Equities Rising
August 5, 2025
The strong performance in both equities and fixed income during July has offered the market a chance at a full recovery from the tariff-related dip seen earlier in the year. The large cap tech stocks known colloquially as the “Magnificent Seven” have continued to drive equity returns. These gains, and losses, are continuing to lead most of the equity market. The disproportionate sway held by the tech sector has significant effects in each asset class that it touches. Although they are muted in fixed incomes segments, these effects are witnessed across all major indices when earnings surprises, in either direction, take place. While this isn’t a new development, but rather a recent trend, it appears to be developing into a more pronounced ‘control’.
All of which is to say that while bond yields may have appeared to been more attractive in the earlier part of the year, equities have taken back their role. However, neither equity nor fixed income can compete with international markets this year which have produced staggering returns relative to their returns across the past decade. Despite this Year-To-Date (YTD) triumph, developed internationals hit a rough patch this month, while emerging markets continued to perform strongly. In July, the MSCI Emerging Markets Index returned +1.44% and developed markets followed returned -0.42% as tracked by the MSCI All Country World ex-US Index.
The aforementioned US equity market had strong returns in the month of July continuing its ‘recovery’ from April lows. During the month of July equities returned +2.36%and +4.59% to the S&P 500 and NASDAQ, respectively. The outperformance by NASDAQ can likely be attributed to a heavier tech sector weighing in the NASDAQ and the effects of the mag seven. While the YTD performance wasn’t quite as impressive as developed international, bonds did relate to them in their struggle during July, returning -0.22% for the month as tracked by the Bloomberg US Aggregate Unhedged Index. However, over the course of 2025 fixed income yields have remained what we consider to be attractive and Treasury Inflation-Protected Securities (TIPS) indicate future inflation under 2%, which is indicative of greater income potential for consumers.1 While the true tariff effect remains to be seen, JP Morgan is forecasting global core inflation to increase 3.4% in the second half of 2025 alone.1 Despite this forecast, the general consensus is that global inflation has effectively tapered away across the globe from its late 2022 highs.1
While global inflation is currently abated, local inflation here at home hasn’t experienced the same moderation despite efforts by the Federal Open Market Committee (FOMC). The Fed met at the end of July where theydecided to once again hold rates.2 The rates, having been held for nearly a year now, are beginning to affect the broader market. Asset-Backed Securities (ABS) and Mortgage-Backed Securities (MBS) markets are both witnessing a downturn in supply because mortgage loans and auto loans are fewer and further between.3
In the most recent Consumer Price Index (CPI)report, inflation was measured at 2.7%.4 The Fed has made it clear that they are interested in keeping inflation below 2.0%. It’s difficult to know if the Fed will continue to stand by this decision despite seeing the lack of progress towards this target. However, barring major changes in inflation, tariffs, or the political climate, it appears the high interest rates are hereto stay for a little while longer. Further, the Bloomberg World Interest Rate Probability (WIRP) function isn’t pricing in cuts until December at the earliest.
Hazel Allen
Portfolio Management Analyst
1https://www.jpmorgan.com/insights/global-research/economy/global-inflation-forecast
Published July 30, 2025; Accessed July 31,2025
2https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm
Published annually; Accessed July 31,2025
3https://www.morganstanley.com/im/en-ie/institutional-investor/insights/articles/uncertainty-may-amplify-opportunities-for-securitized-assets.html
Published July 18, 2025;Accessed July 31, 2025
4https://www.bls.gov/news.release/cpi.nr0.htm
Published July 15, 2025; Accessed July31, 2025
The S&P 500 Index is the Standard & Poor’s Composite Index of 500 stocks and is a widely recognized, unmanaged index of common stock prices.
The NASDAQ Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market, and itis highly followed in the U.S. as an indicator of the performance of stocks of technology companies and growth companies.
The MSCI Emerging Markets Index consists of23 economies including Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and the United Arab Emirates. The MSCI is a float-adjusted market capitalization index.
Treasury Inflation-Protected Securities (TIPS) are a type of Treasury bond that is indexed to an inflationary gauge to protect investors from a decline in the purchasing power of their money.
Bloomberg U.S. Aggregate Total Return Value Unhedged Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate pass-throughs), ABS and CMBS (agency and non-agency).
The Federal Open Market Committee (FOMC) is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks.
Asset-Backed Securities (ABS) are debt instruments backed by a pool of diverse, non-mortgage assets.
Mortgage-Backed Securities (MBS) are bonds backed by a pool of mortgage loans, which can be residential or commercial.
A consumer price index (CPI) measures changes in the price level of a market basket of consumer goods and services purchased by households.
Bloomberg's World Interest Rate Probability(WIRP) function is a chart that shows the probability of different interest rates for the US benchmark rate. The chart is based on interest rate caps and floors, as well as options on Treasury futures.
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