Monthly Economic and Market Review: July 2025
In the month of July markets moved steadily higher with the S&P 500 and the FTSE/JSE All Share index both adding 2.2% in the month and both reaching new all-time highs during the course of the month.
In the month of July markets moved steadily higher with the S&P 500 and the FTSE/JSE All Share index both adding 2.2% in the month and both reaching new all-time highs during the course of the month.
Markets moved steadily higher in July with the S&P 500 and the FTSE/JSE All Share index both adding 2.2% in the month and both reaching new all-time highs during the course of July. The JSE’s fifth consecutive monthly gain left the index up 17.2% for the year-to-date for a total return (including dividends) of 19.4% (see chart below). The S&P 500’s third consecutive monthly gain left that benchmark index with a 7.8% return for the year-to-date and a total return for the period of 8.6%. Volatility was muted in the month and for the first time in two years, the S&P 500 had no daily move that topped 1% in either direction. The market was supported by a strong start to the US 2nd quarter earnings reporting season with the likes of heavyweights Alphabet, Meta and Microsoft posting exceptional results that left little doubt that the Artificial Intelligence investment theme was very much alive. The US concession to allow Nvidia to sell its H20 semiconductor chips to China was further support to the enablers and adopters of the AI story.
The US market found additional support from the June employment report which showed job additions ahead of expectations and the unemployment rate improving to 4.1%. The narrative around a resilient US economy pushed interest rate cut expectations further out and the dollar strengthened over the month from $1.17/€ to $1.14/€ and bond yields ticked higher. The Federal Open Market Committee (“FOMC”) left rates unchanged at their July meeting with no indication or hint that a rate cut would be forthcoming in September. There were, however, two FOMC members who voted for a 25 basis point cut in rates, the first incidence of two dissenting voters at a single meeting since 1993. President Trump continued his attack on Federal Reserve Bank chair Jerome Powell for his lack of monetary policy easing in this cycle (and construction cost overruns at Fed HQ) but he did do a turnaround on his oft-voiced intention to fire Powell. The “Big Beautiful Bill” was also finally passed by Congress and signed into law by Trump and although the economic impact will be felt for years to come, the short-term dominance of the story in conversations dwindled away. Tariff talk still dominated the news headlines as the US tariff implementation deadline of 1 August approached with only a handful of deals actually having been struck.
When the month was done, the sectors that outperformed the 2.2% gain of the S&P 500 included Technology (+5.16%), Utilities (+4.89%), Industrials (+2.95%), Energy (+2.81%), Consumer Discretionary (+2.62%) and Communication Services (+2.30%). The underperforming sectors included Healthcare (-3.44%), Consumer Staples (-2.51%), Materials (-0.50%), Financials (-0.16%) and Real Estate (-0.16%) - see the tables in the appendix below for some of the larger monthly and year-to-date price movements of stocks drawn from the S&P 500 index and the FTSE/JSE Top 40 index. The stronger US dollar saw the rand weaken back above the R18/$ mark in late July and with the gold price broadly flat, platinum prices marginally lower and palladium prices $105/oz higher, the JSE’s best-performing sector was once again the Resources sector (+5.1%) – now up 44% for the year-to-date. Industrials lost 3.8% in the month and Financials gained 1.7% with half of the gains in the Financials index coming on the last day of the month as the South African Reserve Bank’s Monetary Policy Committee cut the repo rate by 25 basis points to 7.00%. The cut, which was widely anticipated, brought the total of monetary policy easing by the SARB to 75 basis points this year. Yields on government’s benchmark 10-year bond, the R2035, dipped 31 basis points in the month to close at 9.59%, its lowest level since early 2020.
S&P 500 (blue, RHS) & FTSE/JSE All Share Index (green, LHS) – last 12 months
Source: Factset
It’s all about the economy (and earnings)
As we roll into August and beyond, the impact of US tariffs will be felt on economies around the world. The fallout for the US economy will be closely watched and while the effective tariff rate will be much less than initially feared, it will have shifted substantially higher. Prior to “Liberation Day”, the effective US tariff rate was around 2.5% but following “Implementation Day”, the effective tariff rate is expected to be closer to 20%. Inflation will be impacted, at least in the short-term but the extent to which US economic growth will be impacted will be very closely watched. The most up-to-date indicator of the health of the US economy will be in the weekly and monthly employment data and the short-term direction of the market will be dictated by the health of the labour sector. Forecasts for US growth in 2025 and 2026 have already been revised lower and the risks to growth remain poised towards the downside. The extent to which growth from AI-related industries can overcome the tariff-induced slowdown remains to be seen but ebbing American Exceptionalism will weigh on growth.
With two-thirds of S&P 500 companies having reported earnings, the second quarter earnings reporting season has already well-exceeded expectations. Earnings from the large capitalisation IT, Communication Services and Consumer Discretionary sectors have lifted overall earnings growth for the quarter to 10.3% year-on-year (“y/y”) from revenue growth of 6.0% y/y. The pace of earnings growth is expected to slow to 7.6% y/y in quarter three and 7.0% y/y in quarter four with growth of 9.9% pencilled in for calendar 2025. This earnings growth should provide fundamental support to the market but on these earnings, the forward 12 month price/earnings ratio of the market is at 22.2x against a five-year average of 19.9x and a 10-year average of 18.5x. This would suggest that the market is historically expensive but it has been driven higher by a handful of mega-capitalisation technology-related stocks. Strong growth is still expected from these counters over time but as we have already witnessed, even the smallest of earnings or guidance disappointments is severely punished by the market. As time passes and trade deals and tariffs are finalised, the market will be in a better position to fine tune expectations on inflation, growth and earnings. Until then, while uncertainty prevails, it’s unlikely that the low volatility levels experienced in July will continue indefinitely.
