Financial Markets Review

U.S. equity markets posted modest gains in July, extending what has become a protracted summer rally. The S&P 500 climbed 2.17%, marking its third consecutive monthly advance, while the Nasdaq surged 3.70% for a fourth straight month of gains. Notably, July featured unprecedented stability for the S&P 500, with no intramonth moves greater than 1 percent in either direction, which was the first such occurrence since July 2023. However, underneath this calm surface, the market’s narrow leadership was once again on display as the S&P 500 Equal-Weight Index lagged the S&P 500 by over 1%. While the S&P 500 continuously set new highs throughout July, the S&P 500 Equal-Weight Index failed to breakout from its previous all-time high set back in November 2024. As the concentration amongst mega cap technology names continues to grow ever larger, the S&P 500 Equal-Weight Index has managed to set a new low relative to the overall S&P 500, while value stocks relative to growth stocks has followed the same trajectory.



Source: Bloomberg. Data is normalized with factor 100 as of January 2, 2024.

The backdrop for July’s gains included a confluence of easing trade tensions, a robust start to earnings season, sustained enthusiasm for secular growth themes—particularly artificial intelligence—and an economy that has so far shrugged off higher effective tariffs. It seems that investors appear more enthused by the clarity around policy than by the absolute level of tariffs. Afterall, businesses can begin to plan for the future if they know what the tariff rate will be. It’s the constant back and forth and the unknown of tariffs that ultimately brings business to a halt.

In July, economic growth proved to be on solid footing. Second-quarter GDP surprised on the upside with an annualized 3.0% gain, buoyed by resilient domestic demand and softer import volumes. Personal consumption rose solidly, though slightly under consensus estimates, and the core PCE deflator matched forecasts even as “core” measures of GDP showed tariff drag in key goods categories. July’s ISM Manufacturing reading remained in contraction for a second straight month, but orders and production did improve, while the ADP private-payrolls survey beat estimates and JOLTS openings held firm despite a fall in the hiring rate to a seven-month low.

Sentiment surrounding economic growth quickly shifted within the first few days of August. Job growth has been a consistent data point that many have pointed to when defending the persistent strength of the underlying economy. However, much of this reversed on August 1st when non-farm payrolls were reported revealing headline weakness in July’s non-farm payrolls report, which showed only 73,000 jobs added compared to an estimate of 115,000. Even more concerning was the cumulative 258,000 downward revision to May and June, indicating a job market that might be worse than previously thought. Goldman Sachs noted it was the largest two-month revision since 1968 outside of recessions. In addition, the services side of the economy, which makes up over 70% of U.S. GDP, showed a deceleration in the data with the release of the July ISM Services Index. The index came in at 50.1, just above the expansion/contraction line of 50.0. The employment component of the index slipped further into contraction, while prices paid climbed to a 21-month high. Tariff-related cost pressures featured prominently in respondent feedback, with many firms noting delays, uncertainty, and pre-emptive purchasing to avoid further hikes.

Even with questions beginning to swirl regarding the economy, corporate America’s second-quarter earnings season has provided some optimism to the otherwise cloudy picture. With 90% of S&P 500 companies having now reported Q2 earnings, the blended year-over-year earnings growth rate now stands at 11.7% versus expectations of 4.9% at the beginning of the quarter. Much of this strength can be attributed to the mega cap technology companies, as forward guidance amongst a whole host of companies has been a bit more nuanced. Many companies continue to grapple with supply-chain disruptions, tariff costs and emerging signs of consumer weakness. Most recently, executives at Chipotle, Kroger, Procter & Gamble and several other large consumer-goods companies warned of spending strains across income tiers.

In sum, the past few weeks have offered both reasons for optimism and reminders of risk. Equity benchmarks remain near all-time highs, underpinned by strong earnings and technology leadership, yet market breadth narrowed, and economic data revealed emerging complexities. There is an awful lot to feel good about in the economy and the financial markets, but the narrowing leadership and tariff uncertainties caution against complacency. Given the effective tariff rate is at the highest level in a century, it’s still very much unknown how this will feed through the economy. Coupled with the market entering an historically weak period on the calendar, a little bit of caution may be warranted over the ensuing months.



Source: Carson Investment Research, Y Charts 07/30/2025 (1950-2024)

Tandem Strategy Update*

Although the broader market was void of volatility in July, underneath the surface it was a different picture. In fact, the market has been rewarding earnings beats by less than average and punishing earnings misses or a failure to raise guidance at a higher rate. According to FactSet, the average price change for companies that announced a negative EPS surprise has been more than double the average over the past 5 years.



Source: FactSet

The increased volatility in individual companies has provided us several opportunities to add to core positions that continue to meet our criteria of consistent revenue, earnings and cash flow growth through any economic cycle. Over the past month, we have added to Accenture (ACN), Brown & Brown (BRO) and Roper Technologies (ROP) within our Large Cap Core and Equity strategies. And within our Mid Cap Core strategy, we had the opportunity to add to Badger Meter (BMI), Brown & Brown (BRO), Gartner (IT), Kinsale Capital Group (KNSL), MSCI (MSCI) and Roper Technologies (ROP).

In addition, we wrapped up the liquidation of our long-term core holding in JM Smucker (SJM). Smucker has struggled to consistently grow due to several reasons. The company has been fighting to control costs in the wake of higher commodity costs and tariffs. In addition, SJM has had a tough time integrating and growing their recent Hostess acquisition. For these reasons, Smucker has failed to pass through our quantitative model by failing to consistently grow revenues, earnings and cash flows, which required us to liquidate the position from all three of our strategies.

Given the heightened volatility in individual companies, coupled with the market entering an historically seasonally tough time for stocks, we remain well positioned to take advantage of any opportunities that may arise.

*The transition level activity taken by Tandem is applicable to new manager-traded accounts and new money in manager-traded accounts, not the composite or firm-wide level. New manager-traded accounts and new money in manager-traded accounts are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions, this process differs from Tandem’s model-provided strategies, where money is invested on the day the account opens. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

Source: Source of all data is FactSet, unless otherwise noted.

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