Market Recap - Week of July 14 through July 18, 202

Dear Friends,

Most weeks, I take a look at the past week and write about what’s happening in the market, along with key economic indicators and a chart of the week that takes a deeper dive into something you might not see elsewhere. Here we go…

Market Recap - Week of July 14 - July 18, 2025

The S&P 500 index edged up 0.6% this week, ending close to the record high in a technology-led advance.

The market benchmark finished the week at 6,296.79, just below the 6,297.36 record on Thursday. The index reached an intraday all-time high of 6,315.61 in Friday's session. The gauge has gained 1.5% in July and 7.1% this year.

US consumer sentiment rose in July to a five-month high, while year-ahead inflation expectations dropped for the second month in a row, preliminary results from a University of Michigan survey showed Friday. Sentiment remains 16% below the December 2024 level and "well below its historical average," said Joanne Hsu, Surveys of Consumers director.

Some big banks reported better-than-expected Q2 results while expressing caution on the outlook. JPMorgan Chase (JPM) posted stronger-than-expected Q2 earnings, supported by a rebound in investment banking as market sentiment improved. Chief Executive Officer Jamie Dimon said the US economy continues to face major risks, including trade tariffs.

The technology sector had the largest percentage increase of the week, up 2.1%, followed by a 1.6% increase in utilities. Other gainers included industrials, financials, real estate, consumer discretionary and communication services.

Among declining sectors, energy fell 3.9%, health care declined 2.6%, and materials lost 1.3%. Consumer staples eased.

Last Week’s Economic Reports

Headline CPI (Consumer Price Index) rose 0.3% from last month, and is up 2.7% over the past 12 months. The core CPI (excluding volatile food and energy prices) has increased by 2.9% over the past 12 months.

S&P 500 Sector and Stylebox Returns

Thought of the week:

(Apologies in advance. This one's even more nerdy than usual.)

The 2Q25 earnings season kicked into high gear this week with reports from the biggest banks. Currently, analysts expect earnings per share (EPS) to grow 4.4% year-over-year. Looking at the three main sources of EPS growth, revenues, margins, and buy-backs are expected to contribute 3.8, 1.4, and -0.8 percentage points, respectively.

While the economy sailed smoothly through the second quarter, storm clouds are on the horizon. In June, the U.S. government earned $28 bn in tariff revenue, up from $10 bn in March. Even though these costs aren’t yet visible in consumer or company inflation data, analysts revised their estimates for 2Q 25 EPS growth down by 1.5x more than average: from 7.8% on April 8 to 3.8% on June 30. If that move was too pessimistic too early, earnings beat and surprise rates could be elevated, while estimates for subsequent quarters are lowered.

For the full year of 2025, consensus is calling for 8.8% EPS growth, down from 10.5% on April 8. While tariffs represent significant downside, tech could provide a floor. The Magnificent 7 alone are expected to drive 41% of the year’s earnings growth. Together, the information technology and communication services sectors are responsible for 65%. Increasing depreciation costs from AI capital expenditures (capex) are a risk, but early monetization results are promising. For the financials sector, which is expected to contribute 15% of the index’s 2025 EPS growth, deregulation is a significant driver. As the 2Q25 earnings season progresses, investors should be evaluating whether the positives of these growth opportunities can mitigate the negatives of tariffs.

Source: JP Morgan

I would also remind us that ultimately, EPS is the real driver of stock price appreciation. If total EPS increases by 8.8% as currently forecast, then stocks should rise by a similar amount, unless the P/E ratio changes. Since the S&P 500 is up 7.8% already this year, most of the year's earnings growth may already be baked into current stock prices.

That's not abnormal. We just need to be mindful that substantial moves upward from here may indicate overvalued stocks.