Momentum Continued as Stocks Post New Highs in July; Bond Results Were Mixed
HIGHLIGHTS:
- Stocks: Stocks continued to move higher in July, and the S&P 500 and Nasdaq Indices achieved new highs.
- Bonds: Yields were volatile once again in July, but overall, the 10-year U.S. Treasury rose to 4.37% from 4.24%. Bond markets were broadly mixed in July with rather muted results.
- U.S. Economy: GDP rose by a better-than-expected rate of 3.0% in Q2. This advanced reading of GDP saw a skew in the other direction regarding imports, which fell dramatically from the spike in Q1. This contributed to the GDP growth rate in the second quarter.
- Federal Reserve: The Fed kept rates unchanged at its late-July FOMC meeting. However, there were two dissenting votes – the first time there were multiple dissenting votes since 1993. Powell’s post meeting news conference was seen as rather hawkish and dampened imminent rate cut expectations.
Equity Markets
See Table 1 for July 2025 and YTD results.
Table 1 | Equity Markets
| Index | Jul-25 | YTD |
| S&P 500 | 2.24% | 8.59% |
| S&P 500 Equal Weight | 0.97% | 5.84% |
| DJIA | 0.16% | 4.72% |
| Russell 3000 | 2.20% | 8.08% |
| NASDAQ Comp. | 3.72% | 9.79% |
| Russell 2000 | 1.73% | -0.08% |
| MSCI ACWI ex U.S. | -0.29% | 17.56% |
| MSCI Emerging Mkts Net | 1.95% | 17.51% |
Stocks continued higher in July led by the large-cap growth space, which is reflected by the S&P 500 and Nasdaq Composite leading index returns. Value stocks had led early in the year, but growth has bounced back from the April lows and now shows better results year to date. International stocks paused their torrid pace in July with a modest decline, but international stock leadership remains clear so far in 2025. Small caps had a solid month of gains, but they could not keep up with large caps. The Russell 2000 Index, a measure of small caps, remains modestly in the red year to date.
Fixed Income
Bond results were mixed and rather muted in July. Generally, rates moved higher during the month, which led to challenging results for Treasury and municipal securities. Conversely, corporate bonds eked out positive results for the month. See Table 2 for bond index returns for July 2025 and YTD.
Table 2 | Fixed Income Markets
| Index | Jul-25 | YTD |
| Bloomberg U.S. Agg | -0.26% | 3.75% |
| Bloomberg U.S. Credit | 0.05% | 4.28% |
| Bloomberg U.S. High Yld | 0.45% | 5.04% |
| Bloomberg Muni | -0.20% | -0.55% |
| Bloomberg 30-year U.S. TSY | -1.26% | 0.83% |
| Bloomberg U.S. TSY | -0.39% | 3.39% |
The 10-year U.S. Treasury yield moved higher in early July — closing at 4.5% on July 15 — but rates trended lower from that point. However, the 10-year yield did end the month at 4.37%, higher than the June close of 4.24%, which put general pressure on bond returns. The 30-year U.S. Treasury made news once again by going above 5% in mid-July as it had in May. While the 5% level on the 30-year U.S. Treasury was seen briefly in 2023, it has not stayed above that level for an extended period of time since before the credit crisis. With rates moving higher, these bonds delivered the weakest returns in July, as well. As we anticipated, the rate environment has proven volatile so far in 2025. In a month when stocks generally rose, high-yield bonds led fixed income. Munis have been the laggard so far this year and are the only category of bonds with negative results so far in 2025. However, outside of munis, bonds have done their job with solid gains through July and have helped offset some of the equity market volatility that has occurred at times this year.
We maintain our long-standing position favoring credit versus pure rate exposure in this interest rate environment. We also believe the role bonds play in a portfolio, to provide stable cash flow and to help offset the volatility of stocks in the long run, has not changed. Bond volatility provides opportunities for active fixed income managers, and in our opinion, having an active bond management approach makes sense in this environment. Furthermore, rates remain elevated and provide attractive opportunities for bond investors.
Economic Data Highlights and Outlook
Jobs: June job market data remained strong. Non-farm payrolls increased by 147,000 in June, once again surpassing expectations of 106,000. The unemployment rate had not budged in recent months, but June saw its level tick modestly lower to 4.1% when it was expected to rise to 4.3% from the prior month’s level of 4.2%. July payroll data was more sobering with a miss in expectations on job additions, the unemployment rate moving up to 4.2%, and revisions to the two prior month payrolls showing 258,000 fewer jobs created than previously reported. Job openings moved lower in June after jumping higher in May. The JOLTS reading was expected to show 7.5 million openings, when a reading of 7.437 million was reported. May job openings stood at 7.712 million. Business caution facing tariff uncertainties is understandable, but the slowing that has occurred in hiring has been modest so far and has allowed the economic engine of consumer spending to keep running. Due to the central role of consumers in the U.S. economy, we will continue to monitor job market data, particularly with the release of the weak July Employment Situation Report. Chart 1 shows the unemployment level and the number of job openings. Clearly, these readings have converged in the last couple of years, but openings are still modestly more abundant than the number of unemployed which will likely be a good thing for a consumer spending driven economy.
Chart 1
Inflation: Inflation has been trending lower in recent quarters. However, there is concern that as inventories decline and new “tariffed” imports start to arrive in the U.S., price levels might move higher. We have not seen higher prices in the data so far, and the first Trump administration saw generally slow price gains, although items with tariffs rose as would be expected. For June, the monthly reading of the Producer Price Index (PPI) was flat, and better than expected, on both a headline and core (excluding food and energy prices) basis. Annual increases were lower than expectations for the PPI indices, however prior month data was revised higher. The Consumer Price Index (CPI) rose by 0.3% in June on a headline basis and 0.2% on a core basis. The year-over-year reading was above expectations on a headline basis, but the core annual gain of 2.9% was as expected, although higher than last month. Even though monthly 0.3% gains in the Personal Consumption Expenditures (PCE) Price Indices (both headline and core) were in line with expectations, the annual increases were higher than expected. Prior month data was revised higher as well. The core PCE, the Fed’s preferred measure of inflation, was higher than expected with a 2.8% annual increase in June. The PCE data came out the day after the hawkish press conference by Fed Chair Powell, and market expectations for a rate cut dropped to only one before year end. (Based on the CME FedWatch tool on 7/31/25. For more specific inflation data, please refer to the end of this report.)
Overall, we believe inflation continues to progress toward the Fed’s stated goal of around 2% for the core PCE price index reading. However, tariff concerns have increased inflation fears, and we will wait to see if a real change develops regarding pricing data. With new tariff rates kicking in for most countries in August, prices level data will be important to monitor. Chart 2 shows the core CPI and core PCE price indices.
Chart 2
GDP: The economy bounced back in the second quarter after the – 0.5% annualized decline in the first quarter. The advanced reading of Q2 GDP showed a 3.0% annualized gain, exceeding expectations of 2.6%. The personal consumption expenditure component was better at a 1.4% annualized rate in Q2 compared to a rather weak 0.5% reading from the first quarter. Even with the improvement to 1.4%, apart from the Q1 number, one must go back to the second quarter of 2023 when personal consumption was this weak. We will monitor consumer spending data in the months ahead to stay on top of consumer health and see if weaker spending continues. Historically, it takes a lot to knock down U.S. consumers and spending tends to be resilient. As we previously acknowledged, the spike in imports ahead of tariff concerns in April heavily impacted Q1 GDP and distorted the overall GDP reading. Likewise, the sharp drop in imports in Q2 distorted the strong Q2 GDP number and contributed to GDP growth. Imports heavily impacted both readings, and true economic growth was likely somewhere in the middle. The Atlanta Fed GDP Now estimate shows expected Q3 2025 figures to come in at a 2.3% annualized pace (as of 7/31/25). Although we at Clark Capital lowered our GDP expectation for 2025 to 1.5%, we still stand firmly in the camp of expecting economic growth this year and believe a recession is a lower probability event. Chart 3 shows GDP readings in recent quarters and the negative impact of net exports. The improvement in the Q2 net export number was the largest contributor to GDP growth during the quarter, just as the multi-quarter low, negative net exports number hurt Q1 results.
Chart 3
Consumer Confidence: Not surprisingly, consumer confidence readings have improved as the stock market has moved higher, the job market has remained strong, and tariff concerns seem to be moderating. The University of Michigan consumer sentiment reading had fallen dramatically in recent months hitting a level of 52.2 in April and May – a level rarely seen by this measure in its history and only seen lower in recent years during the pandemic. It bounced back nicely to 60.7 in its final reading for June, and it rose again to 61.8 in the July preliminary reading. It is important to watch what consumers “say,” like in confidence surveys, however, we are more concerned with what consumers “do,” which can be found in spending data.
Other Economic Data Points: The ISM Manufacturing Index fell again in May, dropping to 48.5 missing expectations of 49.5 and putting in another new low for 2025. The June reading improved modestly to 49.0, which was better than expectations of 48.8 and broke the streak of declining readings experienced this year. It did, however, remain below 50. The ISM Non-Manufacturing Index, which covers the much larger service industries in the U.S. economy, fell unexpectedly as well in May to 49.9. This was below expectations of 52 and the prior reading of 51.6 and put this reading below 50 for the first time since June 2024. (Current estimates are showing this index bouncing back above 50 when the reading for June is released later this month.) The slowing manufacturing and non-manufacturing activity that has developed recently is another likely side effect of tariff uncertainty. Recall, ISM readings above 50 reflect expansion, and those below 50 indicate contraction.
Housing data for May remained under pressure as interest rates moved up in the middle part of that month. The 10-year U.S. Treasury hit its highest level in May since early February and housing activity largely slowed. Housing starts, building permits, and new home sales all declined in May and were lower than expected. Existing home sales was the only housing reading that beat expectations and improved from April’s mark. The leading economic indicators index fell by -0.1% in May as expected, but the reading for April was revised from a -1.0% monthly drop to a -1.4% decline. Retail sales (ex auto and gas) fell by -0.1% when they were expected to increase by 0.3%.
Markets have proved resilient since the tariff selloff lows. Although few trade agreements have been made, the approach seems to have ameliorated concerns as negotiations continued between the U.S. and many other countries. The 90-day pause window will lapse in early July, so tariff talk and volatility might develop, but some of the worst-case scenarios regarding tariffs seem unlikely at this point. The first half of 2025 was certainly choppy, but we sit here today with the S&P 500 at a new all-time high and positive stock market gains so far this year. Volatility came back in the first part of 2025, and while not welcome, it was understandable following two years of solid stock market returns and a new administration getting up and running. Volatility is a normal part of participating in the equity markets. Bonds, for the most part, have done their job in 2025 by helping to offset a choppy stock market and providing solid gains (outside of munis) year to date. We believe the economy will grow in 2025, but at a more subdued pace than we thought to begin the year. The Fed looks poised to resume rate cuts later this year, although the timing and amount of cuts are still up for debate. Stock valuations have crept higher while earnings estimates have declined, but neither to an alarming level. We still see opportunities in the stock market during the second half of 2025. As always, we believe it is imperative for investors to stay focused on their long-term goals and not let short-term swings in the market derail them from their longer-term objectives.
Economic Data
| Event | Period | Estimate | Actual | Prior | Revised |
| ISM Manufacturing | June | 48.8 | 49 | 48.5 | — |
| ISM Services Index | June | 50.5 | 50.8 | 49.9 | — |
| Change in Nonfarm Payrolls | June | 106k | 147k | 139k | 144k |
| Unemployment Rate | June | 4.30% | 4.10% | 4.20% | — |
| Average Hourly Earnings YoY | June | 3.80% | 3.70% | 3.90% | 3.80% |
| JOLTS Job Openings | June | 7500k | 7437k | 7769k | 7712k |
| PPI Final Demand MoM | June | 0.20% | 0.00% | 0.10% | 0.30% |
| PPI Final Demand YoY | June | 2.50% | 2.30% | 2.60% | 2.70% |
| PPI Ex Food and Energy MoM | June | 0.20% | 0.00% | 0.10% | 0.40% |
| PPI Ex Food and Energy YoY | June | 2.70% | 2.60% | 3.00% | 3.20% |
| CPI MoM | June | 0.30% | 0.30% | 0.10% | — |
| CPI YoY | June | 2.60% | 2.70% | 2.40% | — |
| CPI Ex Food and Energy MoM | June | 0.30% | 0.20% | 0.10% | — |
| CPI Ex Food and Energy YoY | June | 2.90% | 2.90% | 2.80% | — |
| Retail Sales Ex Auto and Gas | June | 0.30% | 0.60% | -0.10% | 0.00% |
| Industrial Production MoM | June | 0.10% | 0.30% | -0.20% | 0.00% |
| Building Permits | June P | 1387k | 1397k | 1394k | __ |
| Housing Starts | June | 1300k | 1321k | 1256k | 1263k |
| New Home Sales | June | 650k | 627k | 623k | __ |
| Existing Home Sales | June | 4.00m | 3.93m | 4.03m | 4.04m |
| Leading Index | June | -0.30% | -0.30% | -0.10% | 0.00% |
| Durable Goods Orders | June P | -10.70% | -9.30% | 16.40% | 16.50% |
| GDP Annualized QoQ | 2Q A | 2.60% | 3.00% | -0.50% | — |
| U. of Mich. Sentiment | July P | 61.5 | 61.8 | 60.7 | — |
| Personal Income | June | 0.20% | 0.30% | -0.40% | __ |
| Personal Spending | June | 0.40% | 0.30% | -0.10% | 0.00% |
| S&P CoreLogic CS 20-City YoY NSA | May | 2.91% | 2.79% | 3.42% | 3.44% |
Source: Bloomberg; P=Preliminary, T=Thirdly.
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