Big Beautiful Boom

August 6, 2025

They say that good things come in threes. At present, that checks out, as July continued the rally which began in mid-April, sending stocks higher for the third month in a row (4th for NASDAQ). The widely followed S&P500 clocked its third-best July in nearly 50 years, recording 10 all-time highs and gaining 2.2% during the month. The broad market was aided by sustained strength in technology and AI-related sectors, in addition to a strong rebound in megacap tech names (Magnificent Seven). Trade deals also provided an additional boost, as the US inked several new deals before the August 1st deadline, most notably with the EU and Japan. All in all, it was a great month for equity investors and the indices remain at or near all-time high levels.

Q2 earnings season kicked off heartily, with ~60% of S&P500 companies having reported thus far. The results have been solid, with most companies exceeding guidance and expectations. As of this writing, nearly 83% of companies have conveyed earnings-per-share above estimates, which exceeds the 5- and 10-year averages of 78% and 75% respectively. Arguably even more important, forward guidance and the tone of earnings calls continue to come in positive and optimistic – especially in tech and other AI-related sectors – which bodes well for future corporate performance. Although we do see weakness in certain sectors such as consumer discretionary (airlines, hospitality, restaurants), the headline numbers look strong, providing a tailwind for markets that have heretofore been concerned mostly with tariffs and trade.

The passage of the One Big Beautiful Bill Act (OBBBA) – by the slimmest of margins – also enhanced market sentiment. Signed on July 4th, this sweeping legislation reshaped the landscape of many policy areas, including taxes, healthcare, energy, and others. Critically, most of the provisions in the 2017 Tax Cuts and Jobs Act were made permanent, easing market fears of higher future tax rates. The OBBBA set a ceiling on the income tax at 37% for joint filers exceeding $750K of income. Other key outcomes for the bill include increased standard and SALT deductions, no taxes on overtime and tips, an increase in the child tax credit, and a new brand of IRAs for minors entitled “Trump Accounts.” Although OBBA is expected to produce generationally large budget deficits while in effect, it has the potential to provide a massive stimulative impulse for the economy, which thus far the markets have celebrated.

Major bond markets retreated slightly in July, as fixed income investors pondered the outlook for interest rates and the economy. Modestly higher interest rates during the month, predicated on the mostly strong economic data, resulted in the US Aggregate Bond index falling just a bit (-0.26%). The bond market appears to be comfortable with a “goldilocks economy” – not too hot, not too slow – and although there have been intermittent periods of volatility this year, for the most part bonds have been quiet and stable. Even the Federal Reserve’s July decision to hold interest rates steady in a 4.25-4.5% range did not excite the bond market very much, despite the central bank casting doubts on if and when an eventual cut may occur. After the July payrolls report, the odds of a September cut rose significantly, but it is still anyone’s guess if Jerome Powell is ready to normalize rates (and by how much).

Looking ahead, the calendar flips to August, which is generally not a strong month for equities (especially growth and tech). Since the early 1970s, the NASDAQ has averaged a monthly gain of just 0.3%. Since 2010, August has seen an average return of -0.45%, with over half of those years negative. Combine that with the prospect of tariff inflation, an uncertain interest rate picture, and the remarkable rally from April, and the market may be due to take a breather. You can only sprint for so long before you need to pause and catch your breath.

August also concludes the Q2 earnings season and will contain the usual package of economic releases: jobs, inflation, and GDP. The Federal Reserve holds its annual Jackson Hole symposium, which will likely offer insight into future interest rate policy. With several major political initiatives out of the way, stock and bond markets are likely to direct their focus on economic data and corporate fundamentals.

Overall, we remain in a good position for the back half of the year. The tried-and-true principles of diversification, discipline, and time horizon remain in place, and we stand ready to accept whatever the market may throw at us. As we move into the Dog Days of Summer, we would like to thank our clients, friends, and family for their steadfast trust and support. We are truly grateful for it.

Sincerely,

Jason D. Edinger, CFA
Chief Investment Officer
Boston Wealth Strategies

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.