Markets Stay Strong in July as Investors Look Ahead Toward Rate Cuts
With only one full month of summer to go, the season has been a calm one for the financial markets despite a news cycle that has been anything but. This trend continued in July, with Wall Street mostly shrugging off headlines about wars, tariffs, congressional battles, and even a continuing economic slowdown. Why? Because the markets are forward-looking, and what they’re focused on now is the Fed coming to the rescue in September.
Before we talk about that, let’s take a closer look at July. As for Wall Street, the S&P 500 posted gains for the fourth straight month, ending July up by 2.2%. The Nasdaq jumped by 3.7%, while the Dow Jones Industrial Average stayed about flat with only a 0.2% gain.1 Big tech companies are once again leading the market after having lost some momentum earlier in the year.
As for the bond market, it too remained mostly calm, with no big changes in long-term interest rates. The rate on the 10-year government bond started July at 4.24% and ended the month at 4.22%. Rates have not topped 4.5% even briefly since mid-May.2
Once again, the calmness we’ve seen all summer has occurred despite a lot of socioeconomic and geopolitical issues that could have easily undercut investor confidence. The wars between Russia and Ukraine and Israel and Iran are still raging, the potential impact of the Administration’s tariff policies is still a concern, and although the economy is still growing, the trend toward slower growth that began late last year is continuing.3
Job Growth Shocker
On top of all that, last month the Bureau of Labor Statistics made a massive downward revision to its job growth numbers for May and June shortly after releasing July numbers that were also disappointing. It was the largest negative two-month adjustment ever outside of a recession, according to Goldman Sachs, and it left job gains averaging just 35,000 from May through July.4
The timing of the report was unfortunate since it came just after the Federal Reserve had met to decide whether to adjust short-term interest rates. The Fed has been under pressure from the White House to start lowering rates to help jumpstart the sputtering economy. Fed Chairman Jerome Powell has resisted this pressure and did so again in July – ironically, based on the fact that job growth data before the Labor Bureau’s adjustment looked fairly strong. If the adjusted numbers had come out before the Fed’s meeting on July 29th, there’s a good chance Powell and the Fed would have lowered their benchmark short-term rate, which now stands at a range of 4.25-4.50%.
Although the stock market sank briefly in response to the revised jobs report, it quickly rebounded because the markets are forward-looking, and now they are looking ahead to September 16. That’s when the Fed is scheduled to meet again, and this time they are widely expected to start cutting short-term interest rates. Economists peg that probability at about 80%, and say the initial cut is likely to be between a quarter and a half percent.
With short-term rates dropping, long-term rates should follow suit, in theory strengthening the economy and making investors happy. The markets love falling interest rates because, as Warren Buffett rightly noted, when interest rates fall, the values of all invested assets rise.
Of course, there are still some questions about whether the timing is right. In other words, is the Fed already too late to halt the economic slowdown, let alone help turn it around? This has been the case with past easing efforts by the Fed, so we’ll just have to wait and see. In the meantime, though, the markets remain optimistic.
Your Portfolios
Overall, the calm summer has been great news for all kinds of investors, including those investing for income-first, growth-second. For those of you in our most conservative portfolios of bonds and bond-like instruments, in your latest statement, you should see your values up by about 4% on average for the year, depending on your individual holdings.
As you know, our target goal for the year is to get you up to 6% total return. Annualized, we’re on track now to exceed that goal by about half a percent. And if interest rates do start coming down, bond values will start going up, and your return potential could increase even further.
Of course, every “if” is a big one when you’re talking about the financial markets. But the good news is that even if it turns out the Fed is too late and the markets take a turn for the worse at some point later this year, you still know two things: 1) Your income return won’t be affected and 2) You are much better positioned than most growth-first investors to avoid a real financial loss.
As always, if you have any questions at all about your investments or any other issues, feel free to contact our office at any time. Meanwhile, enjoy the rest of your summer, and have a Happy Labor Day, which falls especially early this year, on September 1!
Sources:
1 https://www.nasdaq.com/articles/july-2025-review-and-outlook
2 https://www.marketwatch.com/investing/bond/tmubmusd10y?countrycode=bx
3 https://www.nytimes.com/2025/07/30/business/us-economy-grew-in-second-quarter-as-tariffs-scrambled-data.html
4 https://www.usatoday.com/story/money/2025/08/06/jobs-downward-revisions-data-trump-bls-chief/85534445007/
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