The renewed threat of tariffs hit equity and bond markets last week.  2Q25 earnings to start amid muted expectations. US CPI on Tuesday, US PPI on Wednesday. Fed still on hold, but pointing to two cuts before the end of the year (September and December). Goldman Sachs increases 2025 S&P 500 target to 6,600 and 12-month target to 6,900. 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 14th – 18th July 2025

Economic data highlights of the week

Mon: CN Trade Balance (6/25), JP Industrial Production (5/25), CH PPI (6/25), IN CPI (6/25), UK BOE Governor Bailey Speaks

Tue: CN GDP (2Q25), SP CPI (6/25), DE ZEW Economic Sentiment (7/25), EU Industrial Production (5/25), US CPI (6/25), CA CPI (6/25), UK BOE Governor Bailey Speaks

Wed: UK CPI (6/25), EU Trade Balance (5/25), US PPI (6/25), US Industrial Production (6/25)

Thu: JP Trade Balance (6/25), EU CPI (6/25), US Retail Sales (6/25), US Philly Fed Manufacturing Index (7/25), US Initial Jobless Claims, US Atlanta Fed GDPNow (2Q25)

Fri: DE PPI (6/25)

Performance Review

Source: Google

InflectionPoint reports:

* So President Trump is back with his tariffs, and he wants to enforce them from Aug 1st, sending countries around the world scrambling to try to renegotiate them at the last minute. Europe, in particular, was hit by a heavy 30% tariff, when all they planned was to accept a levy of 10% excluding certain strategic sectors, so it’s no surprise that stocks bore the brunt of that announcement, which came over the weekend. Still, the old continent managed to retake its crown as the best market YTD after a quiet week for US markets. It was reported that the recent enthusiasm in America was because of the upcoming earnings, even though my hero, David Kostin of Goldman Sachs, disagrees. He raised his targets (again!) for the S&P 500, seeing 6,600 by the end of the year, and 6,900 in the next 12 months, but eventually sees a potential risk in Earnings, while raising the multiple to 22x. 

Source: Goldman Sachs Research

We definitely won’t have to wait much to see the results, as there will be a good bunch this week, and so we can get the feeling for the rest of the reporting season. So far, large stocks have been the primary drivers of the market, and David Kostin is confident they can weather the current economic headwinds and continue on their stable path. On the economic side, we should be getting closer to a rate cut by the Fed, possibly in September, but much of this depends on the CPI and PPI readings due on Tuesday and Wednesday, which will offer the FOMC an updated perspective. The USD managed to recover some ground lost vs the EUR, but is still well above the previous support of 1.1580, and many market pundits see its reserve status diminishing and being taken over by gold. 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. Of course, it all falls on 2Q25 earnings to beat the 5% forecast. 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. 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 22.3x is above the average P/E ratio of the last 5 years at 19.9x and the 10-year average at 18.4x. David Kostin believes that the multiple can hold over the next 12 months; it is the same assumption I had back in 1999, when the multiple was 24x. 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 (62.1%), but increasingly getting 50/50. 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 4.44%, and were up last week, in line with European government bond yields. 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 263.95, 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%, stable from last week. 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%, also stable from last week. 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 4.8%, 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 9.0% vs 9.1% as of June 30th, with revenues coming in at 5.0% vs 5.0% 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 is now starting in earnest. Here’s a list of companies reporting this week. Highlight include: JP Morgan and Citi (Tuesday, Before Open), Goldman Sachs and Morgan Stanley (Wednesday, Before Open), and Netflix (Thursday, After Close)

Source: Earnings Whispers

Market Considerations

Source: Haver, Deutsche Bank Asset Allocation, ISABELNET.com

Source: St Louis Fed, BEA, USITC, Macrobond, Deutsche Bank, ISABELNET.com

Source: Fundstrat, FactSet, ISABELNET.com

Source: Carson Investment Research, FactSet, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.0% (5.0% 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% (6.3% on June 30th) and earnings to grow by 14.0% (13.8% on June 30th). 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.  

Four highlights this week. First, we have a chart from Deutsche Bank, which highlights the upward trajectory of the S&P 500 since the financial crisis. The bank says that the outlook for the index continues to be positive. The second chart, also from Deutsche Bank, shows the damage in GDP that the current proposed tariffs are going to do, with each additional 1% in duties taking away 0.1% in GDP. The third chart from Fundstrat reiterates that Mag 7 will be the main contributor to earnings, driven by AI. And finally, the fourth chart, from Carson Investment Research, states that the first half of July is the part of the month in which most of the gains take place, with investors likely to take profits on the run-up to summer. That doesn’t exclude individual stock performance due to earnings.

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 16.9% 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 17.6% in about 1 1/2 years, with a Sharpe Ratio of 0.6. Obviously, the devaluation of the USD had a big impact as all stocks are priced in EUR.

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

My Italian Equities Portfolio is up 32.4% in the last year and has outperformed the FTSE MIB Index by 950 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.