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WEEK AHEAD

August 4-8, 2025

The great question this time around, at least for this particular market cycle: will investors and the market have the collective resolve to remain patient? We’ve learned from past tests—from “Liberation Day 1.0,” if you will—that the biggest threat isn’t the temporary turbulence itself, but our own inclination to swerve off course at the first sign of trouble. For the time being, Sowell signals have not flickered from green. Our tactical indicators are fully invested, believing that the larger trend remains intact, even as the ride gets a little bumpy.
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Last week, the market's enthusiasm for July's performance was abruptly brought to heel. What began with the momentum of a solid 2.24% monthly gain for the S&P 500 quickly gave way to a momentum change to 2.34% weekly decline, a dramatic reversal that reminds us how swiftly sentiment can shift. The VIX, that ever-fickle gauge of market anxiety, reflected this change with a vengeance, soaring from a placid 15 to over 20 in just two trading sessions. The underlying reason for this dramatic turn? A potent cocktail of Tariff 2.0 uncertainty and unexpectedly weak domestic economic data.

Tech Titans and a Trillion-Dollar Question

The week’s early promise was fueled by a pair of earnings reports by digital heavyweights of the digital age. Meta Platforms delivered a powerful second-quarter report, with revenue surging 22% year-over-year to $47.52 billion, while Microsoft's fiscal fourth-quarter revenue jumped 18% year-over-year to $76.44 billion. Both companies underscored their commitment to the AI arms race, confirming they would continue to shell out billions in capital expenditures to build out their artificial intelligence infrastructure. The market rewarded this conviction handsomely, with Meta's stock gaining 5.2% for the week and Microsoft's rising 2%.
The narrative was not so kind to Apple. Despite reporting a healthy 10% year-over-year revenue growth, buoyed by a 13% increase in iPhone sales, the stock declined by 5.4%. Investors appeared less focused on past successes and more concerned with the twin threats of rising tariffs and the growing perception that the company is falling behind in the race for AI supremacy.=

A Sputtering Job Market & a Deluge of Data

The market's optimism was ultimately extinguished by a dose of reality from the employment front. The Nonfarm Payrolls report delivered a headline number of +73,000, a notable miss against the +95,000 economist forecast. The real ‘gut punch’ was a staggering 258,000 negative revision to the prior two months' data, bringing the three-month average for job growth to less than 40,000 and raising serious questions about the economy's underlying health. Other key economic indicators for the week painted a mixed, and at times contradictory, picture:
  • Unemployment Rate: Ticked up to 4.2% from 4.1% in June, but in line with estimates.
  • Average Hourly Earnings: Increased 0.3% (vs. the +0.2% expected), bringing the annual gain to 3.9%.
  • ADP Employment Change: A perplexing +104,000 reading, representing the lowest since March 2023.
  • PCE Prices: Annual gain stands at 2.6%, with core PCE's annual gain at 2.8% (0.10% above expectations).
  • Construction Spending: Declined for a sixth consecutive month, falling 0.4% against a flat forecast.
  • Wholesale Inventories: Unexpectedly increased to 0.2% versus a −0.1% expectation.
  • JOLTS Job Openings: Fell to 7.437M, below the expected 7.55M and the prior month's 7.712M.
  • GDP: An advanced reading on second-quarter growth came in stronger than expected at +3.0% versus a 2.7% forecast, providing a lone bright spot amidst the gloom.

Fixed Income and the Tariff Maze

The weak jobs data provided a powerful tailwind for fixed income, sending long-term Treasury yields tumbling from their recent highs. The 10-year yield fell to 4.23% from 4.5%, while the 30-year yield dropped to 4.81% from 5.01%.
Meanwhile, the geopolitical backdrop remained complex, with the Trump Administration's trade policies continuing to evolve. The administration has now announced several new trade framework deals, placed reciprocal tariffs on 62 countries, and imposed a global baseline tariff of 10%. Mexico was granted a temporary 90-day reprieve, while Canada faced a tariff hike from 25% to 35%. The Budget Lab of Yale is predicting an overall price rise of just 2% over the next two to three years as a result of these policies.
With the Fed on hold and the FOMC chatter quiet until September 16, markets turn to the earnings homestretch. Over 65% of S&P 500 companies have reported, and 60% have topped both revenue and profit estimates—displaying resilience despite the macroeconomic fog.
This week’s headliners—Berkshire Hathaway, Disney, AMD, Caterpillar, McDonald’s, Eli Lilly, Tyson Foods, and Constellation Energy—will offer fresh reads on industrial demand, consumer strength, and AI appetite.
On the economic front, watch for manufacturing pulse checks: Factory Orders, Wholesale Inventories, and Trade Balance. With policy in pause mode, fundamental data and earnings now drive the tape while tariffs are the wild card.
“Despite elevated uncertainty, the economy is in a solid position. The unemployment rate remains low, and the labor market is at or near maximum employment.”
— Chair Powell’s FOMC Press Conference, July 30th, 2025.

Jerome Powell inflation comments

Op-Ed: The Fed Starts Predicting the Weather

We live in an age of anticipatory governance. Presidents threaten tariffs before implementing them. Corporations preemptively issue apologies. Voters brace for cultural catastrophes that have yet to happen. But the Federal Reserve — the most stoic, data-driven institution in American life — was supposed to be the adult in the room. It was supposed to wait, measure, weigh, and act. Now, even the Fed seems to be flinching at grey clouds.
At its July 30 meeting, the Federal Open Market Committee held rates at 4.25%. This was unremarkable—until the rationale emerges. The Fed, by its own account, is keeping rates elevated to preempt inflation that tariffs might cause. The pivot: The Fed is acting not on today's data, but on tomorrow's worries.
Let’s rewind to March 2025. In a revealing moment at the March 19 press conference, Chair Jerome Powell sounded every bit the rational empiricist. “The real economy, the hard data, are still in reasonably good shape,” he said. “It’s the soft data... the surveys... that are showing significant concerns.” And then, the kicker: “We don't want to get ahead of that. We want to focus on the hard data.”
That’s the kind of institutional humility you want from a central bank. Observe. Don’t speculate. Act, don’t assume. Yet here we are, watching the Fed seemingly do the very thing it cautioned against — using forward-looking sentiment (soft data) to justify present policy decisions.
To be fair, there are plausible, even prudent reasons to hold rates. Inflation could reignite. Wage pressures may persist. Tariffs, once implemented, can have a real impact. But here’s the tension: the Fed is not mandated to respond to potential inflation driven by fiscal instruments like tariffs. Its dual mandate — conferred by Congress — is clear: ensure price stability and maximum employment. Full stop.
Tariffs, after all, are taxes. Taxes are fiscal policy. The Fed is not supposed to lean into fiscal trends. In fact, Chair Powell himself was admirably explicit on this point. When asked about the cost of high rates on the federal government’s borrowing burden or the housing market, he responded: “We have a mandate and that's maximum employment and price stability... We don't consider the fiscal needs of the federal government... It wouldn't be good for our credibility nor for the credibility of U.S. fiscal policy.”
Well said. And yet — the Fed refused to cut rates not because of any actual inflation, but because it fears inflation triggered by government tariffs — is it not, in a roundabout way, reacting to fiscal policy?
There is something subtly corrosive here. A central bank that begins anchoring decisions in speculative fiscal outcomes risks drifting beyond its legal charter and institutional culture. And the irony is rich: in its attempt to preserve credibility, the Fed may be eroding it. Monetary policy is becoming preemptive. Prudence is edging toward politics.
Let’s not forget that inflation — that real, searing, post-pandemic inflation — did come. And the Fed, initially too slow, rightly responded. But that was based on hard data. Not surveys. Not expectations. Not a hunch about what the government might do.
We need a Federal Reserve that resists the performative momentum of the age. That doesn’t bend to the headlines or President Trump’s peer pressure. That doesn’t raise (or hold) rates out of fear of a tax that hasn’t been fully levied, or an inflation spike that hasn't arrived.
In short, we need a Fed that practices what it preaches.
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.
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Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.

 

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