Sowell’s trend-following technical signals remain in the green and are fully invested, as momentum continues to build. Expect heightened volatility as we await the Federal Reserve’s meeting on July 29.
The Three P's: Peaks, Potholes, and Presidential Ponderings
As the summer settled over Wall Street, the week ending July 25, 2025, proved to be another testament to the market's seemingly unshakeable optimism, even as underlying currents hinted at potential complexities. The S&P 500, that ever-climbing barometer of American corporate might, once again scaled fresh all-time highs, adding a respectable +1.47% to its weekly tally and pushing its year-to-date gain to a robust +9.42%. This ascent was fueled by a potent cocktail of robust Q2 earnings, particularly the forward-looking guidance from some corporate titans, and a significant trade breakthrough with Japan.
Bonds Breathe a Sigh of Relief
Amidst the equity euphoria, the bond market offered a subtle counter-narrative of measured calm. The closely watched 30-year bond yields, which had recently flirted with the psychologically significant 5% mark, gracefully retracted to 4.92%. This slight easing in long-term rates provided a welcome tailwind for fixed income, allowing Bloomberg US Aggregate to register a modest but meaningful weekly gain of +0.37%. For bond investors, it was less a sprint and more a steady stroll, a quiet affirmation in a world often captivated by the flash and dash of stocks.
The Art of the Deal, Tokyo Edition
On the geopolitical and economic front, President Trump once again commanded headlines with the announcement of a landmark trade agreement with Japan. The centerpiece of this deal, effective August 1, is a significant reduction in the auto tariff rate, dropping from a hefty 27.5% to a more palatable 15%. Similar 15% reductions were applied to other duties as well. In a quid pro quo that promises to reshape trans-Pacific trade flows, Japan committed to opening its domestic market more broadly to U.S.-manufactured cars, trucks, and agricultural products. This accord, heralded by the administration as a win for American industry and farmers, certainly contributed to the week's buoyant market sentiment, suggesting a potential easing of global trade tensions.
Alphabet's AI Ambitions Fuel Tech's Fire
The earnings season continued to deliver its share of surprises and confirmations. Alphabet, the sprawling digital behemoth, posted results that were not merely strong but visionary. Beyond the impressive numbers, the company's declaration of a $10 billion increase in AI-related Capital Expenditure sent a clear signal: the race for artificial intelligence dominance is accelerating, and Alphabet is doubling down. This strategic pivot, a colossal vote of confidence in the future of AI, had an immediate and palpable ripple effect, propelling semiconductor stocks — the very picks and shovels of the AI gold rush.
Tesla's Reality Check: A Pivot to Purgatory?
Yet, not all corporate narratives were tales of triumph. Tesla, once an unassailable darling of the electric vehicle revolution and a key member of the "Mag-7" cohort, found itself in an uncharacteristic predicament. The company reported a 12% drop in revenue for the second quarter, a stark figure that the market, for the most part, seemed surprisingly unfazed by, perhaps due to the broader positive momentum. However, the earnings call provided a dose of sobering reality. Elon Musk, ever the showman and visionary, candidly warned that the company could face "a few rough quarters" as it navigates a precarious pivot from its core vehicle sales model to the ambitious yet still nascent realm of robotaxis and autonomous ride services.
The political fallout from the relationship between Tesla owners and President Trump was a widely known contributing factor to the sales slump, adding a layer of complexity to the company's challenges. Tesla's stock, initially down 9% on the day of the earnings announcement, managed to pare some losses but still ended the week down 4.12%, earning it the dubious distinction of being the only Mag-7 stock to post a loss. Further compounding its woes, Tesla is bracing for the impending loss of federal EV tax credits and the rising costs associated with tariffs imposed under the latest Trump budget bill. For the EV pioneer, the road ahead appears less smooth, autonomous cruise and more a bumpy, tariff-laden detour.
The Fed Under Fire: A Presidential Visit
Beyond corporate boardrooms, the Federal Reserve found itself squarely in the political crosshairs. President Trump, ever keen to apply pressure on the nation's central bank, staged a highly publicized site visit to the Federal Reserve building, ostensibly to highlight "cost overruns" for renovations. This theatrical maneuver was widely interpreted as a thinly veiled publicity stunt, designed to amplify the growing calls for the Fed to cut interest rates. The spectacle underscored the persistent tension between the White House's desire for looser monetary policy and the Fed's mandate for independent decision-making.
Economic Indicators: A Mixed Bag
Finally, the week's economic data painted a somewhat bifurcated picture, particularly concerning the health of the American industry. Manufacturing, long a sensitive barometer of economic activity, showed clear signs of weakness, raising questions about whether this is a systemic slowdown or primarily tariff-related:
The Leading Economic Indicators (LEI) registered a decline of -0.3% against an expected flat reading.
The S&P Global U.S. Manufacturing PMI dropped sharply to 49.5 from 52.9 in the prior month, falling below the expected 52.7 (a number below 50.0 indicates contraction).
Durable Orders also saw a significant dip of -9.3%, though Durable Orders excluding transportation showed a slight gain of +0.2%.
In contrast, the services sector continued to hum along robustly. The S&P Global U.S. Services PMI rose to a strong 55.2 from 52.9, comfortably exceeding the 53.0 expectation. This divergence highlights a potential two-speed economy, where the consumer-driven services sector remains resilient, even as manufacturing grapples with headwinds that could be domestic, global, or tariff-induced.
The week ahead promises to be anything but quiet, with markets bracing for a flurry of headlines as we march toward the August 1st tariff deadline declared by President Trump. On deck: earnings from the remaining Magnificent Seven, each carrying weight not just for market momentum but for sentiment broadly. Yet the real drama unfolds on Wednesday when the Federal Reserve takes center stage. All eyes—and likely a few tweets—will be on Chair Jerome Powell as he walks a familiar tightrope: Does he deliver the rate cut President Trump demanded? Or does the Fed hold firm, risking both volatility and the President's ire? One thing's for sure: independence is a virtue, but so is timing—and this week, the Fed will need plenty of both.
"Today, the amount of these, the amount of the tariff effects, the size of the tariff effects, their duration and the time it will take are all highly uncertain, so that is why we think the appropriate thing to do is to hold where we are as we learn more, and we think our policy stance is in a good place where we're well-positioned to react to incoming developments."
—Chair Powell's FOMC Press Conference, June 18, 2025.
KLA Corporation (KLAC) has been one of the standout performers in the semiconductor equipment sector so far in 2025. The stock is up over 40% YTD so far, significantly outpacing the broader market and many of its industry peers. This strong performance reflects not only favorable market sentiment surrounding AI-driven semiconductor demand but also the company's robust execution and consistent financial delivery.
In the 1st calendar quarter, KLA reported non-GAAP EPS of $8.41 and revenue of $3.06 billion, representing year-over-year growth of nearly 60% in EPS and 30% in revenue. Notably, the company continues to post industry-leading operating margins and maintains strong free cash flow generation, allowing it to return significant capital to shareholders. In Q3 2024 alone, KLA returned over $700 million through dividends and buybacks, and the board authorized a new $5 billion share repurchase program.
KLA's growth has been primarily driven by rising demand in advanced semiconductor manufacturing, particularly in high-bandwidth memory, logic, and advanced packaging technologies—all critical for enabling next-generation AI applications. Management now expects revenue from its advanced packaging business to exceed $850 million in 2025, up from $500 million in 2024 and surpassing its prior guidance of $800 million. This growing end-market, paired with KLA's dominant position in process control and inspection tools, has helped the company weather broader macro volatility that has weighed on other chip-related names.
Despite the positives, investors are closely monitoring the potential risks involved. The most immediate concern is the potential impact of U.S. export restrictions on China, which could negatively affect KLA's sales and customer relationships in a critical region. Some analysts have already lowered their revenue expectations for 2025 by up to $500 million in anticipation of tighter export rules. Additionally, management's decision to postpone its planned Investor Day from June 2025 to 2026 has raised some questions about the near-term visibility of its long-term strategy. More broadly, as a supplier to a highly cyclical industry, KLA remains vulnerable to shifts in semiconductor capital expenditure trends, which can be abrupt and dramatic depending on global demand cycles.
Valuation is another concern. With its strong run-up, KLA is trading at a premium multiple relative to its historical range and the sector average. While the company's margin profile and cash generation may justify this premium, any disappointment in future earnings or a shift in sentiment around semiconductors could lead to downside pressure.
Looking forward, KLA remains well-positioned to benefit from secular trends in AI infrastructure buildout, chip complexity, and the growing need for process control precision. Analysts currently expect full-year 2025 EPS to reach approximately $32, representing over 35% year-over-year growth. Even if earnings growth moderates in 2026—as some forecasts suggest—a strong balance sheet, growing service business, and high switching costs among customers make KLA one of the more defensible plays in the semiconductor capital equipment space.
KLA delivered an exceptional performance in 2025, powered by strong earnings, a leading market position, and favorable end-market dynamics. At the same time, with geopolitical uncertainty and valuation risk on the horizon, investors would be wise to stay vigilant even as the company continues to execute at a high level. KLA announces earnings this Thursday.
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.
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.
WEEK AHEAD
July 28 - August 1, 2025
Sowell’s trend-following technical signals remain in the green and are fully invested, as momentum continues to build. Expect heightened volatility as we await the Federal Reserve’s meeting on July 29.
The Three P's: Peaks, Potholes, and Presidential Ponderings
As the summer settled over Wall Street, the week ending July 25, 2025, proved to be another testament to the market's seemingly unshakeable optimism, even as underlying currents hinted at potential complexities. The S&P 500, that ever-climbing barometer of American corporate might, once again scaled fresh all-time highs, adding a respectable +1.47% to its weekly tally and pushing its year-to-date gain to a robust +9.42%. This ascent was fueled by a potent cocktail of robust Q2 earnings, particularly the forward-looking guidance from some corporate titans, and a significant trade breakthrough with Japan.
Bonds Breathe a Sigh of Relief
Amidst the equity euphoria, the bond market offered a subtle counter-narrative of measured calm. The closely watched 30-year bond yields, which had recently flirted with the psychologically significant 5% mark, gracefully retracted to 4.92%. This slight easing in long-term rates provided a welcome tailwind for fixed income, allowing Bloomberg US Aggregate to register a modest but meaningful weekly gain of +0.37%. For bond investors, it was less a sprint and more a steady stroll, a quiet affirmation in a world often captivated by the flash and dash of stocks.
The Art of the Deal, Tokyo Edition
On the geopolitical and economic front, President Trump once again commanded headlines with the announcement of a landmark trade agreement with Japan. The centerpiece of this deal, effective August 1, is a significant reduction in the auto tariff rate, dropping from a hefty 27.5% to a more palatable 15%. Similar 15% reductions were applied to other duties as well. In a quid pro quo that promises to reshape trans-Pacific trade flows, Japan committed to opening its domestic market more broadly to U.S.-manufactured cars, trucks, and agricultural products. This accord, heralded by the administration as a win for American industry and farmers, certainly contributed to the week's buoyant market sentiment, suggesting a potential easing of global trade tensions.
Alphabet's AI Ambitions Fuel Tech's Fire
The earnings season continued to deliver its share of surprises and confirmations. Alphabet, the sprawling digital behemoth, posted results that were not merely strong but visionary. Beyond the impressive numbers, the company's declaration of a $10 billion increase in AI-related Capital Expenditure sent a clear signal: the race for artificial intelligence dominance is accelerating, and Alphabet is doubling down. This strategic pivot, a colossal vote of confidence in the future of AI, had an immediate and palpable ripple effect, propelling semiconductor stocks — the very picks and shovels of the AI gold rush.
Tesla's Reality Check: A Pivot to Purgatory?
Yet, not all corporate narratives were tales of triumph. Tesla, once an unassailable darling of the electric vehicle revolution and a key member of the "Mag-7" cohort, found itself in an uncharacteristic predicament. The company reported a 12% drop in revenue for the second quarter, a stark figure that the market, for the most part, seemed surprisingly unfazed by, perhaps due to the broader positive momentum. However, the earnings call provided a dose of sobering reality. Elon Musk, ever the showman and visionary, candidly warned that the company could face "a few rough quarters" as it navigates a precarious pivot from its core vehicle sales model to the ambitious yet still nascent realm of robotaxis and autonomous ride services.
The political fallout from the relationship between Tesla owners and President Trump was a widely known contributing factor to the sales slump, adding a layer of complexity to the company's challenges. Tesla's stock, initially down 9% on the day of the earnings announcement, managed to pare some losses but still ended the week down 4.12%, earning it the dubious distinction of being the only Mag-7 stock to post a loss. Further compounding its woes, Tesla is bracing for the impending loss of federal EV tax credits and the rising costs associated with tariffs imposed under the latest Trump budget bill. For the EV pioneer, the road ahead appears less smooth, autonomous cruise and more a bumpy, tariff-laden detour.
The Fed Under Fire: A Presidential Visit
Beyond corporate boardrooms, the Federal Reserve found itself squarely in the political crosshairs. President Trump, ever keen to apply pressure on the nation's central bank, staged a highly publicized site visit to the Federal Reserve building, ostensibly to highlight "cost overruns" for renovations. This theatrical maneuver was widely interpreted as a thinly veiled publicity stunt, designed to amplify the growing calls for the Fed to cut interest rates. The spectacle underscored the persistent tension between the White House's desire for looser monetary policy and the Fed's mandate for independent decision-making.
Economic Indicators: A Mixed Bag
Finally, the week's economic data painted a somewhat bifurcated picture, particularly concerning the health of the American industry. Manufacturing, long a sensitive barometer of economic activity, showed clear signs of weakness, raising questions about whether this is a systemic slowdown or primarily tariff-related:
The week ahead promises to be anything but quiet, with markets bracing for a flurry of headlines as we march toward the August 1st tariff deadline declared by President Trump. On deck: earnings from the remaining Magnificent Seven, each carrying weight not just for market momentum but for sentiment broadly. Yet the real drama unfolds on Wednesday when the Federal Reserve takes center stage. All eyes—and likely a few tweets—will be on Chair Jerome Powell as he walks a familiar tightrope: Does he deliver the rate cut President Trump demanded? Or does the Fed hold firm, risking both volatility and the President's ire? One thing's for sure: independence is a virtue, but so is timing—and this week, the Fed will need plenty of both.
"Today, the amount of these, the amount of the tariff effects, the size of the tariff effects, their duration and the time it will take are all highly uncertain, so that is why we think the appropriate thing to do is to hold where we are as we learn more, and we think our policy stance is in a good place where we're well-positioned to react to incoming developments."
—Chair Powell's FOMC Press Conference, June 18, 2025.
KLA Corporation (KLAC) has been one of the standout performers in the semiconductor equipment sector so far in 2025. The stock is up over 40% YTD so far, significantly outpacing the broader market and many of its industry peers. This strong performance reflects not only favorable market sentiment surrounding AI-driven semiconductor demand but also the company's robust execution and consistent financial delivery.
In the 1st calendar quarter, KLA reported non-GAAP EPS of $8.41 and revenue of $3.06 billion, representing year-over-year growth of nearly 60% in EPS and 30% in revenue. Notably, the company continues to post industry-leading operating margins and maintains strong free cash flow generation, allowing it to return significant capital to shareholders. In Q3 2024 alone, KLA returned over $700 million through dividends and buybacks, and the board authorized a new $5 billion share repurchase program.
KLA's growth has been primarily driven by rising demand in advanced semiconductor manufacturing, particularly in high-bandwidth memory, logic, and advanced packaging technologies—all critical for enabling next-generation AI applications. Management now expects revenue from its advanced packaging business to exceed $850 million in 2025, up from $500 million in 2024 and surpassing its prior guidance of $800 million. This growing end-market, paired with KLA's dominant position in process control and inspection tools, has helped the company weather broader macro volatility that has weighed on other chip-related names.
Despite the positives, investors are closely monitoring the potential risks involved. The most immediate concern is the potential impact of U.S. export restrictions on China, which could negatively affect KLA's sales and customer relationships in a critical region. Some analysts have already lowered their revenue expectations for 2025 by up to $500 million in anticipation of tighter export rules. Additionally, management's decision to postpone its planned Investor Day from June 2025 to 2026 has raised some questions about the near-term visibility of its long-term strategy. More broadly, as a supplier to a highly cyclical industry, KLA remains vulnerable to shifts in semiconductor capital expenditure trends, which can be abrupt and dramatic depending on global demand cycles.
Valuation is another concern. With its strong run-up, KLA is trading at a premium multiple relative to its historical range and the sector average. While the company's margin profile and cash generation may justify this premium, any disappointment in future earnings or a shift in sentiment around semiconductors could lead to downside pressure.
Looking forward, KLA remains well-positioned to benefit from secular trends in AI infrastructure buildout, chip complexity, and the growing need for process control precision. Analysts currently expect full-year 2025 EPS to reach approximately $32, representing over 35% year-over-year growth. Even if earnings growth moderates in 2026—as some forecasts suggest—a strong balance sheet, growing service business, and high switching costs among customers make KLA one of the more defensible plays in the semiconductor capital equipment space.
KLA delivered an exceptional performance in 2025, powered by strong earnings, a leading market position, and favorable end-market dynamics. At the same time, with geopolitical uncertainty and valuation risk on the horizon, investors would be wise to stay vigilant even as the company continues to execute at a high level. KLA announces earnings this Thursday.
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.
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.