July 24th, 2025: Weekly Market Review

1. Fundstrat’s Tom Lee joins CNBC to break down the latest market trends, outlook for the U.S. economy, the future of the Magnificent Seven stocks, Bitcoin’s long-term potential, and what investors should watch next. 

Below is summary of Tom’s Key Points from the interview.  Click onto picture below to access the interview.  REF: CNBC

• V-Shaped Rally: Described as “one of the most hated V-shaped rally in history,” as investors, expecting a recession post-April’s “tariff Armageddon” and market freefall, liquidated positions and were surprised by the rapid recovery.

• Investor Positioning: Many investors remain underexposed, seeking negative headlines despite strong corporate earnings signaling economic resilience.

• Market Valuation: S&P 500 equal-weighted P/E ratio dropped to 16 times from 17.6 times in 2019, showing a cheaper market despite surviving six “extinction-level” events (COVID, supply chain issues, inflation surge, Fed rate hikes, Trump tariffs, U.S. bombing Iran) while growing earnings.

• Magnificent Seven Stocks: These remain household names; Apple, down 16-18% over the past year, is poised to surprise in AI, akin to its transformative 2007 iPhone launch, leveraging privacy and safety in a potentially commoditized large language model (LLM) market.

• Cryptocurrency Outlook:Bitcoin: Bullish forecast of $200,000–$250,000 (25% of gold’s market size) or even $1 million long-term, driven by the Genius Act. Ethereum: Key play for stablecoins, dubbed the “ChatGPT moment for crypto” due to business and consumer adoption, with network fees tied to stablecoins potentially pushing Ethereum’s value to $10,000–$20,000.

• Tariffs: Viewed as manageable and non-inflationary, with a positive outlook even if tariff deadlines shift beyond August 1.

2. The White House hosted the “Winning the AI Race” Summit, organized by the All-In Podcast and the Hill & Valley Forum, to unveil a strategic push for accelerating artificial intelligence (AI) development in the U.S. 

The event, held in Washington, D.C., featured President Donald Trump delivering a keynote address, joined by prominent tech leaders including Nvidia co-founder and CEO Jensen Huang, AMD Chair and CEO Lisa Su, and Palantir Technologies CTO Shyam Sankar, who were seated in the front row. The summit focused on establishing a national AI doctrine emphasizing infrastructure expansion, AI hardware sovereignty, and political neutrality in AI systems. Key initiatives included an executive order to ensure AI models used in federal contracts remain “politically neutral,” addressing concerns about ideological bias in technology, and measures to streamline permitting for data center construction and energy infrastructure to support AI’s computational demands. The presence of industry titans underscored the administration’s commitment to public-private collaboration to bolster U.S. AI competitiveness globally.

The result of this summit and its policy announcements are profound for both the U.S. tech industry and global AI dynamics. The executive order promoting political neutrality in AI aims to curb perceived biases, potentially reshaping how federal agencies adopt AI technologies, while the focus on infrastructure addresses critical bottlenecks in data center capacity and energy supply, essential for scaling AI applications. For Nvidia, AMD, and Palantir, the summit highlighted their pivotal roles in driving AI innovation, with Nvidia’s Huang advocating for relaxed AI chip export controls to maintain U.S. market leadership, a stance reflected in recent policy shifts allowing sales to China. However, these moves raise concerns about national security and China’s AI advancements, as critics warn that loosening restrictions could narrow the U.S. technological lead. The summit also signals a broader U.S. strategy to counter global competitors like China through government-to-government trade agreements and domestic investment, potentially creating jobs but risking inflationary pressures and supply chain complexities.  Click onto pictures below to access videos of the event in 5 parts.  REF: BARRON’S, All-In Podcast, Part1, Part2, Part3, Part4, Part5

3. Since April 2025, the municipal bond market experienced a mini-crash, driven by a surge in new bond issuances, fundamental and macroeconomic pressures, impacting high yield municipal bond funds such as the First Eagle High Yield Municipal Bond Fund (FEHIX). 

The market faced record supply, with 2024 issuance the highest since 2010 and 2025 set to exceed it, as governments funded infrastructure amid rising costs. Rising U.S. Treasury yields, fueled by tariff-driven inflation fears projecting 16% effective rates, pressured bond prices, especially for high-yield municipals. A historic sell-off on April 7, 2025, saw a benchmark municipal index drop 2.85%, the worst since 1994, due to tariff-induced selling and low reinvestment demand. The Morningstar US High-Yield Municipal Bond Index reported a 1.98% Q2 2025 loss, with $381 million in March outflows after $6 billion in inflows, signaling investor caution.

FEHIX, with its focus on high-yield municipal bonds (at least 65% rated BBB/Baa or lower), was hit hard despite a strong 2024 return of 11.95%, outperforming the S&P Municipal Yield Index by 632 basis points. Recent downgrades in sectors like higher education, transportation, and senior living, driven by tariff-related economic slowdown fears, sparked a broader market sell-off, increasing volatility for FEHIX. Its 5.45% distribution yield as of March 31, 2025, faced pressure from rising yields and tariff uncertainties, contributing to price declines. Ongoing tariff negotiations and heavy issuance may sustain volatility, but municipal credit fundamentals remain robust, with upgrades outpacing downgrades for 17 quarters.

Why now could be a good opportunity for high-yield municipal bond funds.  REF: FirstEagleMuniBdFd, FundDocuments, Chart

• Positive Relative Value: U.S. fixed income, particularly high-yield municipals, offers compelling value compared to other asset classes, with tax-exempt yields outperforming taxable bonds after adjusting for risk.

• Historically High Yields: High-yield municipal bonds currently provide the highest yields in 20 years, with funds like FEHIX offering attractive Federal tax exempt income potential at 5.45% or higher.

• Opportunistic Timing: Accumulating high-yield municipals now, ahead of anticipated U.S. interest rate cuts, locks in elevated yields before potential bond price appreciation.

• Tax-Exempt Advantage: The tax-free income from municipal bonds remains a significant benefit, especially for high-income investors in states like NJ, NY, & CA, enhancing after-tax returns.

• Resilient Credit Quality: Despite recent downgrades, municipal credit fundamentals are strong, with upgrades outpacing downgrades, supporting long-term stability for high-yield funds.

NOTE: Not investment advice or recommendations. Investor should consider the investment objective, risks, charges and expenses carefully before investing.  For additional information about securities mentioned above or in the video, please visit the companies’ websites of referenced securities mentioned above.  Read carefully before investing.

With the current macro-economic backdrop, below are areas we currently favor:

• Fixed Income – Short-term Corporates (Low-Beta)
• Fixed Income – (Corporates & Muni) High Yield as Opportunistic Allocation (Low-Beta)
• Businesses that contribute to and benefit from AI & Automation (Market-Risk)
• Cyber-Security & Software (Market-Risk)
• Fintech & Financials (Market-Risk)
• Digital Asset – Bitcoin (Market-Risk/Hedge)
• Cloud Computing (Market-Risk)
• Biotechnology (Market-Risk)

4. World Watch

4A. President Donald Trump announced a landmark trade deal with Japan (on 7/22/25), imposing a 15% tariff on Japanese exports to the U.S., down from a threatened 25%. 

Described as a historic agreement, it includes Japan’s pledge to invest $550 billion in the U.S., with 90% of profits retained by American entities, and to open its markets to U.S. goods like cars, rice, and agricultural products. The deal lowers tariffs on Japanese auto exports—28.3% of Japan’s U.S. shipments in 2024—from 27.5% to 15%, benefiting automakers like Toyota. Japan will also buy 100 Boeing aircraft, increase rice imports by 75%, and ease safety tests on U.S. cars, boosting American market access.

The deal’s implications are significant. For Japan, the 15% tariff averts a deeper economic downturn, strengthens the yen, and supports automakers, with stocks like Toyota rising over 14%. It bolsters Prime Minister Shigeru Ishiba’s position despite domestic political challenges. For the U.S., it promises job creation and a reduced $70 billion trade deficit, aligning with Trump’s protectionist policies. However, U.S. automakers face higher tariffs (25%) on imports from Canada and Mexico, raising competitiveness concerns. Globally, the deal pressures nations like South Korea and the EU, facing similar tariff deadlines, and may disrupt supply chains while fueling inflation. It sets a precedent for future trade negotiations, balancing protectionism with economic cooperation.  Click onto picture below to access video.  REF: WSJ

4B. President Donald Trump announced a new trade policy, imposing “reciprocal” tariffs of 15% to 50% on U.S. trading partners starting August 1, with higher rates for nations with strained relations. 

Speaking to tech leaders like Nvidia’s Jensen Huang, AMD’s Lisa Su, and Palantir’s Shyam Sankar, Trump outlined a simplified tariff structure, raising the baseline from 10% to 15%. The summit, hosted by the All-In Podcast and Hill & Valley Forum, also focused on AI initiatives like ensuring political neutrality in AI models and expanding data center infrastructure, tying trade to technological leadership. Trump indicated flexibility, noting countries could negotiate lower tariffs by opening markets, as seen in Japan’s deal reducing tariffs to 15% for $550 billion in investments and market access concessions.

The consequences of Trump’s tariff policy are significant, potentially reshaping global trade while introducing risks. The 15%–50% range, with 50% for adversarial nations like China and Brazil (due to tensions over Jair Bolsonaro’s prosecution), aims to cut the U.S. trade deficit—$761.8 billion with Canada in 2024—and boost jobs. However, it risks retaliation, with the EU planning 30% tariffs on $100 billion of U.S. goods and Canada targeting $20 billion in U.S. exports. Higher tariffs could increase consumer costs for goods like cars and disrupt AI development by raising data center expenses, possibly pushing tech firms abroad. While deals like Japan’s and Indonesia’s (19% tariffs with zero tariffs on 99% of U.S. goods) show negotiation potential, the policy may strain ties with allies like Canada and the EU, complicating agreements like the USMCA. Click onto picture below to access video. REF: Bloomberg

4C. An updated snapshot of the current global state of economy.

According to TradingEconomics as of 7/21/2025 (REF: TradingEconomics) :

• The annual inflation rate in the US accelerated for the second consecutive month to 2.7% in June 2025, the highest level since February, up from 2.4% in May and in line with expectations. 
• Japan’s annual inflation rate eased to 3.3% in June 2025 from 3.5% in the previous month, marking the lowest reading since last November.
• The annual inflation rate in the UK rose to 3.6% in June 2025, the highest since January 2024, up from 3.4% in May and above expectations that it would remain unchanged.
• The United Kingdom’s unemployment rate rose to 4.7% in the three months to May 2025, defying market expectations that it would remain at April’s 2.6%.

5. Quant & Technical Corner – A selection of quantitative & technical data we monitor on a regular basis to help gauge the overall financial market conditions and the investment environment.

5A. Most recent read on the Fear & Greed Index with data as of 7/21/2025 – 7:59PM-ET is 74 (Greed).  Last week’s data was 76 (Extreme Greed) (1-100).  CNNMoney’s Fear & Greed index looks at 7 indicators (Stock Price Momentum, Stock Price Strength, Stock Price Breadth, Put and Call Options, Junk Bond Demand, Market Volatility, and Safe Haven Demand).  Keep in mind this is a contrarian indicator!  REF: Fear&Greed via CNNMoney

5B. St. Louis Fed Financial Stress Index’s (STLFSI4) most recent read is at –0.7526 as of July 17, 2025.  Previous week’s data was -0.8790.  A big spike up from previous readings reflecting the turmoil in the banking sector back in 2023.  This weekly index is not seasonally adjusted.  The STLFSI4 measures the degree of financial stress in the markets and is constructed from 18 weekly data series: seven interest rate series, six yield spreads and five other indicators. Each of these variables captures some aspect of financial stress. Accordingly, as the level of financial stress in the economy changes, the data series are likely to move together.  REF: St. Louis Fed

5C. University of Michigan, University of Michigan: Consumer Sentiment for February [UMCSENT] at 52.2, retrieved from FRED, Federal Reserve Bank of St. Louis, June 27, 2025.  Back in June 2022, Consumer Sentiment hit a low point going back to April 1980.  REF: UofM

5D. The Chicago Fed National Activity Index (CFNAI) increased to –0.28 in May from –0.36 in April. Two of the four broad categories of indicators used to construct the index increased from April, but three categories made negative contributions in May. The index’s three-month moving average, CFNAI-MA3, decreased to –0.16 in May from +0.06 in April. REF: ChicagoFed, May’s Report

5E. (7/21/2025) The Conference Board Leading Economic Index (LEI) for the US declined by 0.3% in June 2025 to 98.8 (2016=100), after no change in May (revised upward from –0.1% originally reported). As a result, the LEI fell by 2.8% over the first half of 2025, a substantially faster rate of decline than the –1.3% contraction over the second half of 2024. The composite economic indexes are the key elements in an analytic system designed to signal peaks and troughs in the business cycle. The indexes are constructed to summarize and reveal common turning points in the economy in a clearer and more convincing manner than any individual component. The CEI is highly correlated with real GDP. The LEI is a predictive variable that anticipates (or “leads”) turning points in the business cycle by around 7 months. Shaded areas denote recession periods or economic contractions. The dates above the shaded areas show the chronology of peaks and troughs in the business cycle. The ten components of The Conference Board Leading Economic Index® for the U.S. include: Average weekly hours in manufacturing; Average weekly initial claims for unemployment insurance; Manufacturers’ new orders for consumer goods and materials; ISM® Index of New Orders; Manufacturers’ new orders for nondefense capital goods excluding aircraft orders; Building permits for new private housing units; S&P 500® Index of Stock Prices; Leading Credit Index™; Interest rate spread (10-year Treasury bonds less federal funds rate); Average consumer expectations for business conditions.  REF: ConferenceBoard, LEI Report for May  (Released on 6/30/2025)

We have experienced a “rolling recession” since June 2022 and are only now emerging from it. However, authorities are not labeling it a recession due to high employment data.

5F. Probability of U.S. falling into Recession within 3 to 4 months is currently at 82.02% (with data as of 07/14/2025 – Next Report 07/28/2025) according to RecessionAlert Research.  Last release’s data was at 84.97%.  This report is updated every two weeks. REF: RecessionAlertResearch

5G. Yield Curve as of 7/21/2025 is showing Normal.  Spread on the 10-yr Treasury Yield (4.37%) minus yield on the 2-yr Treasury Yield (3.85%) is currently at 52bps.  REF: Stockcharts   The yield curve—specifically, the spread between the interest rates on the ten-year Treasury note and the three-month Treasury bill—is a valuable forecasting tool. It is simple to use and significantly outperforms other financial and macroeconomic indicators in predicting recessions two to six quarters ahead.  REF: NYFED

5H. Recent Yields in 10-Year Government Bonds.  REF: Source is from Bloomberg.com, dated 7/21/2025, rates shown below are as of 7/21/2025, subject to change.

The 10-Year US Treasury Yield… The 10-Year Yield is indirectly related to inflation. I expect the 10-Year Yield to drop further as dis-inflation kicks in.  REF: StockCharts1, StockCharts2

10-Year Real Interest Rate at 1.64906% as of 7/15/25.  Last month’s data was 1.87166%.  REF: REAINTRATREARAT10Y

ICE BofA US High Yield Index Option-Adjusted Spread (BAMLH0A0HYM2) currently at 2.93 as of July 21, 2025.  This is a key indicator of market sentiment, particularly regarding risk and economic health.  At its core, the spread reflects the extra return investors demand to hold riskier corporate debt over safer government securities. High-yield bonds are issued by companies with lower credit ratings (below investment grade, like BB or lower), meaning they carry a higher chance of default. The spread compensates for this risk. When the spread is narrow—say, around 2.5% to 3%, as seen recently—it suggests investors are confident, willing to accept less extra yield because they perceive lower default risk or a strong economy. Narrow spreads often align with bullish markets, where cash is flowing, growth is steady, and fear is low.   REF: FRED-BAMLH0A0HYM2

5I. (7/21/2025) Today’s National Average 30-Year Fixed Mortgage Rate is 6.78% (All Time High was 8.03% on 10/19/23).   Last week’s data was 6.83%.  This rate is the average 30-year fixed mortgage rates from several different surveys including Mortgage News Daily (daily index), Freddie Mac (weekly survey), Mortgage Bankers Association (weekly survey) and FHFA (monthly survey).  REF: MortgageNewsDaily, Today’s Average Rate

The recent spike in the 30-year fixed-rate jumbo mortgage to 6.78%, compared to Freddie Mac’s rate at 6.75% and the Mortgage Bankers Association (MBA) rate at 6.82%, highlights key differences in the mortgage market. Jumbo mortgages, which exceed the conforming loan limits set by government agencies like Freddie Mac, typically carry higher interest rates because they are riskier for lenders. These loans are not backed by government entities, which increases the risk for lenders and, consequently, leads to higher rates. In contrast, Freddie Mac and MBA provide averages for conforming loans, which meet federal guidelines and have lower risk due to government backing, keeping their rates lower.

Housing Affordability Index for May = 97.2 // Apr = 101.0 // Mar = 103.2 // Feb = 102.2 // Jan = 100.7 // Dec = 100.7 // Nov = 99 // Oct = 102.3. Data provided by Yardeni Research.  REF: Yardeni

5J. Velocity of M2 Money Stock (M2V) with current read at 1.386 as of (Q1-2025 updated 6/26/2025).   Previous quarter’s data was 1.383.  The velocity of money is the frequency at which one unit of currency is used to purchase domestically- produced goods and services within a given time period. In other words, it is the number of times one dollar is spent to buy goods and services per unit of time. If the velocity of money is increasing, then more transactions are occurring between individuals in an economy.  Current Money Stock (M2) report can be viewed in the reference link.   REF: St.LouisFed-M2V

M2 consists of M1 plus (1) small-denomination time deposits (time deposits in amounts of less than $100,000) less IRA and Keogh balances at depository institutions; and (2) balances in retail MMFs less IRA and Keogh balances at MMFs. Seasonally adjusted M2 is constructed by summing savings deposits (before May 2020), small-denomination time deposits, and retail MMFs, each seasonally adjusted separately, and adding this result to seasonally adjusted M1. Board of Governors of the Federal Reserve System (US), M2 [M2SL], retrieved from FRED, Federal Reserve Bank of St. Louis; Updated on June 24, 2025.  REF: St.LouisFed-M2

Money Supply M0 in the United States decreased to 5,648,600 USD Million in May from 5,732,900 USD Million in April of 2025. Money Supply M0 in the United States averaged 1,194,572.77 USD Million from 1959 until 2025, reaching an all time high of 6,413,100.00 USD Million in December of 2021 and a record low of 48,400.00 USD Million in February of 1961.   REF: TradingEconomics, M0

5K. In June, the Consumer Price Index for All Urban Consumers rose 0.3 percent, seasonally adjusted, and rose 2.7 percent over the last 12 months, not seasonally adjusted. The index for all items less food and energy increased 0.2 percent in June (SA); up 2.9 percent over the year (NSA). July 2025 CPI data are scheduled to be released on August 12, 2025, at 8:30AM-ET.  REF: BLS, BLS.GOV

 5L. Technical Analysis of the S&P500 Index.  Click onto reference links below for images.

• Short-term Chart: Trend Bullish on 7/21/2025 – REF: Short-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Medium-term Chart: Trend Bearish to Bullish on 7/21/2025 – REF: Medium-term S&P500 Chart by Marc Slavin (Click Here to Access Chart)

• Market Timing Indicators – S&P500 Index as of 7/21/2025 – REF: S&P500 Charts (7 of them) by Joanne Klein’s Top 7 (Click Here to Access Updated Charts)

• The S&P500 is hitting all-time-high, rebounding from a V-shaped recovery.  This is one of the ‘most-hated’ rallies.   REF: Stockcharts

• S&P500 and CBOE Volatility Index (VIX) as of 7/21/2025.  REF: FRED, Today’s Print

5M. Most recent read on the Crypto Fear & Greed Index with data as of 7/21/2025 is 67 (Greed).  Last week’s data was 70 (Greed) (1-100).  Fear & Greed Index – A Contrarian Data.  The crypto market behavior is very emotional. People tend to get greedy when the market is rising which results in FOMO (Fear of missing out). Also, people often sell their coins in irrational reaction of seeing red numbers. With the Crypto Fear and Greed Index, the data try to help save investors from their own emotional overreactions. There are two simple assumptions:

• Extreme fear can be a sign that investors are too worried. That could be a buying opportunity.
• When Investors are getting too greedy, that means the market is due for a correction.

Therefore, the program for this index analyzes the current sentiment of the Bitcoin market and crunch the numbers into a simple meter from 0 to 100. Zero means “Extreme Fear”, while 100 means “Extreme Greed”.  REF: Coinmarketcap.com, Today’sReading

Bitcoin – 10-Year & 2-Year Charts. REF: Stockcharts10Y, Stockcharts2Y