Weekly Investment Update (08/08/2025)

Stocks moved higher this week as mixed news — ranging from a continued dovish shift in rate expectations to ongoing signs of strength in AI-related spending — kept markets active. Last Friday’s softer July payrolls report triggered a sharp repricing in the Fed rate path, with markets now assigning a 90% probability to a September cut, up from just 37% prior to the jobs report. Meanwhile, Apple secured a tariff exemption in exchange for a $100 billion U.S. investment pledge, and TSMC reported a 26% jump in July sales, reinforcing the AI-driven capital expenditure narrative.

Earnings results remain strong, with 81% of S&P 500 companies beating EPS estimates and year-over-year growth tracking at 12%. Encouragingly, the spread between the Magnificent 7 and the rest of the index has narrowed as earnings for non-Magnificent-7 companies rose 9% — their best pace in years. Still, performance dispersion remains high, and the bar for earnings success has risen. Companies that fall even slightly short, or fail to exceed elevated expectations, are seeing sharp drawdowns — often over 10% in a single day. After a 30%-plus rally from the April lows, valuations are rich, and price reactions are unforgiving. While we believe the fundamental backdrop remains solid, markets may need time for earnings to catch up with prices, suggesting a choppier path ahead in the near term.

Reciprocal Tariffs Come Into Force After Last-Minute Talks

What is happening: After months of negotiations, reciprocal tariffs officially went into effect this week. Countries scrambled to finalize agreements ahead of Thursday’s midnight deadline. Most countries have negotiated to reduce their tariff rates from the steep levels initially proposed on April 2. The resulting tariffs now span a wide range: from 10% on goods imported from the United Kingdom to 15% on those from the European Union and Japan, and to 50% on imports from Brazil.

Two countries were particularly affected by Trump's tariff decisions this week. Switzerland was unexpectedly hit with a 39% tariff, prompting a 2% drop in the Swiss stock market on Monday as investors reacted to the news. Meanwhile, India faces an additional 25% tariff on its exports to the U.S., a move tied to its ongoing purchases of sanctioned Russian oil. This new levy, set to take effect on August 27, will bring total U.S. tariffs on Indian imports to 50% — large enough to potentially reduce its GDP growth by as much as a full percentage point. Strategically, India’s efforts to position itself as a credible alternative to China in global manufacturing are also likely to face a setback.

Why it matters: The U.S. effective tariff rate looks set to settle in the 13%-14% range, up from 2.3% last year. However, the landscape will likely remain fluid as the administration looks to negotiate further deals and clarify some sectoral tariffs, such as those on pharmaceuticals. Nonetheless, companies can begin adapting to the evolving trade environment. This week, Apple, a Bessemer holding, announced plans to invest an additional $100 billion into U.S. manufacturing facilities. This move was likely influenced by the steep tariffs on Indian imports, where Apple currently manufactures approximately 20% of its iPhones. We expect more companies to follow suit, restructuring supply chains in response to shifting trade dynamics.

The full effects of tariffs for the U.S. consumer will unfold gradually as higher costs take time to filter through global supply chains. Many importers are still drawing down inventory stockpiled ahead of the deadline, so shelf prices may remain stable in the near term. Consumers are unlikely to feel the full effect until later in the year, most likely in the fourth quarter.

There also remains the possibility that U.S. courts could strike down many of the tariffs. The Court of Appeals is currently reviewing the administration’s legal authority to impose the tariffs, with a ruling expected in the coming weeks. However, it is widely expected that the matter will ultimately be decided by the Supreme Court. Bessemer portfolio managers remain in close dialogue with portfolio companies to assess the operational and earnings impact of the new trade regime.

Weak July Jobs Report and Historic Downward Revisions Lead to BLS Shake-Up

What is happening: The July nonfarm payrolls report showed a monthly net job gain of just 73,000 jobs, well below the consensus estimate of 100,000. More notably, May and June job gains were revised down by a combined 258,000, marking the largest two-month downward revision (excluding the 2020 pandemic) in more than 40 years. The largest private sector downward revisions were in professional services (-27k), retail (-24k), leisure and hospitality (-18k), and construction (-16k).

Within hours of the report’s release, President Trump announced the dismissal of Bureau of Labor Statistics (BLS) Commissioner Erika McEntarfer. Trump announced on social media that the firing was due to McEntarfer allegedly manipulating data to make conditions appear worse than they were.

Why it matters: The underwhelming jobs numbers over the past three months clearly point to a slowing U.S. labor market. However, the broader picture still reflects a slowing growth environment rather than a recession, which is typically characterized by negative monthly net job gains.

The magnitude of recent payroll revisions is due to several factors. Historically, survey response rates for the initial jobs report were in the 60% to 70% range, but in 2025, they have dropped to the low 50s. As a result, the initial estimates are based on a smaller pool of data, increasing the likelihood and size of revisions. Additionally, seasonal model adjustments have been less accurate as post-2020 hiring patterns in sectors such as education, healthcare, and state and local government have diverged from historical norms. Lastly, broader budget cuts and staffing shortages at the BLS have strained data collection capacity. By one estimate, the bureau’s funding is down more than 20% in inflation-adjusted terms when compared to 2010 levels. These constraints have limited the agency’s ability to update its models and collect comprehensive data, further contributing to revision volatility.

Regarding the integrity of the BLS data, standardized protocols make it difficult for any one individual to alter report figures. Also, no one from the BLS has come forward to dispute the latest report, and acting Commissioner William Wiatrowski has publicly stated that the recent revisions reflect standard methodology. Nevertheless, with nonfarm payroll revision volatility likely to remain high in the near term, it is important to focus on longer-term trends and place less emphasis on initial data releases. Bessemer’s investment team also analyzes data from non-BLS sources, including but not limited to ADP employment, initial jobless claims, consumer spending, and retail sales to form a more holistic view of the economic environment.