nuveen. (2025, July 14). Weekly fixed income commentary. https://www.nuveen.com
• Edward Jones. (2025, July 18). Stock market news today. https://www.edwardjones.com
• Charles Schwab. (2025, July 10). Schwab’s market perspective: On firmer ground? https://www.schwab.com
• Charles Schwab. (2025, July 18). Weekly trader’s stock market outlook. https://www.schwab.com