Market momentum spurred by trade deals and earnings in July

The main theme for the month was the resolution of several key trade negotiations, which helped to put investors’ minds at ease and allowed markets to push higher.

It is worth noting that while large-cap technology stocks continued to be a major force, the rally became more broad-based.

However, the first few days of August brought a fresh wave of volatility as President Trump announced a new sweeping set of tariffs. The sell-off was further pronounced by a weaker-than-expected US jobs market, which added to concerns about a potential economic slowdown.

In July, the US dollar rose on the back of more hawkish signals from the Fed and a significant reduction in trade uncertainty. The combination of resilient economic performance and relative policy stability has reignited the narrative of US exceptionalism.

Rate cut expectations and key trade deals

The Federal Reserve held rates steady at 4.25%-4.50% at its July meeting, noting persistent inflation and a mixed labour market. The Fed chair remarked that ‘inflation is further from our goal than employment’, and that large cuts are unlikely unless the labour market weakens significantly. The market was quick to reprice some of the rate cut expectations, pushing the next rate cut from September to later in the year.

In Europe, the European Central Bank (ECB) also opted to keep its rates unchanged. This move came as the Eurozone economy showed signs of accelerated growth and inflation approached the ECB's target.

A significant point of focus for the market was the series of trade agreements announced. The US finalised a trade deal with Japan, and another with the European Union was reached late in the month. While some of the details of these agreements led to short-term market fluctuations, the overall sentiment was that the agreements reduced the risk of a full-blown trade war, providing a more stable environment for businesses to plan and invest.

Company earnings surprises

July marked the start of the second-quarter earnings season, and the results from many major companies were a pleasant surprise. The big technology firms delivered strong results. Microsoft and Meta both posted better-than-expected earnings, with Meta's share price reaching an all-time high as the company's advertising revenue outperformed expectations. Meanwhile, Microsoft reached a $4 trillion valuation, becoming the second listed company, after Nvidia, to achieve this milestone.

However, it was not all good news. Some companies faced challenges. A few healthcare and manufacturing firms, for instance, reported earnings that missed analyst expectations, citing ongoing demand issues and operational costs. This highlights the importance of looking beyond the headline-grabbing companies and maintaining a diversified approach.

Will stability last?

July was a constructive month for markets, characterised by a calming of trade nerves and solid corporate performance. However, Trump’s new tariffs and a weaker jobs market put the brakes on some of those trends as we tipped into August. As the month goes on, we will be watching the data closely, with particular focus on US labour market developments and the impact of tariffs on inflation and growth.