Weekly Investment Update (07/18/2025)

Markets navigated a busy week marked by strong consumer data, elevated goods inflation, and continued gains in some of the largest technology companies. June retail sales topped forecasts, with both headline and control group figures beating expectations. Meanwhile, categories such as toys, furnishings, and appliances saw their steepest price increases in years, pointing to the start of tariff-driven inflation. In our view, the impact of tariffs on both growth and inflation will become more evident throughout the third quarter, but labels of “stagflation” are not appropriate as growth and underlying inflation trends are stable. For example, the labor market showed continued resilience, with initial jobless claims falling for a fifth straight week to their lowest level since April.

At the same time, the rapid acceleration of AI technology continues to provide underlying market support. Nvidia’s valuation pushed above $4 trillion — greater than the entire consumer staples, energy, and utilities sectors combined — bolstered by news that it can resume selling AI chips in China following assurances from the Trump administration.

Earnings Provide Insight Into Effects of Tariffs on Corporate America

What is happening: The second-quarter earnings season began this week, with 12% of S&P 500 firms reporting results. Just over half of these firms were within the financial sector, offering a useful barometer for the health of the broader economy. Analysts currently expect the sector to post earnings growth of 2.4%. However, this figure is skewed by JPMorgan, which faces a tough comparison with last year’s earnings owing to a large one-off gain from the sale of its Visa shares. Excluding JPMorgan, the sector’s earnings growth estimate would rise markedly to a healthy 9.3%.

Across the S&P 500, consensus forecasts point to modest earnings growth of 4.8% for the quarter. If realized, this would represent the weakest growth since the fourth quarter of 2023, when the S&P 500’s earnings increased just 4.0%. The moderation in growth this quarter reflects ongoing cost pressures, driven by tariffs and uncertainty over global trade. Nonetheless, it would also mark the eighth consecutive quarter of year-on-year earnings expansion. While overall economic growth is slowing, corporate performance, particularly in the technology sector, remains broadly strong.

Why it matters: Although it is still early in the earnings season, companies have so far posted healthy earnings with management commentary suggesting that demand remains resilient despite lingering uncertainty surrounding tariffs.

Wall Street banks have seen their trading revenues benefit from elevated volatility earlier in the year. Conversely, mergers and acquisition activity has slowed, weighing on the revenues of their corporate finance divisions. However, JPMorgan observed that dealmaking activity picked up markedly toward the end of the quarter, hinting at improving momentum as the new quarter begins, perhaps a sign that the worst of the tariff disruption has passed. On the earnings call, the bank’s management painted an overall reassuring picture of the U.S. consumer, stating that card spending rose 7%, and that they are not concerned about a significant deterioration in credit.

Bessemer portfolios are overweight banks such as JPMorgan and Bank of America, reflecting our conviction in the resilience of the U.S. economy and view that anticipated rate cuts later this year and next year will support the sector by steepening the yield curve, boosting loan demand, and alleviating credit pressures.

Tariff-Related Price Pressure in Core Goods Likely Leaves Fed’s View Unchanged

What is happening: The June consumer price index (CPI) report came in slightly below expectations on a monthly basis, with the core rate rising 0.2% and the headline figure by 0.3%, leaving the core rate at 2.9% and the headline rate at 2.7% year-over-year. A key source of downward pressure in June was lodging away from home, or hotel prices, which fell 2.9% on the month. The decline helped to moderate the overall shelter component, which has been a source of sticky inflation in prior readings.

While declines in shelter helped bring down the core rate, a handful of core goods categories, such as household furnishings, toys, and electronics posted strong monthly gains, likely reflecting the early impact of tariff-related price pressures. Excluding prices for both new and used cars, with both notably declining, core goods prices increased by 0.5% in June, the most since 2021.

Why it matters: The June CPI report displayed only a modest impact from tariff-induced price pressure on core goods. That said, the report likely still reflects some selling of pre-tariff inventories given the substantial pull forward of activity in prior months. We expect to see more incremental price increases in core goods inflation as inventories run down, though they are likely to be offset in part by disinflationary trends in other more heavily weighted components of CPI. Notably, core goods account for an 18.5% weight in the CPI, while core services make up just over 61%. Within core services, shelter holds the largest share at 36%. As we continue to see disinflationary progress in the shelter component, this should help alleviate any upward pressure on CPI coming from the increase in goods prices.

Despite some evidence of tariff price pressure, we do not expect the June CPI report to change the Fed’s stance on inflation or tariffs. In the June FOMC minutes, members expressed uncertainty about the timing, size, and duration of tariff impacts. It is likely they still would like to have more clarity on the overall effects before further adjusting rates. As the Fed balances its dual mandate, we still expect it to focus on a stable, yet cooling labor market, which lowers the impact of tariff-related inflation and should allow the Fed to resume interest rate cuts this year.