U.S. equities pushed higher last week bolstered by a strong start to second-quarter earnings season, moderately dovish signals from the Federal Reserve, and a batch of generally resilient economic data. The S&P 500 and Nasdaq each notched fresh record highs, finishing up 0.6% and 1.5% for the week, respectively, while the Dow slipped 0.1%. Tech stocks led the rally once again, supported by upbeat AI infrastructure sentiment and gains in semiconductor companies like Nvidia and TSMC. Financials also advanced on the back of solid bank earnings, with JPMorgan and Citigroup both raising guidance on net interest income.

Under the surface, however, concerns about Fed independence and a mixed inflation picture tempered the bullish momentum. Long-term Treasury yields drifted higher, with the 30-year yield climbing back above 5.0%, as markets responded to headlines suggesting escalating White House pressure on the central bank. Reports that administration officials had discussed removing Fed Chair Powell—though later denied by the President—sparked debate around institutional credibility. Within the Fed, several members of the committee, who may be viewed as potential successors to Powell at the end of his term next May, have become more vocal for a rate cut as soon as next week (though the market places low odds of this outcome). Last week, Fed Governor Christopher Waller stated a case for cutting rates by 25 basis points at the end of July amid tame overall inflation data to prevent escalating weakness in the labor market.

June’s inflation data offered both reassurance and new complications. Headline CPI rose modestly in line with expectations (+2.7% year-over-year), but signs of tariff-induced pressure are increasingly visible in the details. According to Oxford Economics, tariff-exposed goods such as household appliances and toys saw outsized price increases, and their analysis shows these categories rose nearly 1% month-over-month—more than double May’s pace. Meanwhile, services inflation remained soft, weighed down by lower airfare and lodging prices, and the headline PPI was unchanged for the month. Together, these reports suggest that tariffs are beginning to feed through the goods channel, even as overall inflation remains contained for now.

Markets appear to be discounting the risk of additional tariff hikes, though that optimism may be premature. President Trump reiterated that countries without finalized trade deals will see tariffs revert to April levels on August 1, and floated new 30% duties on goods from the EU and Mexico. Analysts warn that the inflationary impact of these measures would show up with a lag, particularly in consumer goods categories, and the recent depreciation of the dollar could further amplify the effect in the second half of the year.

Economic data elsewhere helped steady investor sentiment. June retail sales came in above expectations, suggesting continued strength in consumer spending, while initial jobless claims remained low and both the Empire and Philly Fed manufacturing surveys surprised to the upside. These indicators reaffirm the underlying resilience of the U.S. economy despite elevated interest rates and rising policy uncertainty. Corporate earnings also helped drive a constructive narrative, with 83% of S&P 500 companies that reported so far beating estimates, according to FactSet. In particular, banks delivered a better-than-expected performance with strong trading revenues and solid credit trends, and several telecom firms raised guidance.

Looking ahead, earnings season ramps up significantly with reports due from key players including Tesla, Alphabet, Union Pacific, Lockheed Martin, and Google. Markets will be particularly focused on forward guidance from tech bellwethers and defense contractors as they digest recent volatility in AI expectations and monitor the global security backdrop. Economic releases next week include updates on home sales, flash PMIs, and durable goods orders, which should provide additional insight into demand conditions. However, investor attention will remain closely tied to Washington as the August 1 tariff deadline approaches. A shift in tone—or follow-through on more aggressive measures—could challenge the market’s current complacency around trade policy.

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