Markets make little progress as summer doldrums quell upside
Watching paint dry, grass grow, or the markets' action, same, same so far this month. The S&P 500 Index is up about one percent since the beginning of July, not bad, but the big events won't happen until the end of the month.
It isn't as if there is no news flow. The president continues to send letters to more than 100 countries. However, few of them have any significant trade with the U.S. Trump continues to boast about tariff revenues, stating, "$113 billion was collected for the first time during the fiscal year." Given that this money is coming out of U.S. corporate profits, which they will then pass on to American consumers, this tariff tax is not a good thing.
Trump also allowed Nvidia to resume selling semiconductor chips to China (wipe on, wipe off) and, in his spare time, wants to fire (not fire) Fed Chairman Jerome Powell. The controversy over replacing Powell has many market participants worried. Exactly why that may be the case is the subject of my recent column, "What is really behind the move to replace Jerome Powell." I discuss Fiscal Dominance and its ramifications for markets.
As the capital swelters, along with the rest of the country, inside Congress, we are finishing up crypto week. Three separate bills—the GENIUS Act, THE CLARITY Act. And the Anti-CBDC Act has been passed by the House. The Genesis Act establishing federal regulations for dollar-pegged stablecoins now goes to the Oval Office to be signed into law. The other two bills, if passed by the Senate, establish a market structure for digital assets and prevent the creation of a central bank digital currency.
Passage was supposed to be a lay-up, according to the crypto community, but various Republican factions held it up for a variety of reasons. The president managed to intervene and carried the legislation over the goal line. Crypto is where most of the money was made in a slow market this week.
Cryptocurrencies experienced a significant price surge this week, except for Bitcoin, which remained on the sidelines after gaining 12% over the last month. Ethereum, on the other hand, gained 20%, while lesser-known coin names like Solana (+6.3%) and XRP (+23%) also participated. These cryptocurrencies, along with various companies that trade or mine digital assets, such as Coinbase (+12%) and Robinhood (+13%), outperformed most other sectors of the market.
Crypto bulls claimed the legislation will forever alter the perception and demand for crypto among institutional investors worldwide. Social media was full of posts predicting Bitcoin prices of $1 million or more. Ignore that. The passage of these last two bills by the Senate will be beneficial for the asset class. It will make it a safer bet for more investors. The question is whether the run-up preceding the passage of these two acts will trigger a typical "sell on the news" reaction in the cryptocurrency markets. If so, I would be a buyer of that pullback, as my Bitcoin target is $145,000.
On the macroeconomic front, we have seen some solid data this week. Retail sales were up 0.6% last month. Weekly jobless claims were lower at 221,000 applicants, while the ratio of export to import prices remained tame. As for the inflation data, the Consumer Price Index came in higher than the Street estimated, while the Producer Price Index was cooler for June. This month's CPI will show slightly weaker data but then rise again into December.
As I mentioned last week, Volatility Control Funds have been supporting the markets, and now attention will switch to second-quarter earnings. As readers are aware, many of these earnings announcements are meaningless. Wall Street analysts deliberately reduce their expectations for the companies they favor so corporate managements can "beat" those estimates.
This system enables trading desks to book extra profits by capitalizing on FOMO chasers. Traders regularly buy company stocks before the expected results and then book their gains by selling to the retail crowd. It is always a wonder to me why investors fail to learn that chasing these so-called earnings surprises is usually a losing game.
In any case, markets are extended but continue to forge ahead. Investors remain convinced that Trump's August 1 tariff deadline is another mirage. If so, markets continue to rally. If not, sayonara to the stock market. The bond market remains neutral on prospects for tariffs.
Polymarket, the digital prediction market, places less than a 50% chance that any of the largest U.S. trading partners will come to a tariff agreement before August 1. The highest is India (41% chance), while Germany has the lowest (3%). There may be a handful of tiny countries that could announce deals this coming week, but nothing consequential. As usual, Donald Trump holds the cards on the markets' next direction.
Bill Schmick is a founding partner of Onota Partners, Inc., in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners, Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at billiams1948@gmail.com. Investments in securities are not insured, protected or guaranteed and may result in loss of income and/or principal.