July 2025 Review

Deal or No Deal

After the furore that surrounded Liberation Day 1.0 on April 2^nd earlier this year, financial markets were both apprehensive of what might happen on the next tariff deadline of August 1^st (extended by US President Donald Trump from July 9^th) and enthusiastic in their response to the tariff deals that were announced during the remainder of July.

Economic data announced in the western developed economies during July was generally on the soft side although not enough to persuade the US Federal Reserve, who set official rates in the US, to lower their official Fed Funds rate in the final week of July. However, economic data in the UK has been weak enough (the UK Unemployment Rate has risen further to 4.7% – the highest in four years) to encourage the Bank of England to reduce bank/base rates when it meets next on Thursday, August 7^th with a further cut forecast by November 2025 which would take base rates to below 4%.

• US 2^nd Quarter earnings generally beat expectations aiding a positive month for US equities, in turn, helping global equities too.
• Dissent within the US Federal Reserve Open Market Committee, which sets US official short-term interest rates, led to further criticism from US President Donald Trump who wants lower interest rates to lower borrowing costs and is looking for a new Federal Reserve Chair who is likely to be more favourable to that scenario.
• Notably positive for global equities were the announcements of trade deals with Japan, Korea and the EU. It looks like average tariff rates will be close to 15%, a level that financial markets appear comfortable with.
• But US equity valuations remain high for the Nasdaq 100 index and in turn, the S&P 500 which are both heavily influenced by the five large companies by market value, Nvidia, Microsoft, Amazon, Apple and Meta Platforms (formerly Facebook). Those five companies represent 50% of the Nasdaq 100 index by market capitalisation (value in USD) and 30% of the S&P 500 index.  Both indices are close to their all-time highs. US equity market valuations are less challenging if those five companies are removed or weighted at parity with other index constituents.

US equity valuations price to earnings ratios are less stretched away from the Nasdaq 100 and S&P 500 indices.

Source: Marquee Finance by Sagar

• Bond markets have taken on board either the prospect of fiscal expansion in the US (more borrowing) or appeasing rebels in the governing UK Labour Party by not going through with unpopular plans to cut spending. In July, this was reflected in longer maturity bonds (10 year maturities and longer) rising in yield therefore, falling in price. The prospect of lower official interest rates helped shorter maturity bonds be more stable. In Japan, longer maturity bond yield rose sharply.
• The US Dollar had a better month against most currencies including Sterling. It would seem that traders were collectively betting that the US currency would fall further and were susceptible to a reversal in the USD Dollar’s fortunes causing a rebound in its value. Against Sterling, the US Dollar rose 3% in July.

Your Money

Pier portfolios continue to be conscious of high valuations in certain US equities and the risks associated with market capitalisation weighted trackers that give too much exposure to a small number of highly valued companies.  Pier continues to favour reasonably or attractively priced global equities.

Budgetary pressures remain in the US and UK – how to finance large and increasingly larger budget deficits.  Pier’s preference for shorter maturity bonds proved to be beneficial in July as they were relatively stable compared to the longer maturities where prices fell as yield rose.

July was a rewarding month for investors due to the positive price appreciation influence of global equities encouraged by a number of significant trade deals agreed with the US.

The following table shows the performance of Pier’s portfolios for July and 2025 year to date to end July.