Wentz Weekly: Markets Celebrate Multiple Trade Agreements

Wentz Weekly Insights
Multiple Trade Agreements Announced, Big Week Ahead for Markets

US stocks were higher again last week with the S&P 500 and Nasdaq closing yet again with another fresh record high. The risk-on rally continued with tech, retail, biotech, and some of the highest shorted names the clear outperformers, while consumer staples and energy were underperformers again.

As will be the case this week and next, earnings were the big focus last week with over 20% of the S&P 500 reporting. Results were widely mixed. We saw names like Alphabet (Google) perform well as its Search, YouTube, and cloud did not slow as much as expected, as was expected to be the case from rising AI chatbot competitors. In addition, Alphabet said it was raising its capital expenditure guidance to $85 billion, up from $75 billion, saying infrastructure investments (AI data centers) are necessary to meet its growing demand.

Tesla was lower on concerns of lower free cash flows, a hit from the expiration of the EV tax credit, with Musk warning of a next couple difficult quarters ahead, despite optimism around its robotaxi rollout. Texas Instruments, a semiconductor supplier to a wide range of industries, was lower after mixed Q3 guidance and the worry its Q2 outperformance was due to a pull forward from tariffs and the demand increase will be short-lived. Intel was down on similar sentiment. IBM was lower after beating expectations but there were concerns about a deceleration in organic growth in its software. Finally Lockheed Martin was lower due to an earnings miss driven by several significant one-time charges.

Results were mixed but we can see some of the higher expectations and elevated market valuations are leaving stocks susceptible to pullbacks on any sort of weakness in earnings.

With about one-third of the S&P 500 having reported already, the beat rate is quite strong (the percentage of those reporting better earnings than was expected). Over 80% of companies have reported better earnings and 80% have reported better sales than expected. The earnings growth rate now stands at 6.4%, better than the 4.4% when earnings started to be released, however still about half the growth rate expected at the beginning of the year.

This week will tell a lot with about 40% of the S&P 500 index’s market cap scheduled to report financial results. This includes four of the largest companies in the world, but they are also driving a majority of the index’s earnings. According to FactSet, the Magnificent 7 companies (Nvidia, Microsoft, Apple, Alphabet, Amazon, Meta, and Tesla) are expected to see a combined earnings growth rate of 14.1%, compared to the 3.4% growth rate for the other 493 companies.

This week we also see the August 1 tariff deadline. While leading up to this date we were expecting more volatility, investors have mostly looked past tariff headlines, perhaps due to the number of deals made leading up to the deadline, or the fact that economic data has remained strong.

Last week saw the Trump Administration striking a couple more trade deals. The first was a “massive deal” with Japan where Japan will invest $550 billion in the US and agreed to have all exports to the US hit with a 15% tariff, less than the 25% Trump threatened not too long ago. Japan will also open its markets to US vehicles and import more rice.

Trump also announced a deal with Philippines and Indonesia. The Philippines agreed to a 19% tariff on all exports to the US while eliminating all tariffs on imported US goods. The agreement included the commitment to work together militarily.

Finally, late over the weekend and after a meeting with leaders in Stockholm, Trump said the US and the European Union made a trade agreement where EU would see tariffs at 15%, less than the 30% that Trump threatened earlier this month. Under the agreement with the US’s largest trading partner, Trump said the EU will not impose a tariff on US imports and the 15% tariff on EU goods will see exceptions on a number of industries.

Trade negotiations with China sound to be progressing as well. The US sent representatives overseas and this weekend agreed to extend the August 12 deadline.

With trade deals progressing, a continuous stream of positive economic data, and markets avoiding a worst case scenario on earnings, instead looking ahead to 2026, the path of least resistance for stocks continues to be higher. The upside in stocks has been more narrow, with the largest companies driving most the index’s upside, so we would like to see a broadening of markets. The next big catalyst for that is the busy week of earnings this week, the Fed’s FOMC meeting on Wednesday, and the wave of economic data including key data on the labor market Friday.

Week in Review:
Stocks were higher across the board last week in another risk-on week for investors. The equally weighted S&P 500 index finished higher by 1.93% while the four main US stock indices finished as follows: S&P 500 +1.46%, Dow +1.26%, Nasdaq +1.02%, and Russell 2000 +0.94%. Volatility has consistently fallen since April, down another 9% last week to the lowest since mid-February. The Treasury market remained in a tighter trading range with the curve slightly flatter – the 2-year Treasury yield rose 6 basis points to 3.94% while the 10-year Treasury yield fell 3 basis points to 4.39%. The dollar index fell 0.85% while gold fell 0.57%. Bitcoin was relatively flat with just a 0.31% decline. Meanwhile, oil fell 3.24%.

Recent Economic Data

• Existing Home Sales: Existing home sales fell 2.7% in June to a seasonally adjusted annualized rate of 3.930 million homes for the lowest sales rate since last September. Existing home sales have trended in the 3.85 million to 4.30 million range since late 2022, more than half its peak at the height of the pandemic when it hit 6.60 million in early 2021. The median sales price of an existing home rose 2.0% from a year ago to $435,300. The number of existing homes for sale was down slightly in the month, but up 16% from a year ago to 1.530 million units, a welcoming sign. This month’s report highlighted the wealth growth in homeowners with the average homeowner’s wealth growing $140,900 over the past five years, driven by multiple years of undersupply.

• New Home Sales: New home sales were at a seasonally adjusted annualized rate of 627,000 in June, just slightly above May’s sales rate (which outside of last month’s 623,000 pace, was the second lowest since 2022), and 6.6% below the sales rate from a year ago. Supply of new homes was up a little in the month and up 8.5% from a year ago. The median sales price was $401,800, down 2.9% over the past year. Inventory has ticked up the most in homes for sale where construction has not started yet, where supply is nearly 40% higher over the past year.

• Jobless Claims: The number of jobless claims the week ended July 19 was 217,000, a decline of 4k from the prior week with the four-week average down 5k to 224,500. The number of continuing claims was up slightly to 1.955 million with the four-week average down slightly to 1.954 million.

• Durable Goods Orders: New orders for manufactured durable goods saw a 9.3% decline in June, which sounds large, and is, but comes after an outsized 16.5% increase from May. Year-to-date, sales are 7.9% higher than the same period a year ago. The reason for the large monthly movements is due to aircraft orders which rose 231% in May (due to a large order from Qatar airways) but fell 51.8% in June. Excluding transportation, orders were up 0.2% following a 0.6% increase from May. Shipments of nondefense core capital goods excluding aircraft were up 0.4%, a key input to GDP.

• Money Supply: The amount of money in circulation, called the money supply which includes cash, deposits at banks and money market balances, increased $137.2 billion in June, or 0.6% and is up $955.2 billion over the past year, or 4.5%. Money supply saw a record $6.32 trillion, or 41%, increase from the beginning of the pandemic to 2022, one of the main causes of inflation. Since then, it moved lower for a brief period in 2023 but has now began increasing at a faster pace since mid-2024 and is at the highest annual rate since mid-2022.

Company News

• Nvidia: The Information reported supply constraints are expected to hit Nvidia as it gets ready to meet the pent-up demand after receiving approval to begin selling its H20 chips in China again. It says in response to the surge in orders, Nvidia has told customers its supply of the H20 chips are limited and it had no plans to restart production anytime soon. It added the fears exist of another reversal in policy by the US.

• Southwest Airlines: Southwest said it will begin selling tickets with its new assigned seating policy on July 29 for flights beginning January 27, 2026. It comes with the company’s new policy to end the “bags fly free” benefit. It will also add the option for passengers to purchase seats with extra leg room. The company said these two initiatives are expected to add $800 million to its bottom line this year and $1.7 billion in 2026.

• Coca-Cola: Coke said with its earnings call it plans to launch a new Coke product this fall made with real US cane sugar, in response to a statement by Trump that the company agreed to use the real cane sugar rather than high fructose corn syrup that is currently used. Farm groups in the US raised concern about a potential switch away from corn syrup, but Coke confirmed it will be a new product rather than a replacement.

• Union Pacific & Norfolk Southern: The two companies confirmed last week they are engaging in advanced discussions to merge businesses which would create the first transcontinental railroad in the US. Union Pacific said the railroad industry cannot stand still, but refused to take additional questions on the discussions. Bloomberg News later reported it could be a cash-and-stock deal and could be announced as soon as this week.

• Hershey: Hershey said due to persistently high cocoa costs that is expected, it will be raising prices for the second time in a year which will result in a double digit increase in candy prices. Cocoa prices skyrocketed to over $12,000/metric ton last April due to a massive shortfall of the cocoa plant from diseases and bad weather in West Africa, a region that supplies 70% of the world’s cocoa (see “Did you know” section here on our note on cocoa prices from last April).

Other News:

• Fed Chairman Powell: A weekend WSJ report said Treasury Secretary Bessent advised Trump against firing Fed Chairman Powell, saying a firing would harm markets, disrupt the economy, and face big legal and political issues. Separately, in a CNBC interview, Bessent said “what we need to do is to examine the entire Federal Reserve institution and whether they have been successful.” Also, later in the week President Trump visited the $2.5 billion renovation to the Federal Reserve’s headquarters, which has become a big controversy after Trump has criticized the cost and called for Powell’s firing. This was only the fourth visit by a sitting president to the central bank since 1937.
• Trade/Tariffs:
  • Trump says the US and Philippines have reached a trade deal, after the Philippine President’s visit to the White House, saying the Philippines agree to a 19% tariff on all exports to the US with no tariffs on imported US goods. In addition, Trump said the two nations will work together militarily. The Philippines have yet to confirm the agreement.
  • Bessent (US Treasury Secretary) said he will travel to Stockholm this week for another round of trade talks with Chinese representatives in effort to make a broader trade deal before the expiration of the current trade deadline August 12, when the heavy tariffs that were announced back in May go back into effect. The issues range to not just trade but will address China’s purchases of Russian and Iranian oil despite sanctions. The talks will “likely” produce an extension, Bessent noted.
  • Late Tuesday, Trump said on his social media that the US and Japan have reached a “massive” trade agreement where imports from Japan would see a 15% tariff, below the 25% threatened by Trump, while auto duties will be reduced. He also said Japan will invest $550 billion in the US which will receive 90% of the profits. Japan will open its markets to US cars and other products and will import more rice under its existing tariff-free quota. US automakers were opposed to the deal as the deal lowers the tariff below that of Canada and Mexico (at 25%), which source a larger portion of domestic auto sales.
  • Reports on Wednesday stated the US and EU were nearing a deal that would impose 15% tariffs on European imports with the EU agreeing to the deal to avoid the steeper 30% tariff that is scheduled to into effect August 1. The deal would exclude a number of products, like aircraft, spirits, and medical devices.
  • Trump said when tariffs go into effect they will not be below 15%, setting a floor on tariffs with countries that have not yet made a trade agreement, adding the tariffs will be between 15% and 50%.

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