Image Source: Pexels

As the stock market reached new all-time highs, investors had plenty to juggle—both in Washington, D.C., and on Wall Street. The S&P 500 climbed +2.2%, the Nasdaq surged +3.7%, and the Dow Jones Industrial Average edged higher by +0.1% for the month.

The One Big Beautiful Bill

What has fueled the rally? A major catalyst was President Trump’s signing of the One Big Beautiful Bill Act (OBBB) on July 4th. The nearly 900-page legislation spans a broad range of economic issues including tax reform, healthcare, energy policy, and national security.

According to the Congressional Budget Office (CBO), the combined impact of tax cuts, new spending, and spending reductions will result in a net cost of $3.4 trillion over 10 years (see chart above). Supporters of the bill argue that this projection underestimates the long-term stimulative effects of tax relief and strategic investments. Whether the deficit widens as the CBO projects, or narrows thanks to a stronger, growing economy, remains to be seen.

Trade Deals Sealed

Since Liberation Day on April 2nd, trade negotiations have progressed unevenly. The administration’s reciprocal tariff hikes were paused through August 1^st to allow final agreements to be reached. Following months of tough rhetoric, multiple major trading partners ultimately signed deals before the deadline—including the European Union, Japan, the United Kingdom, Vietnam, and South Korea—thereby avoiding punitive tariffs.

Talks with our two key trading partners, Mexico and Canada, remain ongoing. While Mexico was granted a 90-day extension amid constructive dialogue, Trump slapped a 35% tariff on Canada (from 25%) due to what the White house said was “continued inaction and retaliation.” The tariff pause with China stops on August 12th.

Here’s a list of the new country tariffs released by the president late yesterday: Click here.

Regardless of all the tariff uncertainty, investor sentiment improved last month as the terms of the signed deals were significantly milder than originally feared. 

Adding to the optimism:

• Core inflation in June remained modest at 2.8% (Reuters), and

• Tariff revenues collected through July reached $126 billion, beating initial estimates (Politico) – see chart below. Strategist Ed Yardeni forecasts that 2025 tariff revenues could surge to between $400 billion and $500 billion (Barron’s).

Source: Politico

Fed Dread

Of course, when it comes to financial markets, everything can’t just be rainbows and unicorns without something for investors to worry about—and this month, a key concern remains Federal Reserve policy. Critics, including the president, argue that interest rates are too high, with the Federal Funds Rate currently set at 4.25%–4.50% (Yardeni Research) – see chart below.

By comparison:

• The European Central Bank’s Deposit Facility Rate stands at 2.00%, and
• The Bank of Japan’s overnight rate is only 0.50%.

Source: Yardeni Research

Fed Chair Jerome Powell has held off on further cuts, citing the need for more clarity on inflation and labor market data, especially in light of recent tariffs. Ironically, when the Fed last cut rates by -1.00% late last year, the 10-year Treasury yield rose by roughly +1% (see chart above), reflecting fears of rising inflation.

This week, the Fed held rates steady for the fifth consecutive meeting (YouTube). Notably, two FOMC members—Christopher Waller and Michelle Bowman—dissented, voting in favor of a rate cut. It was the first dual dissent by Fed governors in over 30 years—a clear signal of division inside the central bank.

Meme Dreams

With the major indexes at new highs, speculation has returned in full force. Money-losing, struggling companies like Opendoor Technologies, GoPro Inc. (GPRO), and Kohl’s Corp. (KSS) saw their shares double, triple, or even quadruple over a short span (WSJ) – see chart below. We saw similar trends occur during the GameStop (GME) and AMC meme craze in 2021.

Source: The Wall Street Journal

Adding fuel to the fire:

• Cryptocurrency prices are on the rise again.

• Euphorically priced IPOs (Initial Public Offerings) like Figma, Inc. (FIG), which more than tripled in value ($115 per share) on its first trading day above its offering price ($33 per share) valuing the company above $50 billion – more than 30 times next year’s forecasted revenues.

• SPACs (Special Purpose Acquisition Companies)—often criticized for poor governance—are staging a comeback.

Combined, all these trends raise concerns about froth, which investors have experienced at previous peaks.

Climb in AI Stocks Persists 

No discussion of this rally would be complete without highlighting the AI mega-cap giants. Companies like Alphabet (Google), Meta (Facebook), Microsoft, and Amazon all recently announced capital expenditures for 2025 that will likely exceed an astounding $350 billion —most of it allocated to AI infrastructure.

Meanwhile, NVIDIA Corp., the AI-chip juggernaut and major beneficiary of all the AI capex, has seen its share price soar +63% in just three months, reaching a staggering $4.4 trillion market value.

Source: Yardeni Research

Valuations High but Fundamentals Remain Strong

While stock valuations remain elevated above historical averages (the S&P 500 red line trades at 22x forward earnings, according to Yardeni) – see chart above, the macro backdrop remains supportive:

• The economy is strong,

• Unemployment is low,

• Corporate profits are growing, and

• Monetary policy may turn more accommodative in coming months.

In this momentum environment, the market should continue its productive juggling, but if the frothy or economic winds worsen, investors should be prepared for a dropped ball.

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