The King is back: new all-time records for US Equity Indices; worst 1H performance of the USD since 1973. Peace in the Middle East seems to hold for the time being; 2Q25 earnings to start from next week. Positive labour report points to non-inflationary growth. Fed still on hold, but pointing to two cuts before the end of the year (September and December). The biggest tail risk is the US Economy falling into a recession (35% chance in 2025), resurging inflation, revenues/earnings not matching forecasts, followed by damages done by tariffs/government policies, adverse geopolitical outcomes, and valuations (very high multiples).

Major market events 7th – 11th July 2025

Economic data highlights of the week

Mon: DE Industrial Production (5/25), US Fed’s Balance Sheet

Tue: AU RBA Interest Rate Decision, DE Trade Balance (5/25)

Wed: CN PPI (6/25), CN CPI (6/25), NZ RBNZ Interest Rate Decision, US Atlanta Fed GDPNow (2Q25), US FOMC Meeting Minutes

Thu: DE CPI (6/25), BR CPI (6/25), US Initial Jobless Claims

Fri: UK GDP (5/25), FR CPI (6/25)

Sat: CN Trade Balance (6/25)

Performance Review

Source: Google

InflectionPoint reports:

* Dear readers, first and foremost, an apology – last week’s break was planned, but I forgot to mention that – sorry! Plenty of stuff to discuss this time around, though. So, the King is back –  and I’m not talking about Jannick Sinner, for whom I am rooting to finally clinch the Championships, but rather about our good friend the Nasdaq 100. Once again, (and aside from the USD issues, more on that later), it managed to reassert itself as the best market YTD (among those I follow). David Kostin has mentioned repeatedly that technology companies possess a superior ability to raise revenue and income, and that pattern is showing once again (though it must be confirmed by 2Q25 earnings). And yes, America is back as well, after pushing the Israelis and Iranians to make peace following the 12-day war. The latest labour report showed non-inflationary growth, the best outcome possible, even though the Fed won’t be much moved to lower rates due to tariffs. Yes – you heard it right: Chairman Powell said that he would have already lowered rates weren’t it for President Trump’s tariffs. Anyway, we should be able to count on two rate cuts from here until the end of the year, which will definitely support the markets, while hitting the USD once more. One of the considerations that often comes to my mind is that the European rally is falling because of the dramatic repricing of the American currency, causing the most violent swings since 1973. Part of the problem is the ever-increasing debt that the US Administration is making, so I’m not banking on the (10-year) Treasuries to have a yield below 4% before the end of the year, even with the 2 rate cuts coming. It is not up to me to say whether the US is losing haven status, but if that were true, then I do expect further pressure on both the currency and the bonds. And yes – Via Dollarosa again, with the USD, which broke the support at 1.1580 and is now aiming at 1.20 as first target. It is said that many pension funds are long and uneasy – should they make the decision to change their allocation, and hence to hedge, there will be more blood on the street. Watch this space carefully, and for any new investments, hedge the currency if you are betting on America: its markets are in top form, but President Franklin (or President Washington, if you prefer) isn’t feeling well at all. Other risks include the possible deadline of Jul 9 to establish trade deals with the US or face its tariffs. With the (US) markets on a tear, it would be a good moment to lighten up – and the more cautious of you might even consider that (but buy European, not US, bonds). I’m sticking with my bullish recommendation because I think that there’s more to be had, and the original target of my hero (David Kostin) – 6500 by the end of the year – might still stand. Of course, it all falls on 2Q25 earnings to beat the 5% forecast; we will see that very soon, starting from next week onwards. Goldman Sachs forecasts S&P 500 Earnings Per Share (EPS) to reach $262 in 2025 and $280 in 2026, representing a 7% growth rate for both years. These current projections represent a notable upward revision from earlier, more pessimistic assessments that were heavily influenced by initial fears of stagflation and the potential adverse impacts of heightened tariffs. If there is no or limited disruption to trade, and if a lasting peace can be achieved in the ongoing conflict, I think that some of the previous targets for the S&P 500 (beyond 6,000) can be revisited; Goldman Sachs has reduced its odds of a US recession to 35% from 45%. Keeping equities to buy (with the famous 3% weekly stop), keeping US bonds to hold, and European bonds to buy, and remaining positive on the CHF, which seems to be the only currency to hold its value no matter what (the SNB has one of the lowest interest rates among major countries at just 0.00%). 

* GDP forecasts for 2Q25 seem to be good, with the Atlanta and New York Fed finally in agreement on a positive direction. The current P/E ratio of 22.2x is above the average P/E ratio of the last 5 years at 19.9x and the 10-year average at 18.4x. Even this latest figure, in my opinion, does not produce enough comfort to call for a bounce on valuation alone; a 16x multiple, or better still, a 14x multiple, would offer better entry points. The S&P 500 so far has not touched the previous multiple high of 24x, and I think that record might stand the test of time for a few more years. Given the capitulation from early this year,  I would love to think that we have seen the lows in 2025, leaving room to grow, even with a multiple which begins with a 2, but continue to diversify and use prudent risk management. 

*  The Federal Reserve was on hold in June, as expected, and mentioned that the outlook is becoming more complicated, but it still expects to cut rates twice by the end of the year (assuming that there are no major geopolitical developments). It will continue to be data-dependent in the future; July is no longer promising and looks like another hold (4.7%), while September seems the first reasonable chance of a cut (69.4%). The forecast for December currently prices in 2 cuts, with rates at 3.75-4.00%. Be wary of aggressive Fed cuts because they might signal an upcoming recession; non-recessionary interest rate eases are always welcomed by equities. We need (lower) yields and (higher) earnings to support some of the highest multiples since my heyday (the fated 1999-2000), but it is increasingly difficult to get these in the US. You can look forward to these in Europe, even though the European Central Bank might finish its easing cycle (with the Fed yet to start) with a last cut in September.

* Yields on US 10-year Treasuries have reached 4.32%, and were up last week, while most European government bond yields were down. Among the developments in Europe, it has been signalled that the 5-year OATs have a higher yield than equivalent BTPs, but I think it will take quite a bit of time before the existing gap on 10-year securities can close. While in 1999 yields were even higher, and the Fed was hiking, not easing, we definitely need yields to return below 4% to have a more constructive scenario, albeit gradually and not through a crash. The 2025 S&P 500 bottom-up earnings estimate is down to 264.15, still above the revised Goldman Sachs top-down estimate of 262. It is concerning to note that, while for 1Q25 earnings are strong, there is a continued reduction of those for the second quarter and for the full year, which means that analysts are expecting a slowdown later on.

Source: FactSet

* The US GDP closed 1Q25 with a reading of -0.5%, after the latest update, showing a further reduction from the latest data, which saw a decline of -0.2%. The Atlanta Fed GDPNow model is in positive territory after a negative reading for the GDP in 1Q25, with a new forecast of 2.6%. The Blue Chips consensus, importantly, broke out from the 1% level and is now pointing towards 2%. The New York Fed’s Nowcast model has a current forecast of 1.56%. I believe it is prudent to make an average of those two forecasts to get to the real number; it is particularly good that these are now converging. Earnings growth for 2Q25 is now 5.0%, compared with a forecast of 4.9% as of June 30th. Revenue growth is slower, at 4.2% in 2Q25 vs 4.2% as of June 30th. For 2025, earnings growth is forecasted at 9.1% vs 9.1% as of June 30th, with revenues coming in at 5.0% vs 4.9% as of June 30th. Finally, it’s worth noting that the chance of a recession in the next 12 months, as calculated from the yield curve, according to the Federal Reserve Bank of Cleveland, is presently (May 2026) 25.58%. The peak was 68.76% in April 2024, and it was the only time since 1960 in which a recession did not materialise given such a forecast. The current level is not too far from what economists are currently predicting: a 35% chance of a recession in 2025.

Source: Blue Chip Economic Indicators and Blue Chip Financial Forecasts; Federal Reserve Bank of Atlanta

Source: Federal Reserve Bank of New York, New York Fed Staff Nowcast

Source: Federal Reserve Board, Federal Reserve Bank of Cleveland, Haver Analytics

Earnings, What’s Next?

The reporting season for 2Q24 will start next week. Here’s a list of companies reporting this week. 

Source: Earnings Whispers

Market Considerations

Source: FactSet, STOXX, Goldman Sachs Global Investment Research, ISABELNET.com

Source: Real Investment Advice, ISABELNET.com

Source: JP Morgan, ISABELNET.com

Source: JP Morgan, ISABELNET.com

Source: Bloomberg, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.0% (4.9% on June 30th), and earnings growth estimates for 2025 are predicted to grow by 9.1% (9.1% on June 30th), so the future looks bright. Introducing forecasts for 2026, which sound again very positive, with revenue to grow by 6.3% (6.6% on March 31st) and earnings to grow by 13.7% (14.3% on March 31st). As mentioned, the Fed has cut its rates by 100bp in 2024 and will continue easing. Apart from the cut from quite high levels, which will probably help make these lofty multiples seem more bearable than offering a real stimulus to the economy, it will be important to see the extent to which the Central Banks are willing to cut rates and their timeframe.  

Five highlights this week. First, we have a chart from Goldman Sachs, which gives evidence that earnings sentiment has improved for 2Q25, despite the cuts earlier this year. Strong earnings are very important to sustain the market and its expensive valuations, as stated in the second chart from the Real Investment Advice, which closely relates market growth to earnings growth, and this is particularly valid in the case of high multiples, as we are now. The third chart from JP Morgan states that, for investors with a long time horizon, it never pays to sell the position in a intra year decline, as the second half made up for it in 34 of the last 45 years (notable exceptions: the dot.com crash; 2008 financial crisis, and 2022). The fourth chart, again from JP Morgan, shows that even though we should not expect stellar results from Magnificent 7, they will still produce very decent results, superior to those of the S&P 493. Finally, the fifth chart from Bloomberg reminds us that the superior growth and income of the US has a price, and that European Equities are much less expensive. I still prefer US Equities, notwithstanding this, but certainly I am going to hedge the USD from now onwards!  

For equities, be careful not to fall into ‘Buffett’s trap’. He famously said that there were moments when Berkshire Hathaway’s stock was down more than 50%, and nothing was wrong with the company at the same time. Timing and risk management are key. In particular, I have noted that Berkshire Hathaway is losing the Buffett premium, having recently had a hit on valuation and a meaningful underperformance vs the S&P 500. Of course, I remain optimistic in the long term; I have faith in the new CEO, but to follow the Oracle means filling very, very big shoes. The late Angelo Abbondio, a legendary Italian investor, used to say that you can rely on fundamental analysis and on technical analysis, but the most difficult thing was to decide when to prioritise the first and when the second.

Due to the persistent stickiness of inflation, monetary policy is again taking centre stage. Obviously, we should not overlook geopolitical scenarios in Ukraine and the Middle East: this will dominate the news for a while. Any escalation would be negative for the markets.  

I now recommend a long position in equities and a neutral position on US bonds. For EU Bonds, I advise going long, while I still suggest putting together a portfolio that includes the yield of Italian Bonds and the safety of German Bunds, without neglecting Corporate Bonds. 

There are three main headline risks to what is otherwise a constructive view for 2025: i) the US economy falling into a recession or revenue/earnings not matching forecasts; ii) any damage to the economy and trade done from Trumponomics, tariffs, and resurging inflation; iii) any negative geopolitical outcome (which could see an expansion of the current conflicts); and iv) valuations, which are nearing levels only seen once before (at least during my lifetime!). 

Japan managed to perform much better in the last week. The devaluation of the JPY brought new shine to the local stock market, which has a more palatable valuation than its US counterpart. You still have to deal with a hawkish BOJ – although I would think that they would prefer to hold off hiking, given the current environment. For the time being, the cautious stance persists, although the bounce is noted, and it could be extended given the more positive news and in the event of further capital flows out of the US.

Portfolios

Finally, I want to introduce three portfolios that Tom and I published on Wikifolio. Tom’s a multi-asset portfolio, whereas the one I manage (with substantial input from Tom) is a global income and growth with a heavy US tilt. The third one is on Italian Equities. Check them out!

https://www.wikifolio.com/en/int/w/wf00inf8ig

Tom’s Multi-Asset Portfolio is up 16.5% in about 1 1/2 years, with a Sharpe Ratio of 0.9

https://www.wikifolio.com/en/int/w/wf000ipggi

Our Global Income and Growth Portfolio is up 16.8% in about 1 1/2 years, with a Sharpe Ratio of 0.6

https://www.wikifolio.com/en/int/w/wf00ipiteq

My Italian Equities Portfolio is up 31.4% in the last year and has outperformed the FTSE MIB Index by 975+ bp in this timeframe, with a Sharpe Ratio of 1.3

Consulting

Finally, I have officially become an Italian Independent Financial Consultant (Consulente Finanziario Autonomo), registered with the Italian OCF since 19 March 2024 (protocol 2425). If you are interested in my financial advice or simply for more information, please contact me at giorgio.vintani@inflectionpoint.blog

Consulting accounts usually start from EUR 100,000. Please note that you should be based in Italy to avail yourself of this service. If you are interested, please drop me an email. I am happy to send you my presentation and track record upon request.

Happy trading, and see you next week!

InflectionPoint

Disclaimer

All views expressed on this site are my own and do not represent the opinions of any entity with which I have been, am now, or will be affiliated. I assume no responsibility for any errors or omissions in the content of this site, and there is no guarantee for completeness or accuracy. The content is food for thought, and it is not meant to be a solicitation to trade or invest. Readers should perform their own investment analysis and research and/or seek the advice of a licensed professional with direct knowledge of the reader’s specific risk profile characteristics.