Markets capped a strong week with a slight pause on Friday, as new highs in the S&P 500 and Nasdaq were tempered by renewed tariff anxiety. The macro backdrop remains encouraging: jobless claims and retail sales both beat expectations, earnings are coming in well above forecast, and inflation appears contained. But with the August 1 trade deadline looming, 23% of the S&P reporting earnings, and Fed policy in flux, the week ahead could be pivotal.

What’s quietly worrying top Fed insiders… and why one overlooked data point this week could flip the rate path narrative on its head.

1. Economic Resilience Fueling Market Momentum
The U.S. economy continues to defy pessimists. Housing starts bounced back in June, consumer sentiment ticked higher, and inflation expectations eased. The Atlanta Fed GDPNow model pegs Q2 growth at 2.4%. Combined with softer inflation readings and strong corporate earnings, the setup has turned more constructive. S&P 500 Q2 earnings are now expected to grow 10%, up sharply from 4% earlier this month, as companies beat estimates by nearly 8% on average.

2. Fed Policy Remains a Moving Target
Fed Governor Waller floated the idea of a July rate cut, aligning more closely with Trump’s public stance. Markets remain skeptical, assigning higher odds to a September cut. With policy rates elevated and labor markets still strong, the Fed has room to ease, but inflation stickiness and deficit concerns will keep them cautious. Our base case remains 1–2 cuts in the second half of 2025, followed by gradual easing into 2026.

3. Tariff Deadline Looms Large
The EU is scrambling to finalize a trade deal before the August 1 deadline, but Trump's latest posture, demanding a 15%–20% minimum tariff, has thrown talks into turmoil. Japanese political uncertainty is also complicating broader trade negotiations. With South Korea dispatching top officials to Washington and European leaders pushing for a compromise, the global trade landscape could shift dramatically in the next two weeks. Markets appear to be pricing in an eventual resolution, which raises the risk of disappointment.

4. Chips, AI, and Energy Converge
Despite strong earnings from Taiwan Semiconductor, the chip sector faces a potential headwind from tariffs. ASML slashed guidance, citing geopolitical uncertainty and slower China demand. Meanwhile, U.S. utilities like Constellation and FirstEnergy are positioning to capitalize on AI-related power needs. The week saw multiple announcements linking AI infrastructure to grid expansion—suggesting a new convergence between digital and physical infrastructure investing.

The industrial sector has quietly led the S&P 500 all year, but the next two weeks could make or break that streak. Here’s what’s at stake.

Previous Trading Day Recap
Stocks ended mixed Friday, with the S&P 500 and Nasdaq reaching new intraday highs before easing slightly on late-day headlines. The Dow finished modestly lower. President Trump’s demand for a 15%–20% minimum tariff in any EU deal caught markets off guard, briefly pulling indexes into the red. Still, tech strength carried the week: the Nasdaq rose 1.51%, the S&P 500 gained 0.59%, and the Dow edged down 0.07%. Netflix, 3M, and American Express all posted strong earnings, reinforcing the "Goldilocks" economic narrative.

Friday’s action coincided with a massive options expiration, with over $2.8 trillion in notional exposure rolling off. Treasury yields and the dollar dipped slightly after dovish comments from Fed Governor Chris Waller. Commodities were mixed: oil reversed early gains and gold rebounded modestly after a sharp drop.

Economic Data to Watch

Markets have rallied on data that’s "just right"—cooling inflation, steady growth, and strong earnings. But as the tariff deadline nears and Fed policy remains unsettled, this week may determine whether the soft landing narrative holds—or begins to unravel. Stay nimble, and watch the signal beneath the surge.