Weekly Investment Perspective

U.S equities ended the week with modest declines. The S&P 500 closed down ~0.3%, while the Dow fell ~0.6% and the Nasdaq slipped ~0.2%. Markets had touched record highs mid week—driven by Nvidia’s rally to a $4 trillion valuation—then cooled in response to President Trump’s tariff escalation targeting Canada, the EU, Mexico, plus up to 50% on copper and other imports. While tariff headlines dented sentiment in the week’s final session, the overall reaction remained more muted than during earlier trade developments.

The broader market was also influenced by geopolitical developments, particularly the expiration of a 90-day tariff pause. The U.S. announced new tariffs on over 20 countries, with rates ranging from 20% to 50%, set to take effect on August 1 unless trade agreements are reached. Despite these headwinds, energy and industrial sectors provided some support, helping major indices hover near record highs.

On the policy front, the passage of the “One Big Beautiful Bill Act” on July 4 introduced significant fiscal changes. The legislation extended key provisions of the 2017 Tax Cuts and Jobs Act, raised the SALT deduction cap to $40,000, and reinstated 100% bonus depreciation for qualified property. While these measures are expected to support corporate investment and small business growth, the Congressional Budget Office projects a $3.3 trillion increase in federal deficits over the next decade.

In a slow week for economic data, investors digested Wednesday’s release of the minutes from the Federal Reserve’s mid-June policy meeting. The minutes showed some disagreement among members of the Federal Open Market Committee (FOMC) about the direction of monetary policy. While most policymakers said that they anticipate cutting rates this year, two stated that they would be open to rate reductions as soon as the late-July FOMC meeting. On the other hand, some committee members said that they don’t anticipate cutting rates at all in 2025.

Despite the Fed’s intentions to maintain a patient, data-dependent stance, pressure from the White House is heating up to act sooner on rate cuts to bring down borrowing costs on mounting government debt. While Trump has said he would not fire Powell, economic advisor Hassett said Trump can fire Powell for cause, and that could depend on findings regarding the Fed’s current renovations of its headquarter building amid concerns about cost overruns. Despite this, Powell has remained firm. At a recent European Central Bank forum, he stated that the Fed would have cut rates already if not for the inflationary impact of Trump’s new tariffs. He emphasized that the central bank is in a “wait-and-see” mode, closely monitoring data before making any policy moves. Powell’s term as chair ends in May 2026. An early departure from his post could bring more downward pressure on the U.S. dollar and boost long-term interest rates as global investors question the credibility and independence of the U.S. central bank.

This week brings a slate of economic data and the official start of Q2 earnings season. Investors will closely watch June’s Consumer Price Index (CPI) and Producer Price Index (PPI) reports for signs of inflationary pressures. Retail sales data will also be released, offering insight into consumer spending trends amid rising prices and policy shifts. Additionally, major banks will kick off earnings season, with analysts focusing not only on results but also on forward guidance considering the evolving macroeconomic conditions.

2025 The Long View | First Merchants Bank