Mixed Economic Signals Weigh on Markets
U.S. stock markets continued their upward momentum this week, with both the S&P 500 and Nasdaq reaching new all-time highs. Markets remain in positive territory, supported by strong second-quarter earnings and progress on international trade. So far, over 80% of S&P 500 companies that have reported have exceeded earnings expectations, reflecting continued strength in corporate fundamentals.
This week also marked the start of earnings for the ‘Magnificent 7’ tech companies, with Google and Tesla reporting Wednesday. Google delivered strong results, beating both revenue and profit estimates, driven by growth in cloud services and advertising. Tesla, meanwhile, missed expectations, citing continued margin pressure and increased competition in the global EV market.
U.S. Expands Trade Agreements in Asia Ahead of August Deadline
Trade news added to the positive sentiment. The U.S. announced new agreements with Japan, Indonesia, and the Philippines. Japan’s deal was especially notable, with tariffs set at 15%—lower than the previously expected 25%. Indonesia and the Philippines agreed to 19% tariffs, all finalized ahead of the August 1 deadline. Talks with the European Union are still ongoing, with no deal finalized yet.
Valuation Risks Emerge Amid Continued Rally
At the same time, market valuations remain elevated. The forward price-to-earnings (P/E) ratio for the S&P 500 is currently around 22×, above its historical average. The Buffett Indicator—a measure that compares the total value of the stock market to U.S. GDP—is now at 212%, a level even higher than during the Dot-Com bubble, suggesting that investor expectations for future growth are high. Margin debt has also risen sharply in recent months, reflecting an uptick in investor risk-taking.
Despite these valuation measures, the market continues to find support from strong earnings, resilient economic data, and the expectation of potential interest rate cuts later in 2025. As long as earnings growth holds and monetary policy remains supportive, the overall outlook for equities remains constructive.