The S&P 500 hit an all-time high in July: Can it keep up the momentum?

July ushered in the dog days of summer, leaving many wanting to do not much more than laze around in shade and air conditioning. Markets didn’t quite get the “summer slowdown” memo, however.

The S&P 500 hit 10 all-time highs in July and rose over 2% for the month, building on the rally investors experienced in June. Below, we explore three themes that set the tone for markets in July: evolving macroeconomic conditions, tariff negotiations and impacts, and U.S. legislative changes.

How tariffs are affecting the economy: Full impact remains to be seen

Economics enthusiasts were treated to a deluge of developments and data releases in the final week of July. As consensus expected, the Federal Reserve Open Market Committee (FOMC) voted to leave the federal funds rate unchanged in the range of 4.25–4.5% for its fifth consecutive meeting. Fed Chair Jerome Powell reemphasized the committee’s need to wait and see how tariffs impact inflation and the labor market in the months ahead before resuming rate cuts.

Backing that stance up was the latest Consumer Price Index (CPI) report, which showed that while some tariff impacts are starting to emerge under the surface, the levies have yet to noticeably affect price pressures in the aggregate. One way we can visualize this is by comparing core inflation (which excludes food and energy) with household furnishings. On this basis, core inflation remains lower than where it was at the start of this year (2.9% year-over-year currently vs. 3.3% in January), while household furnishing inflation has jumped by more than three percentage points over the past year.

We do believe that the tariff impact will broaden out to other goods categories in upcoming CPI reports, but we are encouraged to see that more heavily weighted areas like shelter continue to show a cooldown. In our view, this keeps the path clear for the Fed to focus on the other half of its mandate: the stability of the labor market, which showed a meaningful slowdown in the pace of hiring in the latest jobs report released two days after the latest Fed decision to stay on hold. July didn’t seem to be the month to move, but we expect a resumption of rate cuts later this year.

How the tariff conversation may continue to evolve

Tariff-driven headlines have dominated the investments narrative so far this year. However, July did grant some clarity on the trade front as numerous trade deals were announced. For example, the U.S. agreed to trade deals with the European Union and Japan, both having a baseline 15% tariff rate. However, as additional sectoral tariffs of up to 50% still linger, we believe the 15% tariff rate appears to be a floor rather than a ceiling. We anticipate the effective tariff rate will ultimately settle somewhere in the range of 15–20%. Although that’s lower than the average effective tariff rate initially threatened on Liberation Day (approximately 25%), it’s still significantly higher than the effective tariff rate at the start of the year (approximately 2.5%).

If that’s the case, why aren’t indicators like consumer spending activity cracking under the tariff pressure? It may be because consumers aren’t yet bearing the majority of the tariff brunt and are currently able to absorb what is being passed through. For comparison, consumers are on the receiving end of about 40% of 2025’s tariff costs, compared to roughly 70% in the 2018-2019 trade war.

That could be thanks to a strong starting point for U.S. business profit margins, which are 60% higher than they were in 2018-2019, according to National Income Product Accounts (NIPA) data for goods industries. This enables domestic businesses – and their foreign exporters – to absorb a higher share of the costs this time around. The pass-through to consumers does seem likely to rise in the months ahead, but the timing and degree to which that happens remain key questions.

Will the economy get a boost from the One Big Beautiful Bill?

President Trump signed the One Big Beautiful Bill Act (OBBBA) into law on July 4 after months of debate. While the bill made a number of provisions from the 2017 Tax Cuts and Jobs Act (TCJA) permanent and brings benefits to businesses (e.g., 100% bonus depreciation and immediate research development expensing), we don’t see too much of an economic boost coming from the legislation in the near term. This is partly because the provisions that would stimulate growth immediately (e.g., the favorable tax treatment of tips and overtime) are not very meaningful in size relative to the size of the broader economy. Overall, we believe the small potential boost to economic growth that stems from the bill will likely be outweighed by a continued tariff drag in the year ahead.

Despite the fact that the OBBBA will add around $3 trillion to the national debt over the next 10 years – and before considering additional interest payments on said debt – Treasury yields didn’t move much throughout the month. Some of that can be attributed to new tariff revenues offering an offset to the decline in tax collection projections given the extension of the tax cuts. By our estimates, if tariff revenue were to continue to be collected at the current pace, it would generate close to $300 billion per year and close to $3 trillion over 10 years. The permanence of tariffs will likely depend on future election outcomes, but for now, the bond market seems to be taking the net effect of the bill and tariffs in stride.

The bottom line

As we head into August, the Q2 2025 U.S. corporate earnings reporting season is hitting its busiest period. From what we’ve heard so far, it seems that many companies are navigating new tariff policies well and that artificial intelligence (AI) leaders remain committed to investing in the proliferation of the technology. Make sure to revisit our monthly market review in early September, when we will report back on the most important takeaways from this earnings season.

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