Asset Management
07/14/2025 Market Strategy
July 14, 2025
It’s Been a Hard Day’s Night
With the Budget Bill Signed, Attention Turns to Earnings
Key Takeaways
- Earnings season kicks off tomorrow as six of the big banks are due to report second quarter results. Profits are expected to be up 4.8% from Q2 of last year, according to estimates in Forbes, down from 11.9% growth realized in Q1.
- This week we discuss the “One Big Beautiful Bill” signed into law by President Trump on July 4. While its economic impact likely won’t be dramatic, the flood of red ink calls for a serious bipartisan effort to address the situation. It also leaves us continuing to favor stocks over bonds.
- This week brings a heavy calendar of economic data. The first indicators of inflation for June are due with the CPI report on Tuesday followed by producer prices on Wednesday. Analysts will be focused on any signs of tariffs boosting prices.
- Indicators of consumer demand are also scheduled for release: retail sales for June on Thursday and the Michigan sentiment indicators for June on Friday.
Market action last week saw some profit taking and rotation among US stocks as concern arose around the potential effects of tariff negotiations with a number of nations and the European Union. The President extended deadlines for some countries while threatening to raise tariffs on others.
Equity markets in the US traded slightly lower. The Dow Jones Industrial Average, the S&P 500, the NASDAQ Composite, the S&P 400 (mid-caps), the S&P 600 (small caps), and the Russell 2000 (small caps) respectively slipped 1%, 0.3%, 0.1%, 0.6%, 0.3% and 0.6% last week.
…We can’t stress enough the need for a serious bipartisan effort to right the federal government’s fiscal stance…
Our Views on the Budget Bill
A number of colleagues and investors have asked us our views on the “One Big Beautiful Bill” that passed through the Congress and was signed by President Trump on July 4th.
We should remind our readers that as strategists we consider ourselves to be politically agnostic and as such we like to quip (with a wink), that we tend to be equally offensive to all sides of the arguments passing through the marketplace.
That said, from a macroeconomic view point the OBBB likely won’t have a significant impact one way or the other on growth or inflation near term. This is because the bill extends the progrowth tax cuts and tax policies enacted during the first Trump Administration. So in that sense the bill avoided a large tax hike that would have occurred had the Administration and Congress allowed the current tax rates to sunset.
What does concern us about the legislation however are the projections that the bill will add trillions of dollars to the national debt. Estimates of the additional debt incurred by the federal government over the next ten years range from $3 trillion to $5 trillion depending on the accounting and assumptions used. These are huge numbers and would add to the $36 trillion in debt already on the books.
By one estimate, the debt held by the public could rise from around 100% of GDP currently to over 130% by 2034. (Gross debt to GDP is higher than this but that would include bonds owned by government accounts such as the Social Security Trust Fund).
While not the highest in the world relative to the size of the US economy, the projected run up in debt is worrisome because it means that interest costs could continue to eat up more and more of the revenues from tax collection. In addition, the debt burden could leave the nation vulnerable to the effects of higher interest rates and limit fiscal policy options such as counter-cyclical spending should the US face a recession in coming years.
What’s to be Done About the Expected Flood of Red Ink?
In our view, the deficit and debt outlook ultimately require a serious bipartisan effort and commitment to both reign in spending and increase revenues. Past efforts at such compromise legislation have led to solid plans, such as the Simpson-Bowles Commission of 2010 and George H.W. Bush’s Budget Enforcement Act of 1990.
Of course, such efforts are not without their risks for politicians and their parties. History reminds us that the tax hikes of the GHW Bush Administration were viewed as a repudiation of his “no new taxes” pledge and may have contributed to his failed re-election campaign of 1992. Still, we can’t stress enough the need for a serious bipartisan effort to right the federal government’s fiscal stance before the red ink brings on a crisis of confidence in the fiscal health of the US.
What’s the Upshot for Investors?
In our view, a deteriorating fiscal outlook could contribute to an increase in volatility for the US bond market in the coming years, requiring higher yields to attract investors and reduce the value of outstanding bonds.
Not for this alone we continue to favor equities to bonds in our asset allocations while recognizing the usefulness of bonds in portfolio diversification.
We view bonds as complementary to stocks in well-diversified portfolios for their ability to dampen the volatility of equity holdings and provide a source of current income.
The Week Ahead: Inflation and Q2 Earnings
Look for a substantial brace of economic data this week including the first indicators of inflation pressures in June with reports on consumer and producer prices due on Tuesday and Wednesday respectively. The consensus forecast for the June CPI data is for a 0.3% monthly rise (up from 0.1% in May), as some economists anticipate a greater uptick in prices due to tariff policies
This week also brings the Michigan survey of consumer sentiment and the release of the Federal Reserve’s “Beige Book” of regional economic activity.
Tuesday brings the start of the S&P 500 Q2 earnings season as the big US banks begin to report results. The consensus estimate for earnings growth, according to analysis in Forbes Magazine, is for a 4.8% gain in Q2 from a year earlier, down from the 11.9% growth recorded in Q1.
Where We Stand?
From our perch on the market radar screen, patience and diversification remain key to navigating the markets. Diversification across sectors, market capitalizations, and styles (value vs. growth) with an emphasis on quality in our view can help meet current and future goals and objectives.
Among sectors, we continue to overweight cyclicals over defensive stocks and favor information technology, consumer discretionary, communication services, industrials, and financials. We also maintain some exposure to the energy and materials sectors as demand for these products gains traction as economies show potential to expand globally.
We persist in favoring cyclicals over defensive sectors, maintaining an overweight towards US exposure (we do not foresee an end to US exceptionalism) while maintaining some level of meaningful exposure to both international developed and emerging markets to take advantage of relatively attractive valuations as the world diversifies away from a one-country global supply chain to the benefit of a diverse basket of countries well positioned to gain from what appears to be a secular shift in trade taking place in the post COVID-19 era.
We consider it important for investors to seek out “babies (quality stocks) that get tossed out with the bath water” in market downdrafts as well as a need to maintain a clear head amid day-to-day uncertainty to avoid “missing the signal for the noise.”
Our intermediate- and longer-term outlook for the US economy and the stock market remains decidedly bullish. We believe US economic fundamentals remain on solid footing. As the drag of tight monetary policy eases, job growth and consumption and business fixed investment demand should continue to exhibit resilience. In addition, should the economy appear to falter, the Federal Reserve has the ability to move swiftly to cut rates further to provide economic stimulus and reinvigorate demand.
We anticipate continued positive corporate earnings growth, a key driver of equity valuations.
In our portfolios and recommended allocations, we continue to favor stocks over bonds with an emphasis on US securities while maintaining meaningful exposure to developed international and emerging-market stocks.
Name:
John Stoltzfus
Title:Chief Investment Strategist, Oppenheimer Asset Management Inc.
John is one of the most popular faces around Oppenheimer: our clients have come to rely on his market recaps for timely analysis and a confident viewpoint on the road forward. He frequently lends his expertise to CNBC, Bloomberg, Fox Business, and other notable networks.
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