The stock market rally off the April lows showed continued strength through the month of July. Early in the month, the rally broadened beyond large-cap tech as small-cap stocks took the lead and investors rotated into cyclical sectors such as transportation, basic materials, and industrials. However, as the month progressed, growth and technology stocks regained momentum, propelling the S&P 500 and Nasdaq to fresh all-time highs.
While July has historically been a seasonally strong month, the market’s resilience amid ongoing uncertainty stood out. The “Magnificent Seven” technology stocks—including Nvidia, Meta, and Microsoft—continued to dominate headlines, with their combined market capitalization climbing to a record $19 trillion by month-end, fueled in large part by enthusiasm around artificial intelligence.
Noteworthy Highlights for July
- Nvidia and Microsoft Reach Milestones: Nvidia became the first company ever to reach a $4 trillion market cap, while Microsoft followed as the second to hit that historic threshold.
- Strong Q2 Earnings Season: Roughly 40% of S&P 500 companies reported second-quarter results by the end of July, with over 80% surpassing earnings per share (EPS) estimates. However, expectations were relatively muted heading into earnings season, in part due to concerns over tariffs and elevated market valuations.
- Robust Economic Data: The U.S. economy returned to growth in Q2, with GDP expanding at a 3% annual rate. Strength in consumer spending and a drop in imports contributed to the rebound, though business investment remained soft.
- Fed Holds Steady—With Dissent: The Federal Reserve kept the federal funds rate unchanged at its July 30 meeting. Notably, two Fed officials dissented in favor of a rate cut—the first time in over three decades that such a split has occurred.
- Retail Investors Drive Market Momentum: According to data cited in a July 29 Reuters report, retail investors played a key role in sustaining the market’s rally. A separate CNBC article on the same day highlighted that margin borrowing by retail investors has reached record levels. Deutsche Bank noted that margin debt as a percentage of GDP now exceeds the levels seen during the 2000 dot-com bubble and just prior to the 2008 financial crisis. While this surge in risk-taking reflects strong investor enthusiasm, it may also be a warning sign – potentially signaling overheating or encouraging further speculative behavior by institutional players.
Portfolio Positioning and Adjustments
Equity markets continued to perform well, with the S&P 500 gaining over 2% and the Nasdaq rising 3.7% for the month. Given that most equity-oriented portfolios were already fully invested, there was little need for trading. Exposure to large-cap and growth stocks was a tailwind, and we selectively added to those areas in more conservative portfolios where cash levels remained elevated.
On the fixed income side, the broad bond market posted modest losses in July. However, portfolios benefited from select areas such as high-yield corporates and nontraditional bond sectors, which helped offset weakness in Treasuries. We exited Treasuries in the Income & Growth strategy to add to broad-market equity exposure.
Looking Ahead
August and September have traditionally been among the more challenging months for investors before a year-end rally. However, 2025 has defied several historical patterns so far, and the months ahead may continue to surprise. The FSA investment team remains attentive to shifting market dynamics, ready to make adjustments to navigate the evolving environment.
As always, please contact your advisor if there have been any changes in your circumstances that could affect how we manage your portfolio.
Mary Ann Drucker
Assistant Portfolio Manager
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