Earnings Are Up, but Markets Are Down—What’s Really Going On?

Strong corporate earnings usually fuel market rallies, so why did stocks stumble last week despite profit beats?

Investors are facing a perplexing reality: solid earnings reports from tech giants weren’t enough to lift markets amid swirling macroeconomic uncertainties. From inflation worries and tariff skirmishes to a cautious Federal Reserve, the market is sending a clear message—good news alone isn’t enough anymore. Let’s dig deeper.

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This Week’s Market Pulse: Earnings, Inflation, and Fed Jitters

Stocks showed choppy behavior last week. The Dow fell nearly 3%, the S&P 500 lost over 2%, and volatility surged. But it wasn’t just corporate earnings that moved markets—it was a tangled web of economic data, trade headlines, and central bank signals.

• Early week was quiet, as investors awaited Q2 earnings and Fed announcements.

• The U.S.-EU trade deal announced over the weekend barely moved markets.

• Midweek saw stocks gain after a 3% Q2 GDP print powered by consumer spending.

• Yet the Fed’s decision to hold interest rates steady — and the latest inflation data showing a June uptick in core prices — sent stocks lower.

• The week ended on a sour note with tariff news, weaker July jobs data, and mixed tech earnings.

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Market takeaway: Earnings matter, but investors are laser-focused on inflation and Fed policy.

^{Source: YCharts.com, August 2, 2025. Weekly performance is measured from Monday, July 28, to Friday, August 1. TR = total return for the index, which includes any dividends as well as any other cash distributions during the period. Treasury note yield is expressed in basis points.}

Mixed Economic Signals Adding to Market Complexity

Last week’s economic data was a mixed bag:

• GDP growth at 3% annualized signals solid consumer-driven expansion but reveals sluggish business investment.

• The Personal Consumption Expenditures (PCE) Index, the Fed’s preferred inflation gauge, showed rising core goods prices, fueling concerns the Fed won’t ease rates soon.

• July’s jobs report revealed slower hiring and downward revisions to previous months, signaling softening labor market momentum.

The Fed has no meeting in August, but investors are already parsing the implications of upcoming data and policy shifts.

Key Economic Data To Watch This Week:

^{Source: Investors Business Daily - Econoday economic calendar; August 1, 2025
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to be providing accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts also are subject to revision.}

Earnings Spotlight: What to Watch This Week

^{Source: Zacks, August 1, 2025. Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your own goals, time horizon, and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule when they report earnings without notice.}

Student of the Market: Midyear Check-In & Outlook 

Here are the key market themes to watch for the second half of 2025:.^11,12

1. International Stocks Outperforming U.S. Equities

Despite a strong start to 2025 for U.S. stocks (+6.2% YTD through June), international equities have led returns, benefiting from a weakening U.S. dollar and easing trade tensions. History shows that when the dollar weakens, international stocks can surge when converted back to dollars.

Why it matters: Diversification beyond U.S. large caps may enhance portfolio resilience.

2. Slowing U.S. Economic Growth, But No Recession Yet

The U.S. economy grew at a 3% annual rate in Q2, rebounding from a Q1 contraction. However, business investment remains cautious, and labor market gains are moderating. The Fed is likely to keep rates higher for longer but may ease late this year depending on inflation trends.

3. Rising Cash Holdings and Bond Performance

Money market assets have ballooned to historic highs ($7 trillion), yet cash returns continue to lag bonds and stocks. Bonds have recently benefited from higher real yields—the inflation-adjusted return—suggesting potential for improved fixed income performance ahead.

4. Volatility and Market Leadership Broadening

After years of dominance by the "Magnificent 7" tech stocks (Apple, Microsoft, Amazon, Nvidia, Tesla, Alphabet, Meta), broader market leadership is emerging. Smaller tech earnings are normalizing, and investors are rotating into other sectors and international markets.

5. Alternatives and Diversification

With historically high correlation between stocks and bonds (~0.72), alternative investments—like hedge funds and market-neutral strategies—are shining, offering diversification and smoother returns.

Glossary: Key Terms Explained

• PCE Index: The Personal Consumption Expenditures index measures changes in the prices of goods and services and is the Fed's preferred inflation metric.

• Fed Funds Rate: The interest rate at which banks lend reserves overnight to each other; a key policy tool for the Federal Reserve.

• Money Market Funds: Investment funds that invest in short-term debt securities, often used as a cash equivalent.

• Real Yields: The return on bonds after adjusting for inflation, critical for fixed income performance.

• Upside/Downside Capture Ratio: Measures how well an investment performs relative to a benchmark during market gains and losses.

Retirement Hub Glossary for education.

“Judge each day not by the harvest you reap but by the seeds you plant.”

– Robert Louis Stevenson

Tax Tip: Navigating Excise Taxes for Business Owners

If you run a business dealing with fuel, tobacco, alcohol, or other specific goods/services, federal and state excise taxes may apply. Form 720 is required quarterly for reporting excise taxes.

Consult your tax advisor for personalized guidance.

Tip adapted from IRS⁹

Healthy Living: Seasonal Pumpkin Bread Recipe

Embrace comfort and nutrition with this classic pumpkin bread recipe — perfect for all seasons. (See full recipe in the original post.) It started out as a seasonal treat. Now, folks enjoy it all year round. Here’s how to make it for yourself.

Ingredients:

2 cups all-purpose flour
½ teaspoon salt and baking powder
1 teaspoon baking soda, ground cloves, ground cinnamon, and ground nutmeg
1½ sticks (¾ cup) unsalted butter, softened
2 cups sugar
2 large eggs
1 15-oz can pumpkin

Directions:

1. Preheat the oven to 325°F
   
   
2. In a medium bowl, combine the flour, salt, baking soda, baking powder, cloves, cinnamon, and nutmeg. Whisk until well combined; set aside.
   
   
3. With an electric mixer, beat the butter and sugar on medium speed until just blended. Continue beating until very light and fluffy, a few minutes. Beat in the pumpkin.
   
   
4. Add the eggs one at a time, beating well after each addition. It’s okay if the mixture is grainy.
   
   
5. Add the flour mixture and mix on low speed until combined.
   
   
6. Pour the batter into greased 8x4” loaf pans and bake for 65-75 minutes. Let cool for 10 minutes.

Tip Adapted from Once Upon a Chef 10

They can run side by side for thousands of miles; they are made of steel. While they constantly touch the ground, they seldom meet or touch each other. What are they?

Last Week's Riddle: They are sometimes stomped on, yet they can also be very tasty and sweet. What are they?
Answer: Grapes.

Mesquite Dunes
Death Valley National Park, California, United States

Footnotes and Sources

^{1. WSJ.com, August 1, 2025}

^{2. Investing.com, August 1, 2025}

^{3. CNBC.com, July 28, 2025}

^{4. CNBC.com, July 29, 2025}

^{5. WSJ.com, July 31, 2025}

^{6. MarketWatch.com, August 1, 2025}

^{7. WSJ.com, August 1, 2025}

^{8. WSJ.com, July 30, 2025}

^{9. IRS.gov, July 30, 2024}

^{10. Once Upon a Chef, March 18, 2025} 

^{11. Blackrock Market Insights - July 2025}

^{12. Morning Star Market Insights}