Market Update: July 28 – August 1, 2025
by:
Sam Shepherd, Wealth Advisor
This week was one of the busiest of the year for economic data, offering a concentrated look at the health of the U.S. economy across labor, inflation, growth, and consumer activity. With critical updates on GDP, inflation, employment, and corporate earnings, investors received a snapshot of where the economy stands and how the Federal Reserve may respond in the months ahead. Here, we recap this eventful week and provide our thoughts on how these updates may impact markets going forward.
Economic Data Recap
Labor Market
- JOLTs Job Openings (June) declined to 7.437 million, lower than both the previous month (7.712M) and expectations. This signals a continued easing in labor demand, though openings remain elevated compared to pre-pandemic levels.
- Non-Farm Payrolls (July) increased by 73K, below the expected 104k and furthering the trend in weaker hiring this summer.
- The unemployment rate ticked up to 4.2%, reflecting the slower hiring trends.
Inflation & Spending
- The Core PCE Price Index, the Fed’s preferred inflation gauge, rose 0.3% month-over-month, matching expectations but showing a slight acceleration from May’s 0.2%. While inflation remains above the Fed’s 2% target, the pace appears stable for now.
- Personal Income and Spending each rose 0.3% in June, pointing to steady consumer activity. However, spending came in slightly below consensus, reflecting more measured household behavior amid lingering inflation concerns.
GDP Growth
- The U.S. economy expanded at an impressive 3.0% annualized rate in Q2, a strong rebound from Q1’s -0.5% contraction and well above the 2.4% consensus estimate. Growth was driven by consumer spending, business investment, and inventory rebuilding.
Federal Reserve
- The Fed held its benchmark interest rate steady at 4.50%, as expected. In his press conference, Chair Jerome Powell emphasized a “wait-and-see” approach, noting that while inflation is moderating, it’s too early to adjust the policy rate. Future rate moves will depend on further progress on inflation and labor.
Manufacturing
- The ISM Manufacturing Purchasing Managers’ Index (PMI) slipped to 48.0, still in contraction territory (below 50), missing the estimates of 49.5. Manufacturing remains a soft spot in the economy, contrasting with stronger services and consumer sectors.
International Trade
- With the trade-deal deadlines for many countries set to expire, President Trump made several new tariff announcements on July 31, and delayed implementation until next week on August 7. Several high-profile levies were placed on Canada and Switzerland, increasing their effective tariff rate from their original rates announced on April 2. Taken together, the new tariff announcements will raise the effective tariff rate to 15.2% from the current level of 13.3%, and up significantly from 2.3% in 2024.
Corporate Earnings Snapshot
Earnings season continued in full swing this week, with key reports offering insight into corporate health and forward guidance:
- Microsoft (MSFT): Microsoft posted revenue of $69.6 billion, up ~12% year-over-year, with net income rising to $3.23 earnings per share. Intelligent Cloud and Productivity & Business segments led growth, despite margin pressure from scaling AI infrastructure. The company returned $9.7 billion to shareholders via dividends and share buybacks in the quarter.
- Meta (META): Meta delivered a strong beat over expectations with Q2 revenue of $47.5 billion, up ~22% year over year, and earnings per share (EPS) of $7.14, a ~38% gain versus Q2 2024, driven by robust ad performance and expanding daily active users (3.48 billion). The company continues heavy investment in AI infrastructure and wearables, projecting capex around $69 billion for 2025 and emphasizing future “personal superintelligence” devices.
- Amazon (AMZN): Q2 results came in ahead of expectations on strong retail and advertising momentum, but their all-important cloud services (AWS) sales failed to meet expectations. This was viewed as disappointing by the market given the recent outperformance by Google and Microsoft. Additionally, the company guided future earnings growth at the low end of the estimated range, leading to a decline in the stock.
- Visa (V): Visa reported fiscal Q2 net revenue of $9.6 billion, up ~9% year-over-year, with non-GAAP EPS of $2.76, showing ~10% growth as global payments volume, cross-border transactions, and processed transactions all rose significantly. The company also announced a $30 billion stock buyback program to return capital to shareholders.
- Starbucks (SBUX): Starbucks recorded Q2 net revenue of $8.8 billion, up ~2–3%, but saw a 2% decline in U.S. same store sales and a sharp drop in EPS (down ~40–50%) driven by margin compression from increased labor and restructuring costs tied to its “Back to Starbucks” turnaround initiative. Operating margin fell notably as North America segment income slumped, though international markets showed some resilience.
- Alphabet (GOOGL): Alphabet reported Q2 revenue of $96.4 billion (a ~14% increase year over year) and EPS of $2.31 (up ~22%), beating top and bottom line estimates with strong cloud (+32%), search (+12%), YouTube ad (+13%), and subscription growth. The company raised its 2025 capital expenditure outlook to $85 billion to support AI and data center driven growth, citing AI Mode and AI Overviews adoption across services.
- Ford (F): Ford delivered adjusted EPS of $0.37, topping expectations by ~19%, and revenue of approximately $50.2 billion, though net income swung to a $29 million loss due to $800 million in tariff-related costs. The company reiterated full year guidance but forecasted roughly $2 billion in annual tariff headwinds and is lobbying for policy relief to mitigate further profit pressure.
Corporate earnings are on track to outpace expectations this quarter, but are still growing the slowest pace since 2023, largely due to the uncertainties around tariffs, and economic growth. Tariffs continue to be a significant talking point during earnings calls, highlighting how many sectors are still facing headwinds even as deals are made.
Looking Ahead
Next week brings updates on ISM Services, initial jobless claims, and more earnings, particularly from the consumer and healthcare sectors. As the Fed remains data-dependent, every data point matters more in shaping the outlook for rate policy in the second half of 2025.
Our Takeaways from this Busy Week of Data
- With the economy showing strong momentum and, at the same time, lingering inflation and market uncertainty, the Federal Reserve faces a continued challenge in how to set their rate policy. We anticipate further volatility in interest rates during the course of the year. We feel that it is unlikely the Federal Reserve can justify significant rate cuts with sticky inflation and a stable labor market.
- The overall corporate earnings trend for Q2 has been better than expected, but the bar was set low due to tariff uncertainty created in Q1. We continue to see strong trends in many themes such as AI spending and financial activity. Tariff announcements continue to impact many sectors, making selectivity in your equity allocation very important.
- We continue to watch the labor market closely as hiring cooled over the summer. This, combined with several other soft datapoints across manufacturing and housing could be a catalyst to the Fed starting on their easing cycle.
Equity markets have sold off in reaction to the softer economic data, and new tariff announcements, creating a pause in the strong rally seen since April. Conversely, we are seeing traditional risk hedges like bonds and gold perform quite well during the recent volatility, emphasizing the importance of a diversified approach to portfolio management.
Whether you’re preparing for retirement or planning for a major life transition, reach out to your Shepherd Financial Partners advisor to discuss how these developments may impact your strategy. We continue to monitor these developments as part of our investment process to stay proactive and align client portfolios with their financial plans.
As always, please reach out to us with any questions.
Disclosures
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