It’s time to hear rigorously to what the market is saying, get tactical, and put together for higher alternatives forward.
Final week delivered a flood of market-moving occasions—earnings, financial information, fiscal coverage strikes, and political drama, however many have been clouded or muted by controversy, contradiction, or doubt.
Consequently, there’s a excessive chance of a brand new tone to market going ahead, however to evaluate for “how lengthy” and to what “magnitude”, we’ll should look below the hood at every of the next potential market catalysts.
Company Earnings: The busiest week of earnings season featured key reviews from (NASDAQ:), (NASDAQ:), (NASDAQ:), and (NASDAQ:). The outcomes have been debatable, however the market’s reactive message was clear.
Financial Development: got here in stronger than anticipated (3% vs. 2.5%), however the information remained clouded by distortions stemming from tariff insurance policies. As famous in latest weeks, these insurance policies have skewed commerce deficit habits to historic extremes, complicating the interpretation of top-line development and creating doubt about underlying financial well being.
Financial Coverage: The FOMC assembly included two dissenting votes for the primary time for the reason that Nineteen Nineties. Nonetheless, Powell’s press convention caught to a well-recognized script—signaling endurance and information dependency due partly to the identified and unknown impacts of tariff insurance policies on inflation, and immigration insurance policies altering the construction of the labor pressure.
The Labor Market: Friday’s report upset with simply 73,000 jobs added versus expectations of 100,000. Nonetheless, the larger concern was the sharp downward revisions to the prior two months. Regardless of this, the —Powell’s acknowledged focus—rose simply 0.1% to 4.2%. Weakening labor demand vs. a secure unemployment charge within the labor market, which is present process a historic structural change, continues to embolden each the hawks and the doves!
The Fiscal Agenda: True to his negotiating and management type, President Trump “fired the messenger” (Dr. Erika McEntarfer, the commissioner of the Bureau of Labor Statistics), following Friday’s jobs information. He additionally moved his ceasefire agenda ahead with a flexing of army muscle towards Russia by saying nuclear submarine deployments in response to a Russian diplomat’s “provocative” feedback. On commerce, the administration flooded the information cycle with bulletins of latest tariff offers and postponements. Moreover, Fed Governor Adriana Kugler introduced an early resignation, giving the President one other alternative to put in a loyal appointee on the central financial institution.
The Market’s Message: The week started with bullish momentum however resulted in technical deterioration. Chart watchers would label the week a “bearish engulfing” sample—the place the weekly decline totally swallows the prior week’s positive aspects—indicating a possible shift in development. Whether or not this marks a long-lasting flip or only a pause stays to be seen, however the message from worth motion was decisively risk-off.
Any one of many above gadgets might have offered a traditional quantity of stories to function a big catalyst, however every one was muted by controversy, contradiction, or doubt.
Use the hyperlinks beneath to dive into the small print of every and overview the Large View bullets and watch Keith’s weekly market evaluation video.
This could be an excellent week to ensure you don’t neglect to take a couple of minutes to observe Keith’s weekly video, which walks you thru crucial traits and insights inside Large View.
Our Large View product was conceived whereas Keith and I have been managing cash at Millennium Companions as a instrument for our personal use to maintain us ‘trustworthy’ and centered on the traits and inside well being of the market, so FOMO or greed wouldn’t get the perfect of us.
30 years later, it’s nonetheless guiding us and hundreds of members. We hope it’ serving to you too.
You’ll discover the video on the backside of the Market Outlook commentary each week.
Earnings
In final week’s Market Outlook, we advised that regardless of necessary information on inflation, the labor market, and an FOMC assembly, earnings could be the first driver of market motion.
Whereas the employment report had some fairly surprising information, I’d nonetheless argue that earnings information was the first market message.
In keeping with FactSet…“General, 66% of the businesses within the have reported precise outcomes for Q2 2025 to this point. Of those firms, 82% have reported precise EPS above estimates, which is above the 5-year common of 78% and above the 10-year common of 75%…. By way of revenues, 79% of S&P 500 firms have reported precise revenues above estimates, which is above the 5-year common of 70% and above the 10-year common of 64%.”
The chart beneath gives a breakdown by sector.
Not solely are firms reporting effectively, however they’re additionally revising UP.
Final week, Financial institution of America reported that the ratio of firms revising earnings up vs. down jumped to a 43-month excessive (.81) globally and a 24-month excessive (1.31) within the U.S., as proven within the chart beneath.
If we have a look at the longer-term development in earnings and expectations within the chart beneath, we will see that the market has possible priced in expectations of declining development charges from the MAG7 and the opposite 493 S&P 500 shares into this quarter and subsequent.
The expectation is then a gentle rise in development into 2026. Given this information the present rise in estimates is barely in keeping with usually bettering expectations searching over the following yr. Excellent news for the longer-term prospects, however not a really vital
Financial Development
GDP got here in stronger than anticipated (3% vs. 2.5%), however the information remained clouded by distortions stemming from tariff insurance policies. As you’ll be able to see by the yellow field within the chart beneath GDP information has been skewed by the volatility in imports.
One factor that’s clear is the black circle round low private spending. It is a clear softness in demand.
The Labor Market: Friday’s nonfarm payrolls report upset with simply 73,000 jobs added versus expectations of 100,000. Nonetheless, the larger concern was the sharp downward revisions to the prior two months.
As you’ll be able to see by the chart beneath this 2-month (2M) revision represents the biggest on document again to 1979 aside from the pandemic.
The ensuing payroll development now appears to be like as follows:
On the middle of the talk between Chair Powell and advocates for is the steadiness between the availability of jobs (payroll creation) and the demand for jobs (measurement of the labor pressure). The mix of those two components leads to the , which Powell has stated he’s centered on.
As you’ll be able to see within the chart beneath, the change within the labor pressure since April (3-month change) in orange has dropped -0.5% which is likely one of the largest for the reason that pandemic.
Consequently, the decrease job creation has had much less of an impression on the charge.
In brief, deporting our labor pressure and discouraging immigration could have unintended penalties on the labor market and financial coverage.
Financial Coverage
The FOMC assembly included two dissenting votes for the primary time for the reason that Nineteen Nineties. Nonetheless, Powell’s press convention caught to a well-recognized script—signaling endurance and information dependency due partly to the identified and unknown impacts of tariff insurance policies on inflation, and immigration insurance policies altering the construction of the labor pressure.
Chair Powell’s message that he needs extra persuasive information on inflation and the unemployment charge, however the market expectations by the tip of the week pointed to forward, with or with out him.
As you’ll be able to see from the blue column within the chart beneath, the market now has the percentages that he’ll minimize in September at over 75%, and equally excessive odds that we’ll see 3 cuts (3.5% Fed Funds) by the January assembly.
The shift down within the pink line from the black dashed line represents the change within the anticipated charges over the following yr.
Trying on the ETF that tracks the 1-3 yr bonds () beneath, you will note traces displaying the compression and final week’s transfer above the July excessive and a giant horizontal resistance degree. Greater bond costs imply decrease charges.
The 7-10 yr bonds ETF () additionally appears to be like like there’s potential for a bullish breakout of a compression sample and a key horizontal degree (beneath).
As we transfer out to the riskiest a part of the yield curve, the 20+ yr bonds ETF (), the breakout of the compression is starting, however the development has not but turned greater relative to the July excessive (blue line)
Abstract
There are causes within the GDP information and the labor market information to be involved a couple of slowing of the economic system. The rate of interest market suggests it sees this too.
The Fed sees the weak spot but additionally feels the necessity to think about the inflationary dangers of decreasing charges, given all of the uncertainty surrounding the tariffs and the labor pressure.
Within the not-too-distant previous, we’d have been speaking concerning the market liking fiscal gridlock. Underneath the present administration, the gridlock definitely isn’t on the fiscal aspect, and all of the shifting components are making a degree of uncertainty that the market has needed to adapt to.
There’s, nonetheless, gridlock between the administration and the Fed, and I believe the market is simply positive with it.
The market bought into Google’s (NASDAQ:) good earnings report final week, after which did the identical with MSFT and META earlier than the weak labor report. AMZN didn’t ship surprisingly good numbers, and it obtained punished.
A wholesome market wants good corrections, and these usually begin identical to final week. Revenue taking is sensible when buyers doubt the excellent news can proceed on the identical tempo.
Final week, the market bought into good earnings information, and on the identical time, there was elevated doubt about what the financial information implied for financial development, and there was a scarcity of latest consumers to proceed to assist greater costs regardless of better-than-expected earnings.
That is an setting the place quant fashions and savvy lively buyers can thrive by managing draw back danger. Be sure to take a couple of minutes to observe Keith’s weekly video (beneath), which walks you thru crucial traits and technical insights which are driving this correction.
Abstract: Markets flipped decisively to risk-off this week, with main indexes breaking down from all-time highs with a confirmed bearish engulfing sample, quantity and internals turning unfavorable, and almost all sectors—together with key financial bellwethers like transports and retail shifting right into a distribution section.
Threat On
Worth versus development, whereas it deteriorated barely, remains to be displaying risk-on with worth breaking below its 50-Day Transferring Common whereas development remains to be in a bull section. (+)
Seasonally, August stays a month with optimistic anticipated returns (apart from small caps), although considerably weaker than earlier summer time months. A modest risk-on studying. (+)
Impartial
Overseas equities giving a blended sign with rising markets nonetheless in a bull section, whereas extra established overseas equities broke down right into a warning section. Management versus U.S. equities has been surrendered. (=)
Comfortable commodities stay below stress, and broke down arduous this week, closing on the decrease finish of its buying and selling vary and in a bear section. got here off arduous ( -20%)over modifications in Tariff insurance policies.This speedy shift might occur to any market at any time primarily based on shifting geopolitical pressures. (=)
is correct in the course of its buying and selling vary for the final a number of months and again right into a bullish section. Till it breaks out of this buying and selling vary, we’re this as total impartial. (=)
broke down, closing below a number of weeks of compression on the highs, however nonetheless in a bull section total. It wants to carry the $110k degree, which it has been respecting for fairly a while. (=)
A Fed governor is retiring, giving President Trump extra alternative to nominate extra dovish members and push charges decrease sooner. A drop appears to be within the playing cards with charges now buying and selling above key shifting averages throughout your complete yield curve. (=)
Threat Off
Markets have been down between -2.2% and -4.2% on the week with a confirmed breakdown of a bearish engulfing sample which occurred at all-time highs in each the S&P and . This was one of many first risk-off patterns we now have seen within the indexes in months. (-)
Quantity patterns have been weakening and flipped into unfavorable territory this week. (-)
Aside from Utilities, all sectors have been down on the week, led by together with , which moved right into a distribution section and now down year-to-date. Indicating a slowing economic system. (-)
Trying on the international macro image, volatility and quick devices on overseas equities surged on the week. (-)
As we now have been highlighting the final a number of weeks, the weak spot in market internals collapsed this week and is beginning to attain reasonably oversold situations. (-)
The new excessive new low ratio flipped unfavorable throughout the board from reasonably overbought ranges. (-)
With this week’s motion, market internals as measured by our colour charts (shifting common of shares above key shifting averages) has decisively flipped unfavorable aside from longer-term studying on the 200-Day Transferring Common which is now impartial. Internet, the general image remains to be risk-off on the short-to-intermediate time period image. (-)
The Threat gauge swung to totally risk-off with the energy in utilities and treasuries. (-)
As coated in final week’s video, volatility had reached oversold situations and flipped this week with an enormous affirmation on Friday. (-)
The trendy household broke down arduous with regional banks breaking down beneath its 50 and 200-Day Transferring Common, with transports breaking down even more durable. (-)
