| Stock markets rose strongly in July, supported by US tax cuts, new trade agreements, and an economic rebound that buoyed investor sentiment. Global equities return to positive territory for the year, with Europe particularly in favour as increased government spending and lower share price valuations have proved enticing. The UK also delivered a healthy gain, hitting a new all-time high. The much-discussed, though often underappreciated, power of diversification is proving its worth this year. After spring’s tariff-focused shenanigans, July was a surprisingly upbeat month for stock markets. Confidence didn’t creep back quietly, it strutted into the spotlight like an unexpected Oscar-nightwinner. US markets hit new highs, shrugging off the issues that had plagued them earlier in the year: expensive valuations and a potentially unhealthy obsession with technology giants such as Microsoft, Apple, and Amazon. One key catalyst was the Senate’s passage of the “One Big Beautiful Bill.” Named, with his usual flair for understatement, by President Trump, the bill delivers substantial tax cuts but is also expectedto be one of the costliest pieces of legislation in recent US history. This “jam today” policy may bode well for riskier assets like equities, but casts a longer-term shadow over the nation’s bond market, where much of the funding will ultimately need to be found. The US economy also rebounded strongly from an earlier contraction. As many economists were no doubt explaining to bored strangers at drinks parties, this was largely the result of a roughly 30% fall in imports, following a 40% surge in previous months. That surge had been driven by businesses and consumers rushing to stockpile goods ahead of anticipated price rises after tariff announcements. And it wouldn’t be a 2025 market update without a mention of trade. Global stocks fell on the first day of the new month after Trump upheld a 10% baseline global tariff. He also announced reciprocal tariffs of up to 41% on countries without trade agreements in place. China faces a separate deadline of August 12. Earlier in the month, new trade frameworks were agreed with Japan and the EU (more on this below), which helped ease some investor concerns. Beyond the US, stock markets elsewhere also gained, although not quite to the same extent. Yet, Europe remains the undisputed leader of 2025 so far, supported by increased government spending and attractively priced shares. Even the UK stock market, long maligned for its lack of “new world” companies (read: technology) and its concentration in “old world” sectors (oil & gas, energy, mining, and banking), has delivered a healthy double-digit gain. Once again, the UK market proves itself a very different animal from the UK economy.Bottom LineIt is easy to remain fixated on our patriotic friends across the pond, especially when the US market makes up 60–70% of global equities. However, 2025 has been a year when diversification (cue the yawns) has paid off for those who embraced it. Although market gains have been healthy, we would suggest that (ever the fun police) bumps ahead should be expected. The Oscar is not on the mantelpiece just yet, particularly with confidence running so high. |
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| How do Trump’s tariffs currently stand? On 27 July 2025, President Trump and European Commission President von der Leyen agreed a key trade deal: a 15% tariff was set on most EU goods entering the US, half the 30% previously threatened. Key sectors affected include cars, semiconductors, and medicines. Steel and aluminium tariffs remain at 50% for now, pending quota-based talks. In return, the EU will invest $600bn in the US and spend $750bn on US energy and defence over three years. A similar deal was reached with Japan, cutting tariffs from 24% to 15% in exchange for a $550bn package focused on energy, infrastructure, and advanced manufacturing. Elsewhere, in his 1 August announcement, Trump confirmed the 10% baseline global tariff and raised Canada’s tariff from 25% to 35% - though most Canadian goods remain exempt under a prior agreement. Higher tariffs for Mexico were paused for another 90 days, but Brazil faces a 50% levy. While the overall tariff trend is lower than that announced in April, they remain far from insignificant and are likely to weigh on growth and consumption in the months and years ahead. What’s happening between Trump and Powell? The decision to hold US interest rates steady in July culminates what has been a month of increased tensions between Federal Reserve (Fed) chair Jerome Powell and President Trump. Many will have seen the awkward confrontation between the two last week, in which Trump criticised the Fed’s renovation budget, and pushed for a rate cut. This rare public clash breaks decades of tradition of respecting Fed independence. Trump has long criticized Powell’s decision to hold rates at 4.25–4.5%, despite cuts by other central banks, and hinted at dismissal “for cause”; a legal threshold analysts say hasn’t been met. Powell has stated he will not resign before his term ends in May 2026. Former Fed officials and economists warn that political interference could shake confidence in US monetary policy, disrupt bond markets, and weaken the dollar, with leaders such as Jamie Dimon cautioning that undermining Fed autonomy could trigger market volatility and inflation fears. For investors and advisers, the risk is clear: central banks under political pressure can often lose credibility. If Fed independence falters, it could have global repercussions for interest rates, inflation control, and investor trust in US institutions. Why are meme stocks back in the news? Many will remember the meme stock craze of early 2021, most notably the near 1,500% and 860% surges in GameStop and AMC share prices, respectively. These were driven by retail investors attempting to squeeze large institutions that were betting on the stocks to fall. In July, meme stocks returned to the headlines, though far less dramatically, as shares in companies like Krispy Kreme and GoPro experienced sharp intraday spikes. The month’s standout was Opendoor, the US online real estate company, whose share price surged by almost 830%, at one point accounting for 10% of allUS stock market trading volume in a single day. Kohl’s was another notable mover, with its share price more than doubling in one session. Compared to 2021, this rally lost momentum more quickly, with prices eventually settling, though mostly still above their start-of-month levels. Professional investors remained wary,as many of the companies have weak fundamentals and lack clear earnings or growth catalysts to justify investment. While chasing quick gains in speculative stocks can be thrilling in the moment, without strong fundamentals, investors are essentially trying to time a bubble -and nobody wants to be left holding the proverbial “hot potato". |
