U.S. stock markets ended the final trading day of July with modest losses, snapping a strong monthly rally amid growing concerns over trade policy and economic signals. As investors brace for a pivotal jobs report and looming tariff deadlines, risk appetite faded across the board.
The Dow Jones Industrial Average fell 0.7%, the S&P 500 declined 0.4%, and the Nasdaq Composite finished the day little changed. Despite Thursday’s pullback, all three major indexes posted solid gains for the month, driven largely by robust earnings from major tech companies.
Tariff Tensions Roil Sentiment
Investor anxiety intensified ahead of an August 1 deadline for a new wave of U.S. tariffs targeting several key trading partners. While Mexico received a last-minute 90-day reprieve, Canada is now facing up to 35% tariffs on select goods, and potential duties loom over countries including Brazil, India, Japan, and South Korea.
The uncertainty over trade policy is raising fresh concerns about inflation and global supply chains. Negotiations are ongoing, but the clock is ticking, and failure to reach deals could disrupt key import channels and impact corporate margins heading into the fall.
Earnings Strong, But Macro Clouds Form
On the corporate front, earnings season continues to deliver upside surprises. Meta Platforms soared nearly 11% after reporting better-than-expected results, while Microsoft climbed 4% on strong cloud revenue. However, those gains were offset by declines in other sectors, particularly health care, where policy-driven selling hit drugmakers following new pricing reform announcements.
Even with tech strength, broader market breadth weakened throughout the session, with many investors opting to lock in profits ahead of Friday’s critical jobs report.
All Eyes on the Fed and Inflation
Federal Reserve Chair Jerome Powell struck a cautious tone this week, reinforcing the central bank’s data-dependent stance. Although interest rates were held steady, Powell emphasized that strong labor market data could delay any potential rate cuts. As a result, expectations for a September cut have diminished, with futures markets now pricing in less than a 40% chance.
Adding to the caution, recent inflation data showed core goods prices rising at their fastest pace in nearly three years. Combined with softening consumer spending and persistent wage pressures, the economic picture remains mixed.
Jobs Report Could Shift the Outlook
The July U.S. employment report, due Friday morning, could prove decisive. Economists are watching closely for signs of labor market cooling that might reopen the door for Fed policy easing. Key indicators include nonfarm payroll growth, the unemployment rate, and wage trends.
A stronger-than-expected print could reaffirm the Fed’s hawkish hold, while any signs of labor market weakness may revive rate-cut hopes.
Monthly Recap and August Outlook
Despite Thursday’s pullback, markets notched a strong July:
S&P 500 gained approximately 2.2%
Dow Jones rose over 7.8% year-to-date
Nasdaq logged a fourth straight monthly gain
Still, August historically poses challenges for equities, particularly tech stocks. Add to that unresolved trade uncertainty and a pivotal economic calendar, and investors may face a bumpier path in the weeks ahead.
Bottom Line
Markets ended July on a cautious note, reflecting rising trade tensions and heightened uncertainty around the Federal Reserve’s next move. While strong earnings and year-to-date gains remain a tailwind, the focus now shifts to the jobs report and international negotiations. How these developments unfold could shape market direction through the remainder of summer.
