The stock market continued to climb in July, with both the S&P 500 and the Nasdaq hitting new all-time highs. This positive momentum was driven by easing trade tensions, a strong start to corporate earnings season, growing optimism around artificial intelligence, and the passage of the “Big Beautiful Bill”.
The S&P 500 gained 2.24% in July, notching its third straight monthly advance. The Nasdaq 3.72%, extending its winning streak to four months. Meanwhile, the Dow Jones Industrial Average posted a modest gain of 0.16%.
Technology was the standout performer during the month, rising 5.19%. More defensive sectors like consumer staples and healthcare declined, falling 2.37% and 3.26%, respectively. Growth-oriented stocks outperformed value stocks, with gains of 3.78% compared to 0.57%.
Mid-sized and smaller companies also posted positive results, although they continued to lag larger firms. The S&P 400 Mid Cap Index rose 1.62%, and the S&P 600 Small Cap Index gained 0.93%.
Internationally, results were mixed. Developed markets dipped, with the MSCI EAFE Index down 1.4%, while the MSCI Emerging Markets Index posted a solid 1.95% gain.
Bond Yields Rise as Fed Holds Steady
The Federal Reserve left interest rates unchanged in July but expressed a cautious stance due to ongoing inflation concerns and potential impacts from tariffs. Interestingly, two members of the committee dissented—the first split decision since 1993. Following the meeting, expectations for a rate cut in September declined from 60% to about 40%.
U.S. Treasury yields increased across the board, as while the 2-year increased 0.23% and the 10-year Treasury rose by 0.13%, while the 30-year increased 0.10%. International bond markets also saw rising yields, with Japan’s 10-year yield hitting a 17-year high near 1.60%.
Despite rising rates, bond investors maintained a risk on stance, as credit spreads—the extra return for owning riskier bonds—remained near historic lows. The U.S. dollar rebounded strongly in July, gaining 3.2% after a 10% decline earlier in the year.
A Rebound in Growth and Encouraging Jobs Data
The economy showed renewed strength in the second quarter, with GDP growing at a 3.0% annualized rate, a strong turnaround from the slight contraction in the first quarter. Inflation slowed, with June’s Consumer Price Index (CPI) at 2.7%, and core inflation also easing slightly.
Job growth came in above expectations, with 147,000 new jobs added in June. In addition, May’s numbers were revised upward, and the unemployment rate unexpectedly dropped to 4.1%.
Housing remains a weak spot, as high mortgage rates and elevated prices continue to put pressure on existing and pending home sales.
Early Earnings Surpass Expectations
The second-quarter earnings season started off on a strong footing. So far, corporate profits are growing at an estimated pace of 8.6%—well above the 4.9% that was expected at the end of the previous quarter. Over 80% of companies that have reported have beat estimates, which is above the 5 and 10-year average. This better-than-expected performance, especially from some of the “Magnificent 7” companies, has further supported investor confidence.