U.S. equities continued to mark new highs last week as markets digested a fresh wave of trade news, early earnings season takeaways, and economic signals of a transition from cyclical strength toward soft-patch territory. For the week, the S&P 500 gained 1.47%, the Dow rose 1.28%, and international stocks tracked by the MSCI ACWI ex-USA also climbed 1.47%. While durable goods data disappointed and leading indicators pointed to softer momentum ahead, investor sentiment was buoyed by easing trade tensions and a continued rally in AI-related capital investment.

Trade developments continue to take center stage. Over the weekend, the U.S. and European Union unveiled a new trade agreement built around a 15% tariff rate on European goods, paired with $750 billion in U.S. energy purchases, $600 billion in U.S. investments, and a commitment from Europe to purchase large amounts of military equipment. The deal was met with relief from investors who had braced for more aggressive measures and potential retaliation. Separately, the White House announced a parallel pact with Japan last Tuesday that will impose the same 15% tariff level, while securing $550 billion in investment commitments. Meanwhile, U.S. and Chinese negotiators held a third major summit in Stockholm, where reports suggest the two sides are close to extending their existing tariff truce by another 90 days. Commerce officials also paused tech export restrictions as the White House works to facilitate a potential Trump–Xi meeting. While tensions remain high with other trading partners, recent progress is easing fears of a broader tariff reversion at the start of August.

The focus now shifts to the Federal Reserve, with the July FOMC meeting concluding on Wednesday. The Fed is widely expected to hold its policy rate steady at 4.25–4.50%, and Chair Powell is likely to reiterate the message of patience and data dependence. However, this week’s meeting could feature a notable development: potential dissents from Governors Bowman and Waller, both of whom have publicly called for a cut. If realized, it would mark the first meeting with multiple dissents since 1993. With markets pricing in a September cut, the Fed’s updated language around labor market trends will be watched closely, particularly as hiring slows and political attention grows.

Recent macroeconomic data continues to reflect an overall picture of moderate economic deceleration, yet avoiding contraction. Initial jobless claims fell to 217,000 last week, the lowest since mid April, with six straight weekly declines—indicating continued labor-market strength. Continuing claims, however, rose slightly to 1.96 million as of the week ending July 12, suggesting longer durations of unemployment among some workers. This trend reinforces expectations for July’s jobs report, due on Friday, where consensus forecasts just 115,000 nonfarm payrolls added and a slight uptick in unemployment to 4.2%. Elsewhere, June’s Conference Board Leading Economic Index (LEI) fell by 0.3%, bringing the six-month drop to -2.8%, a rate that historically flags slower growth without signaling an imminent recession. And in housing, existing home sales fell 2.7% to a 3.93 million SAAR pace—the weakest reading since September—while new home sales offered a modest counterpoint, rising slightly to 627,000 as builders continue to benefit from constrained resale inventory.

Corporate earnings season is off to a constructive start. With over a third of S&P 500 companies having reported, 80% have beaten EPS expectations and 80% have also exceeded revenue estimates, both well above one-year averages, according to FactSet. The blended earnings growth rate for Q2 currently stands at 6.4%, ahead of the 4.9% expected at the start of the quarter. Company commentary has been generally upbeat, citing resilient macro conditions, foreign currency tailwinds of overseas profits, and strong spending on AI infrastructure. While the earnings bar remains high and tariff headwinds loom in the second half, early results are helping to support equity markets as macro uncertainty persists.

Earnings will be even more in focus in the week ahead as we enter the busiest slate of second quarter announcements with another third of the S&P 500 set to report results, including several market heavyweights like Apple, Amazon, Meta, and Microsoft. Additionally, investors will be closely monitoring Powell’s remarks and watching for further trade headlines as the August 1 tariff reset deadline nears. For now, markets appear to be taking policy and economic noise in stride—at least until the next headline hits.

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