WEEK AHEAD

A Week of Renewed Tariffs

Last week, ending July 11, 2025, the U.S. stock market found itself adrift in a sea of uncertainty, with major averages largely falling flat. The bellwether S&P 500, a key indicator of market health, registered a modest but telling decline of -0.29%, signaling a palpable shift in investor sentiment. This change in momentum was predominantly driven by a renewed barrage of tariff announcements from President Trump, whose aggressive trade stance continues to cast a long shadow over global commerce.

The market's momentum, which had shown resilience in previous periods, is now clearly starting to wane under the weight of escalating trade tensions. Headlines were dominated by tariff news, particularly the expiration of the 90-day reciprocal tariff deadline. Initially set for July 9, the White House opted to push this critical benchmark out to August 1, injecting further ambiguity into an already volatile situation. More significantly, President Trump unveiled a new wave of tariff rates targeting key economic partners, including Japan, South Korea, Mexico, and Brazil. These threats, with potential rates soaring as high as 40% for some nations, underscore a determined, albeit disruptive, strategy.

What gets lost in the immediate shock of these tariff headlines is the underlying rationale behind President Trump's approach. His administration's end goal is clear, but people don't listen that much: to compel foreign countries to reduce their own U.S. import tariffs, thereby creating a more level playing field and ultimately increasing U.S. exports. This aggressive negotiation tactic, while causing short-term market jitters, aims for a long-term rebalancing of global trade flows in America's favor.

Most countries, not just China, impose tariffs and taxes on U.S. exports to protect their domestic manufacturing.  But let's use China as an example. According to the enclosed chart, historically, China has imposed higher tariffs and rates on U.S. exports than vice versa, and the goal is to level the playing field.

Source: https://www.piie.com/research/piie-charts/2019/us-china-trade-war-tariffs-date-chart

On the economic front, the past week provided little data to significantly sway market direction, serving largely as a quiet prelude to the upcoming second-quarter earnings releases. Nonetheless, a few key indicators provided some insights. Redbook's year-over-year retail same-store sales surprisingly rose by 1% to 5.9%, suggesting continued consumer resilience. Conversely, wholesale inventories declined by -0.3%, a figure that could be indicative of low stock levels and, potentially, higher inflation down the line. Consumer credit growth slowed considerably, coming in at $5.1 billion against an estimated $8.6 billion, hinting at a more cautious consumer. The NFIB Small Business Optimism index edged down slightly by 0.2 points from the prior month to 98.6, reflecting a minor dip in confidence among small enterprises. Perhaps most concerning for the labor market, continuing claims rose by 10,000 from the previous week to 1.965 million, suggesting a nascent weakening trend.

In line with the broader uncertainty, Treasury yields moved slightly higher this week. 10-year yields moved up by about 2 basis points (from 4.38% to 4.40%), while 30-year yields also saw an increase of around 7 basis points (from 4.86% to 4.93%).

As we look ahead, the market's immediate future will likely remain tethered to the evolving trade narrative. While the economic data was mixed, the dominant force driving sentiment remains the administration's tariff policy and its implications for corporate earnings and global supply chains. Investors will be keenly watching for any further developments on the trade front, alongside the impending Q2 earnings reports, to gauge the true impact of these policies on the U.S. economy.

This week, corporate titans such as JPMorgan, Wells Fargo, Goldman Sachs, and American Express will open their books, offering a glimpse into the nation's financial health. Meanwhile, Johnson & Johnson, Abbott Labs, and Netflix will shed light on consumer spending and overall economic health. And let's not forget Kinder Morgan, whose insights into energy costs are crucial for understanding the impact of inflation. These earnings calls aren't just about profits; they're our front-row seat to how tariffs are really impacting businesses and whether inflation is a passing shower or a coming storm. The collective outlook from these companies, along with CPI and PPI releases, will be a telling barometer of overall sentiment. As Ronald Reagan might say, "Here we go again." Let's see what these folks have to tell us about the state of the union's wallet.

From Prime to Priced-In: Amazon Enters the Value Club

Amazon is now a value stock. Yes, that Amazon, trading at 36x+ P/E—the one that uses my front porch more than I do. The company that rewired consumer behavior, built a cloud empire, and turned cash burn into a sustainable business model has just been added to the Russell 1000 Value Index.

It would be dishonest to claim complete understanding of the construction methodology behind these ubiquitous benchmarks. What was once a simple rank-and-screen based on price-to-book has morphed into something more opaque, often reflecting sector and size biases as much as traditional "value." Some stocks now qualify for both growth and value benchmarks. Wait — what? That's like being happy and sad, or hungry and full at the same time. How is that even possible?

Which brings us back to Amazon. At first glance, this might seem like a clerical quirk — a byproduct of the annual Russell reconstitution. But look closer, and it's a reflection of something deeper: a regime shift in how the market prices growth, maturity, and what it means to be "value."

The Style Drift Is Real

Amazon isn't the first Big Tech name to make this journey.

In recent years, Meta and Apple have also been included in value indexes — Meta after its post-Zuckerberg reality check drawdown, and Apple as it steadily morphed into a buyback-powered, cash-flow machine.

These aren't anomalies. They're mile markers in the slow convergence of growth and value — a process accelerated by re-rating, reshuffling, and the sheer gravitational pull of mega-cap dominance. Maybe even a reconvergence, for us gray hairs.

For Amazon, the inclusion comes as AWS growth moderates, retail margins stabilize, and its valuation compresses. Once priced as a moonshot, Amazon now trades more like a utility — albeit one with global logistics, AI infrastructure, and a Prime subscriber base the size of a continent.

Value by Default

The Russell 1000 Value Index isn't making a philosophical statement. It's just following the rules.

Stocks are sorted by price-to-book and expected growth characteristics. Those with lower relative valuations fall into the "value" bucket.

Amazon checks enough of the boxes:

• Slower earnings growth than its peers
• Lower price-to-book and forward P/E metrics
• A more mature, cash-generating profile

In other words, Amazon didn't become value. It just stopped being growth.

The Passive Implications

Here's where it gets interesting: index inclusion isn't just symbolic — it moves money.

Amazon's entry into the value camp means it will now be held by hundreds of ETFs and smart beta products targeting the value factor. Flows will shift. Factor exposures will rebalance. And some growth managers — viewing Amazon's inclusion as a style violation — may quietly trim exposure.

Meanwhile, traditional value managers face a dilemma: Own Amazon and break the purity test? Or sidestep it and risk underperformance?

This isn't a new dilemma — ask Warren Buffett about his tangle with Apple. I suspect somewhere in Warren's unmatched thought process, he too figured Apple couldn't grow forever… and that its price no longer justified such a massive position in a value portfolio. As an aside: passive indices don't make that decision over time — they make it all at once. Either way, the lines have blurred.

The New Value Proposition

Maybe we've been defining value too narrowly – is growth at a reasonable price (GARP) back in vogue? Perhaps durable, cash-rich, and competitively entrenched companies with slower growth curves are the new value, even if they once were tech disruptors.

Or maybe this is just a reminder that style boxes were always a little contrived. Growth grows, until it doesn't. Value lags, until it doesn't. And Amazon, Meta, and Apple can all live in both worlds — because in the end, markets don't care about labels. They care about cash flow, competitive advantage, and price. Amazon is now a value stock. The real surprise?

It makes sense… if you think markets ever do.

Disclosure: This material is for informational purposes only and should not be considered investment advice. The opinions contained herein are subject to change without notice.