Investors wilt under information overload
Author: Tom McGrath, CIO, 8AM Global
Market Overview
Last week delivered a deluge of information for investors to digest, especially in the US, where macro and micro forces collided. We had tariff deadlines, PCE inflation data, a fresh Non-Farm Payrolls report, GDP numbers, a pivotal FOMC update, and Q2 earnings from the tech giants: Microsoft, Meta, Apple, and Amazon… All of this followed a strong run-up in equity markets and a steady drop in volatility, so it was no surprise that calm gave way to a bout of profit-taking.
Whilst there were encouraging elements in the data, notably, continued investment in AI and solid earnings from big tech, the broader macro picture disappointed. Inflation remains stickier than hoped, cracks are starting to show in the US labour market, and the Fed gave no clear indication of when rate cuts might come. By Friday, sharp falls in US equities dragged European markets lower as well, setting a cautious tone heading into August, a month that’s often quieter but prone to abrupt moves due to lower trading volume. The headlines didn’t help either, with President Trump sacking the head of the Bureau of Labour Statistics hours after the soft jobs data was released, raising fresh questions about institutional independence.
So, where do we go from here? Let’s unpack the key developments, starting with Trump’s tariffs and the latest trade agreements…
Trump’s Tariffs: A broad-based reset
Last week, President Trump formalised a major escalation in his trade policy by implementing a ‘new’ round of tariffs on global imports. While the initial announcement in April sparked volatility, the final directive was signed with less fanfare, yet the implications remain far-reaching. The average US tariff rate is expected to rise to 15.2% from 13.3%, compared to the pre-Trump administration rate of just 2.3%. For several countries, the duties are significantly higher: Canada faces 35% tariffs on selected goods, Switzerland 39%, and others, including Taiwan and South Africa, saw increases above 25%.
Many major economies, including the EU, Japan, and South Korea, accepted 15% rates as part of negotiated terms. Meanwhile, Mexico was granted a further 90-day extension, and China awaits a separate decision on whether its existing tariff truce will be extended beyond August 12th.
Additional sector-specific tariffs, on items such as pharmaceuticals, semiconductors, and critical minerals, are also expected in the coming weeks, keeping trade uncertainty elevated for corporates and investors.
The near-term economic impact will likely vary. While some countries had front-loaded exports ahead of the deadline, shielding growth in Q2, the effects on pricing, supply chains, and sentiment may become more visible in the second half of the year. Bloomberg Economics estimates the cumulative tariff changes could reduce US GDP by up to 1.8% over two to three years and add around 1.1% to core prices, depending on how much of the cost is absorbed by exporters or passed on to US consumers.
Prior to Friday, markets had absorbed the news with relative calm. The subdued reaction partly reflects the fact that many rates landed in line with expectations, and that some clarity, however partial, has replaced months of speculation. There is also a growing assumption that trade agreements could still be reached, particularly with countries that have large export surpluses with the US and are motivated to negotiate better terms. Talks remain active in several regions, and the US administration has signalled flexibility where there is a willingness to cooperate.
Nonetheless, the broader macro implications are more complex. A higher tariff baseline creates a mildly inflationary impulse at a time when US price pressures remain sticky, particularly in goods categories. That may complicate the Federal Reserve’s task of balancing a slowing labour market with its inflation mandate. The Fed acknowledged these uncertainties in last week’s FOMC meeting, and while rate cuts remain on the table, the timing will depend on how these trade measures play out in real economic data.
Investors are approaching August with a more cautious outlook. Tariffs are no longer just a potential threat; they have become a reality. However, there is still a possibility for resolution, particularly if the upcoming trade talks result in more stable arrangements. Much will depend on how companies adapt, how quickly supply chains respond, and whether the Federal Reserve recognises enough economic slack to begin easing policy later this year.
Speaking of Fed policy…
US: FOMC holds rates as split emerges, Powell urges patience amid uncertainty
The Federal Reserve kept interest rates steady at 4.25% – 4.50% in July, as expected, but the tone of the meeting and press conference signalled growing division within the Committee and rising uncertainty around the path ahead.
Two sitting governors, Christopher Waller and Michelle Bowman, dissented in favour of a rate cut, the first time since 1993 that two board members voted against the majority. Both had signalled concern that the Fed’s current stance might become overly restrictive if the labour market continues to soften. They viewed tariff-related price increases as a one-time shock and advocated for a pre-emptive move toward a neutral policy.
Chair Jerome Powell, however, struck a more cautious tone. He acknowledged that growth had ‘moderated’ in the first half of 2025, a notable shift from the Fed’s prior description of ‘solid’ activity and attributed the slowdown mainly to softer consumer spending. However, he emphasised that consumers remained in ‘solid shape’ and that employment trends were generally holding up.
Crucially, Powell emphasised the elevated level of uncertainty and argued that current rates remain appropriate to manage the risks. “There are many, many uncertainties left to resolve” he said. “It doesn’t feel like we are very close to the end of that process”. He added that “the economy is not performing as though a restrictive policy is holding it back inappropriately”.
Markets quickly responded to the Fed’s messaging: expectations for a September cut fell from 60% to near-even odds, the dollar surged, and equity markets declined. The statement itself dropped previous language suggesting reduced uncertainty and now highlights ongoing risks around both inflation and growth. Officials maintained that the labour market remains “solid” and inflation “somewhat elevated,” but also removed references to improved clarity on the outlook.
GDP for Q2 came in at 3.0%, flattered by a reversal in net exports as businesses front-loaded imports to avoid tariffs. Underlying demand was far softer, with final sales to private domestic purchasers rising just 1.2%. Consumer spending grew by only 1.4%, the weakest consecutive performance since the pandemic began.
As of Wednesday’s FOMC meeting, a September rate cut appeared increasingly unlikely. Chair Powell made clear that the Fed still saw interest rates as “in the right place” to manage uncertainty, and his tone suggested little urgency to act. The market largely agreed, with cut odds for September falling to 50% during the press conference and Treasury yields rising.
But the picture has since shifted.
Thursday’s PCE inflation data, while not alarming, confirmed the stickiness of underlying price pressures. Both headline and core inflation rose 0.3% month-on-month, with annual core PCE steady at 2.9%. Beneath the surface, tariff-sensitive goods categories, such as toys, apparel, and electronics, are showing accelerating price increases, even as service inflation continues to cool. The Fed’s concern (that temporary price shocks could become embedded) is being tested in real time, and then came Friday’s jobs report…
US Labour Market: Revisions, weakness, and renewed uncertainty
July’s US employment report delivered a significant reset in market expectations. While headline job creation came in at a modest 73,000, the more striking development was the downward revision of May and June data by nearly 260,000 jobs, the steepest two-month downgrade since the pandemic.
These revisions, attributed mainly to seasonal adjustments and low survey response rates, altered the recent trend. Over the past three months, the average monthly job creation has now dropped to just 35,000, compared to over 200,000 earlier this year. Weakness was most visible in state and local education hiring, while private sector job gains were narrowly concentrated in the healthcare sector.
The unemployment rate edged up to 4.2%, while indicators of labour market quality, such as hours worked and part-time employment for economic reasons, also showed signs of deterioration. Survey participation remains below historical norms, raising questions about data volatility and the reliability of initial estimates. The response from markets was swift. Investors now assign an 85-90% probability to a Fed rate cut by September, up sharply from earlier in the week. Governor Waller, one of two dissenting voices at the FOMC meeting, had already pointed to expected revisions as justification for a cut.
Meanwhile, political tensions rose after Trump announced the dismissal of Bureau of Labour Statistics Commissioner Erika McEntarfer, citing concerns over the accuracy of the figures. The move prompted widespread criticism from economists across the political spectrum, who defended the BLS’s longstanding reputation for data integrity and independence.
For markets and policymakers alike, the key takeaway is clear: the US labour market is losing momentum. If confirmed by August data, the case for monetary easing, even in the face of sticky inflation, will grow stronger.
Earnings continue to provide good news
But while the macro story has stumbled slightly, Q2 earnings from the biggest names in tech offered a welcome dose of resilience and long-term optimism. The AI-driven revenue story is still very much alive, even if guidance was more cautious than some bulls might have hoped.
Meta beat expectations across the board, with revenue up 27% year-over-year and strong gains in its ad business, driven by continued investment in AI-targeting tools. Engagement remains robust across its platforms, and while Reality Labs continues to run at a loss, investors were initially encouraged by the topline strength.
Microsoft reported solid numbers, with Azure Cloud revenue up 21%, maintaining market share and showing early returns on its Copilot integration across Office and enterprise software. AI services are now being monetised at scale, and management struck a confident tone on the longer-term opportunity.
Apple delivered mixed results. iPhone sales came in above expectations, and services revenue reached a record high. However, softness in China and muted demand for Macs and iPads led to a slight year-over-year decline in revenue. Still, the company’s balance sheet strength and dividend hike helped reassure markets.
Amazon impressed with accelerating AWS cloud growth and a 22% surge in ad revenue, underscoring its growing dominance beyond the retail sector. Profit margins improved and guidance was steady, although the stock gave back initial gains in Friday’s sell-off.
These results sit within a broader Q2 earnings season that has, so far, been robust. Roughly two-thirds of S&P 500 companies have now reported, and 82% have beaten earnings estimates, well above the 10-year average of 75%. Revenue beats are also widespread, with 79% of companies surpassing forecasts, the best reading since Q2 2021. On aggregate, earnings are coming in 8% above expectations, and revenue surprises are averaging 2.6%.
The result is that S&P 500 earnings growth for the quarter has climbed to 10.3%, up from just 4.9% at the end of June, marking the third consecutive quarter of double-digit growth. Revenues are also growing at a solid 6% pace, the strongest in nearly three years. Strength has been broad-based, led by Communication Services, Technology and Financials. Energy remains the only sector in decline.
In short, corporate America continues to deliver. And while valuations remain elevated (the forward P/E is at 22.2, above both five and ten-year averages), the combination of improving earnings and easing macro conditions could justify those multiples, particularly if the Fed signals any policy pivot later this quarter. For now, investors are caught between strong bottom-up fundamentals and a deteriorating top-down picture. But if the AI investment cycle continues to power results and the jobs data softens just enough, the setup for the second half of the year may yet surprise to the upside.
UK (briefly) – All eyes on the Bank of England
This week’s Market Matters is already longer than usual, thanks to the sheer volume of news from the US, so I will keep this part brief. The key focus here at home is this week’s BoE decision, and it looks likely we’ll get a long-awaited rate cut.
The backdrop has improved a little for homeowners. After a quiet period in April following the stamp duty deadline, mortgage activity is picking up again. June saw a decent rebound in lending and approvals, and rates remain well below earlier-year highs even after a small recent rise. A 0.25% cut would lower the Bank Rate to 4%, but markets already expect that. What matters more is what the BoE signals about the pace of cuts to come. There’s still some stickiness in inflation, especially in services and food, and the Bank may stay cautious. That said, pay growth is cooling and job market data is softening, just not alarmingly so.
Expect a divided vote on the committee, but the majority is likely to go with a modest cut and a message of steady progress. We may also hear more about plans to slow the pace of quantitative tightening in September. The broader economic picture remains somewhat mixed. July PMIs suggest that services growth is slowing and manufacturing remains weak, but overall activity is still ticking along. The UK isn’t booming, but it’s not breaking either, and that should give the Bank just enough room to start easing policy gently.
This Week…
After last week’s data overload, the coming week won’t be quite as manic, but there’s still plenty to watch.
Macro highlights begin with the Bank of England’s rate decision on Wednesday, where a 25bp cut appears likely, as discussed above. We’ll also receive the BoE’s updated Monetary Policy Report, which should provide fresh guidance on inflation, growth, and the future path of rates.
In the US, the July CPI print on Thursday will be a big one for markets. Investors will be closely watching to see if core inflation has resumed its downward trend. We’ll also see weekly jobless claims and the Michigan consumer sentiment survey, both of which are useful indicators of how the economy is absorbing higher prices and lingering policy uncertainty.
In China, key data on trade (Thursday) and inflation (Friday) will provide clues on domestic demand and the extent of support policymakers may still need to provide.
On the micro side, the second-quarter earnings season rolls on. Around 120 S&P 500 companies are due to report, including Uber, Eli Lilly, Disney, Berkshire Hathaway and PayPal. While the mega-cap fireworks are mostly behind us, sector-level insights and guidance from consumer-facing names will be closely watched for signs of resilience or softness heading into autumn.
Plenty still to digest.
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