Inflation Ticks Up, Markets Eye Tariff Ripple Effects
Markets began the week holding their breath as the June Consumer Price Index revealed inflation climbing 2.7% from a year ago—matching expectations but marking an acceleration from May. Core inflation, which strips out food and energy, rose 2.9%. Wall Street’s main concern: underlying price pressures may be getting an extra push from President Trump’s tariffs, especially as costs for groceries and apparel edge higher. Despite hopes that a softer reading might nudge the Federal Reserve toward rate cuts, investors were left disappointed as the likelihood of a near-term policy pivot faded. Bond traders trimmed their Fed cut bets, and yields on long-dated Treasuries crept above 5%.
Tech Powers Higher as AI Optimism Outpaces Earnings Worries
If inflation and tariff anxiety weighed on blue-chips—the Dow fell over 400 points and the S&P 500 slipped 0.4%—tech stocks were the antidote. The Nasdaq Composite notched another record close, up 0.2%, thanks largely to Nvidia’s 4% surge after the chipmaker announced plans to resume H20 AI chip sales to China. This move buoyed related AI firms, including Super Micro Computer and AMD. AI enthusiasm extended to Google’s $25 billion investment in data centers, amplifying investor appetite for AI infrastructure plays.
Turbulent Earnings Season Reveals Sector Divides
As second-quarter earnings rolled out, results were a study in contrasts. Big banks delivered a mixed bag: JPMorgan outperformed on surprise gains in investment banking, and Citigroup traders capitalized on market volatility. But sector headwinds battered others: State Street and BlackRock tumbled on the back of softer net inflows and rising expenses, with BlackRock’s shares falling nearly 6%. Meanwhile, Wells Fargo’s trimmed guidance overshadowed a second-quarter beat, pushing its stock lower. Against this volatile backdrop, FactSet data showed S&P 500 earnings growth expectations at 4.3%—the lowest since late 2023.
Shifting Ground: Tariffs, Rate Bets, and Sector Trends
President Trump doubled down on his demands for aggressive Fed rate cuts, even as inflation data and tariff uncertainties kept the Fed on the sidelines. Overseas, European markets opened higher as investors assessed the ongoing threat of US tariffs, while Asia-Pacific equities closed broadly in the green, aided by renewed optimism in tech and manufacturing.
As the second half of July gets underway, market momentum remains precarious—propped up by tech’s AI-fueled rally but buffeted by persistent inflation, trade policy crosswinds, and cautious earnings outlooks. For now, investors are left parsing signals in a noise-heavy environment, steeling themselves for more volatility as the summer unfolds.
