đď¸ Daily Market Update â July 16, 2025 Issue #5
By James Ustby, Financial Advisor | CFPÂŽ Candidate | Investor
đ The Bond Market Has Powellâs Back
As Iâve been watching the recent moves in the bond market, one thing is clear: yields are sending a messageâloud and clearâto the Fed and politicians alike.
Weâve heard calls (especially from former President Trump) for the Federal Reserve to cut interest rates. But yesterdayâs CPI print showed inflation still running above the Fedâs 2% target. Thatâs not a green light for rate cuts just yet
Letâs break this down:
Treasury yields reflect a combination of growth expectations, inflation expectations, and the so-called âterm premiumââthe added compensation investors demand to lock up their money for longer periods.
For most of the past decade, this term premium has been negative. Today, it's positive again (around 0.78% for the 10-year), but still below the long-term average of 1.5%.
If the Fed were to aggressively cut ratesâespecially the way Trump is suggestingâit could actually backfire, causing the term premium to spike and increase long-term yields due to fears of renewed inflation.
Globally, bond markets are under pressure too. Japan and the U.K. are both still battling inflation, and a global bond sell-off tends to spill over into U.S. Treasuries. Higher global rates mean foreign buyers are less inclined to snap up U.S. debt.
One more thing: yes, cutting rates might lower the government's interest costs a bitâmaybe saving $125 to $150 billion. But with nearly 80% of the U.S. debt locked into coupon-paying bonds, a rise in long-term rates would drive up borrowing costs even more.
The takeaway? The bond market may end up being Powellâs strongest line of defenseâpushing back on political pressure not with speeches, but with rising yields.
[MEDIA PROMPT]: Iâd recommend adding a chart here showing the 10-year Treasury yield vs. inflation expectations. You can find one on TradingView or the St. Louis Fed site.
đ Capital Market Activity â Highlights from July 16
U.S. Markets:
Stocks opened slightly higher on the back of soft June PPI data. Wholesale prices rose just 2.3% year-over-yearâslower than expected.
Bank of America and Goldman Sachs led early gains, each posting strong earnings from record trading revenue.
Johnson & Johnson also jumped after raising its 2025 forecast.
Treasury yields dipped, especially on longer-term bonds, after Japanese long-bonds rebounded from recent selling pressure.
Europe:
European indexes stayed relatively flat. Strength in telecom and financials offset tech and real estate weakness.
Inflation in the U.K. surprised to the upsideâjumping to 3.6%, the highest since January 2024. Thatâs going to keep the Bank of England on edge.
ASML and Renault both cut forward guidance, weighing on sentiment.
Asia:
Asian markets struggled overnight. Gains in Taiwan couldnât offset losses in Japan, China, and South Korea.
South Korea extended losses after weak job growth, despite the government rolling out its âKospi 5,000â initiative to boost equity valuations.
Chinaâs weakness continued as investor confidence remains tepid despite improving U.S.-China relations.
đ Earnings Snapshot: Early Q2 Numbers
So far, just 34 S&P 500 companies have reported Q2 earningsâand itâs a strong start.
82% have beaten estimates, with the average upside surprise over 9%.
Financials are driving much of the upside: BAC, C, GS, JPM, and MS all posted strong trading results.
Investment banking activity picked up meaningfully in May and June as equity markets rebounded.
This early momentum supports a constructive view of financials in the second half. These firms are relatively insulated from tariff pressures and stand to benefit from rising volatility and any regulatory easing on the horizon.
đ§ Market Psychology: Inflation Interpretation Still a Moving Target
Hereâs my breakdown of this weekâs inflation narrative:
CPI rose to 2.7% annually in June (up from 2.4%), with core inflation ticking up to 2.9%.
Consumer demand remains elevated in some areasâthink home furnishings and recreationâbut weâre seeing early signs of softening, particularly in autos.
Dealers have started to sweeten incentives, bringing down new and used car prices. Thatâs worth watching.
Big Picture: Inflation is likely to remain sticky this summer. Tariffs havenât fully hit yet, so we could see another leg higher before prices stabilize. My personal expectation? CPI moderates by year-end, landing closer to 2.7% with PCE at 2.6%. Rate cuts may have to wait.
đŹ Technical Take: Breakevens Rising Again
Breakeven inflation ratesâa gauge of the marketâs inflation expectationsâare moving up again.
The 2-year breakeven is now at ~2.71%, reflecting the gap between regular Treasuries and TIPS.
The climb is tied to tariff announcements and price pressure in categories like home goods, apparel, and electronics.
On the flip side, discretionary categories like vehicles, air travel, and lodging are cooling off.
Technically, momentum is bullish. If breakevens clear resistance at 2.82%, it could reinforce higher-for-longer inflation expectations.
đ Short-Term Market Outlook: Seasonality Weakening
Markets have been on a tear since April 8. The S&P 500 is up 23% since thenâbut we may be nearing exhaustion.
July tends to be choppier, and the run-up in stocks has outpaced underlying economic data.
If you're a trader, watch for potential pullbacks. For long-term investors, this is a great time to rebalance or revisit your risk allocation.
đ Spiritual Reflection
"The prudent see danger and take refuge, but the simple keep going and pay the penalty." â Proverbs 27:12
As I navigate these markets, Iâm reminded that patience, prudence, and preparation are not just financial principlesâtheyâre spiritual ones. Whether itâs inflation, interest rates, or politics, my foundation stays rooted in wisdom and eternal perspective.
đ Travel or Local Vibes
Iâve been thinking about getting away this fallâmaybe back to the Carolina coast or somewhere new with crisp air and good coffee. Any recommendations for mountain towns or beach towns that feel peaceful but not too remote?
𧾠Quote of the Day
âMarkets can stay irrational longer than you can stay solvent.â â John Maynard Keynes
A good reminder that logic doesnât always win in the short termâbut discipline and time usually do.
â
Actionable Takeaways:
Keep an eye on rising breakeven rates. Inflation may not be done with us yet.
Rate cuts are unlikely in the near term. Donât bet the farm on a pivot.
If youâre heavy in equities, consider trimming winners and reallocating into short-duration bonds or dividend payers.
For long-term investors: volatility is your friend if youâre accumulating. For retirees: nowâs the time to review income stability, not chase returns.
đ§ Letâs Build Your Plan
If you're wondering how all of this impacts your retirement, investments, or income strategy, Iâm happy to chat. Whether itâs inflation hedging, bond ladders, Roth conversions, or just figuring out where to park cashâwe can build a plan that makes sense for where you are today.
đââď¸ Final Thoughts
Thanks for reading todayâs market update. My goal is to make sense of the chaos and give you a calm, practical lens to see your financial life through. If this helped you, feel free to share it with a friend or colleague.
Letâs keep learning, growing, and stewarding our wealth wisely.
â James
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â ď¸ Disclaimer
Iâm currently studying to become a Certified Financial Planner⢠and work as a financial advisor, but nothing in this newsletter is a recommendation or personalized advice. Itâs for educational purposes only. Please consult your own financial advisor before making investment decisions.