Last Week on Wall Street – August 1st, 2025

S&P 500: -2.36% DOW: -2.92% NASDAQ: -2.17% 10-YR Yield: 4.23%

What Happened?

Markets finally flinched. After weeks of shaking off warning signs, a combination of weaker-than-expected labor data and a fresh wave of tariff threats broke the momentum. All three Major indices gave back recent gains and logging their worst week of returns for the summer, with the S&P 500 down 2.36%, the Nasdaq sliding 2.17%, and the Dow down 2.92%.

The pivot point came late week when the labor force participation rate was revised downward, exposing deeper cracks in the jobs market than previously acknowledged. That was followed by confirmation from the Trump Administration that new tariffs, ranging from 10% to 41%, will go into effect August 7, targeting Canada, India, and Taiwan. Risk sentiment quickly soured.

Still, earnings provided a silver lining. With 80.6% of companies beating expectations, corporate America showed continued strength. Earnings growth jumped to 13.2% YoY (ex-Energy), led by tech giants like Apple, Meta, and Microsoft, whose AI and cloud segments continue to drive upside. However, chipmakers and energy majors told a different story: Arm, Qualcomm, Chevron, and Exxon all posted weak results, dragging their sectors lower.

Looking ahead, rising capital expenditures suggest companies are still investing for growth, but also point to potential near-term margin pressure. With macro risks rising and policy uncertainty back in focus, next week’s inflation data and Fed commentary will take center stage.

Looking ahead, next week will likely shake things up. We’ve got a loaded slate: megacap earnings, jobs data, and the Fed’s next rate decision. For now, the bulls are in charge and with so much on deck, it’s fair to expect a bumpier ride next week.

U.S. Economy Rebounds in Second Quarter

U.S. GDP rose at a seasonally and inflation adjusted 3% annual rate in the second quarter.
GDP grew at an average annual rate of 1.2% in the first six months this year, a step down from the 2.5% average pace in 2024.
Consumer spending increased at a 1.4% pace through Q2.

The key takeaway – U.S. GDP beat expectations in Q2, climbing at a 2.6 percent clip thanks to a rare double-punch of resilient consumer spending and a historic surge in net exports. Trade contributed more to growth than in any quarter since 1947, driven by businesses pulling purchases forward into Q1 and a sharp drop in imports. But the headline strength may be more smoke than fire. The underlying picture tells a more fragile story, especially when you consider that Q2’s growth rate still lagged the 2025 average. Skepticism is running high.

Business investment stayed soft. Spending on large-scale and long-term projects dropped to levels not seen in years. Confidence is clearly breaking down. Executives are staring into a fog of policy uncertainty, caught between the Trump administration’s unpredictable tariff threats and a Federal Reserve that can’t seem to deliver a unified message on rates. With no clear playbook, many firms are standing still.

Consumers are still spending, but there are signs the momentum is slowing. Discretionary categories like restaurants and hotels are taking the first hit. And on the housing front, the market remains frozen. Mortgage rates remain elevated, keeping homeowners locked into ultra-low rates and stalling both refinancing and resale activity. People aren’t budging, and neither is the data.

Federal Reserve holds its benchmark rate steady at today’s FOMC meeting

July’s FOMC meeting, the Federal Reserve decided to hold interest rates at a range of 4.25-4.5% – citing “elevated uncertainty on economic outlook”
First time since 1993 that two board members have voted against the opinion of the chair.

The key takeaway – As expected, the Federal Reserve held interest rates steady on Wednesday, reinforcing its cautious stance amid sticky inflation and a still-strong labor market. It was another chapter in the Fed’s “wait-and-see” playbook, with Chair Powell offering little in the way of new guidance for a September rate cut.

Staying hawkish, Powell emphasized that steady GDP growth of a 3% expansion rate aren’t necessarily signs that monetary policy is too tight. His message was clear: if inflation remains above the 2% target and the economy continues humming along, there’s little justification to ease rates. In his view, current policy isn’t what’s holding the economy back, because nothing seems to be holding it back at all.

But behind the scenes, signs of divergence are emerging. For the first time in years, two FOMC members broke ranks, voting in favor of a rate cut. That’s notable. The Fed has long prided itself on data-dependent decision-making, and dissent from within signals growing concern that policy may be too restrictive given softening in certain economic indicators.

Looking ahead, all eyes are on the September meeting. Futures markets are now pricing in a 63% chance of a rate cut, reflecting both investor hope and increasing signs of policy fatigue. The Fed may be standing pat for now, but the pressure to pivot is clearly building.

U.S. added just 73,000 jobs in July and numbers for prior months were revised much lower

Nonfarm payrolls growth totaled 73,000 for July, above the June total of 14,000 but below estimates of 100,000.
June payroll numbers revised down from 144,000 to 19,000.
May payroll numbers revised down from 147,000 to 14,000.

The key takeaway – The Bureau of Labor Statistics came out this morning with their nonfarm payrolls report for July that included downwardly revised June and May Nonfarm payroll growth. This historic revision indicates a weakening U.S. labor market with significant implications for the Federal Reserve’s monetary policy and the broader economy. The Fed, which decided to hold rates steady on Wednesday, now has new data to consider.

Nonfarm payrolls added just 73,000 jobs in July, far below expectations. However, this news by itself would not have conjured up the market reaction we’ve seen this morning. The real shock came from the massive downward revisions to the May and June data, which collectively wiped out 258,000 jobs from previous reports. Simultaneously, the unemployment rate rose to 4.2%, in line with projections, and other important underlying metrics, such as long-term unemployment and the number of discouraged workers, also showed signs of deterioration.

The Fed held rates steady on Wednesday for a fifth consecutive meeting, citing a strong labor market and persistent inflation. This updated information from the Bureau of Labor Statistics, however, provides a strong incentive for the Fed to reconsider its position. After the report was released, the probability of a rate cut at the next FOMC meeting in September has jumped from 40% to 75.5%, a clear signal of the market’s expectation for a policy shift.