EU clinches essential trade deal with the US – rally expected. US earnings are very strong, and even the 2025 forecasts are starting to bounce. This week, we will have the Fed and the Bank of Japan; for both, what they will say will be more important than what they will do (hold). Key reporting week in the US, with Meta, Microsoft, Amazon, and Apple to announce results. Focus on the July labour report and on the Core PCE Price Index, the Fed’s preferred measure of inflation. 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 28th July – 1st August 2025

Economic data highlights of the week

Mon: N/A

Tue: SP GDP (2Q25), US JOLTs Job Openings (6/25), US CB Consumer Confidence (7/25), US Atlanta Fed GDPNow (2Q25)

Wed: AU CPI (2Q25), FR GDP (2Q25), DE Retail Sales (6/25), SP CPI (7/25), DE GDP (2Q25), EU GDP (2Q25), US ADP Nonfarm Employment (7/25), US GDP (2Q25), CA BOC Interest Rate Decision, US Fed Interest Rate Decision

Thu: JP Industrial Production (6/25), CN Manufacturing PMI (7/25), JP BOJ Interest Rate Decision, FR CPI (7/25), EU Unemployment Rate (6/25), DE CPI (7/25), US Core PCE Price Index (6/25), US Initial Jobless Claims, CA GDP (5/25), US Fed’s Balance Sheet

Fri: UCH – Holiday, DE Manufacturing PMI (7/25), EU Manufacturing PMI (7/25), UK Manufacturing PMI (7/25), EU CPI (7/25), US Nonfarm Payrolls (7/25), US Unemployment Rate (7/25), US Average Hourly Earnings (7/25), US ISM Manufacturing PMI (7/25)

Performance Review

Source: Google

InflectionPoint reports:

* Buoyant US Markets touch a new all-time high, propelled by favourable earnings and the signing of some important trade deals, such as that with Japan. That massively benefitted the local market, with the Nikkei 225 being in its best shape since the beginning of the year, and whose performance YTD is now in the same league as the other markets. At the time of writing, the announcement of a crucial deal between the US and the EU has just come in; this is a big positive for everyone, as the EU markets, in my opinion, were not discounting it. I think European equities could now have a relief rally, as it happened in Japan, and US markets can continue their run to the skies. That said, America’s supremacy in technology is undisputed, and Europe should, I think, swallow the bitter chalice and keep trading with the US. Solid results from most companies last week, and, of course, the earnings growth is higher once more. That compensates somewhat for the richness of the multiple, but I guess that investors are happy to pay over 22x earnings to invest in the S&P 500, including the Magnificent 7. Alphabet did have a very solid report, and I noticed that the stock rallied in anticipation; the company lifted capex to $ 85 Bn, which means that the AI trend is here to stay. This is reminiscent of the optical networking craze of the late 90s, but as I observed recently, as long as the capex is strong, and as long as no big company disappoints, 22x can last for a while. The next week is very important both for the economy and earnings. We will get the first update about 2Q25 US GDP on Wednesday, as well as the ADP Nonfarm Report; we also have the Fed, which will be on hold again, but as usual, what they say will be more important than what they will do. Ditto for the BOJ on Thursday, which is also expected to stay put, but whose narrative will be very important to understand when they might hike. There is also the Fed’s preferred measure of inflation, the Core PCE Price Index, on the same day. And finally, on Friday, we have the July Labour Report, which could give us an indication of the economy and the possible path of rates. As per the earnings, no less than 4 of the Mag 7 will report: Microsoft, Meta, Amazon, and Apple, complemented by both Visa and Mastercard. Regarding earnings, I believe that by the end of August (Nvidia reports on August 27), we will have a clearer picture of the back half of the year, when, let’s not forget, the Fed will also come into play. David Kostin of Goldman Sachs 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 potential risk in earnings, while raising the target multiple to 22x. I certainly agree with him, while thinking that there could be risks to the upside as companies benefit from a notably weaker currency. 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. The USD is the biggest riddle at the moment: it almost kissed its 1.1580 support without breaking it again, but is now trading above 1.17. I hope it will be range-bound for a while, as its fall has been very fast, but I think that longer term it can resume its course to 1.20. The upcoming speech by FOMC Chairman Powell can provide very precious insights about how he approaches the Fed’s dual mandate (inflation and full employment). 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 22.4x 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. That multiple lasted for the good part of almost two years, and despite the fall in 1H00, technology stayed strong through the summer, until the Intel preannouncement in September sealed their demise and gave way to 2 years of bear market. 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, and this week’s meeting is almost certain to bring another hold (2.6%).  September seems the first reasonable chance of a cut (64.1%), but is yet far from certain. 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. It was on hold last week, with an update on GDP on Wednesday and on inflation on Friday. So far, it is around the 2% mark.

* Yields on US 10-year Treasuries have reached 4.38%, and were down last week, while European government bond yields were up. Among the developments in Europe, it has been signalled that the 5-year OATs have a similar yield to equivalent BTPs. France is addressing its issue by starting to work more, as Easter Monday will no longer be a holiday. 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 has finally seen a bounce to 264.98 and is still above the revised Goldman Sachs top-down estimate of 262. In 1Q25, earnings were strong; there was a continued reduction for the second quarter and for the full year, and now that we have come to the showdown, let’s see if the picture is not as bad as it seemed. I remain optimistic, particularly on technology (the main driver for the S&P 500). 

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 2.4%, in line with last week, and converging with the Blue Chips consensus, now pointing towards 2%. The New York Fed’s Nowcast model has a current forecast of 1.68%, down from 1.71% 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 6.4%, compared with a forecast of 4.9% as of June 30th. Revenue growth is slower, but also revised higher, at 5.0% in 2Q25 vs 4.2% as of June 30th. For 2025, earnings growth is forecasted at 9.6% vs 9.1% as of June 30th, with revenues coming in at 5.3% 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. Highlights include: Visa (Tuesday, After Close), Meta and Microsoft (Wednesday, After Close), Mastercard (Thursday, Before Open), Apple and Amazon (Thursday, After Close).

Source: Earnings Whispers

Market Considerations

Source: IMF COFER, Haver Analytics, Deutsche Bank, ISABELNET.com

Source: Bloomberg Finance L.P., J.P. Morgan, ISABELNET.com

Source: FRB. Bloomberg, Nomura, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.3% (5.0% on June 30th), and earnings growth estimates for 2025 are predicted to grow by 9.6% (9.0% 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 13.9% (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.  

Three highlights this week. First, we have a chart from Deutsche Bank, which shows that the USD is still the preferred reserve currency for most investors, with a current percentage of around 55%. While even Goldman Sachs is negative against the currency, that should somehow temper its fall. The second chart from J.P. Morgan shows the difference between the forecasted and reported earnings of the Magnificent 7. They have consistently outperformed expectations, cementing themselves as the primary drivers of earnings for the S&P 500 (and for the Nasdaq 100 as well). The third chart, from Nomura, plots the course the Fed may take early in the new year, where further cuts are being considered, and actually already forecasted by forward rates. That is likely to offer further support to world equities.

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 weeks. 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. I will watch the next BOJ meeting very carefully to determine what’s in for rates – and currency.

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 17.8% in about 1 1/2 years, with a Sharpe Ratio of 1.0

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

Our Global Income and Growth Portfolio is up 19.3% 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 36.7% in the last year and has outperformed the FTSE MIB Index by 1150+ bp in this timeframe, with a Sharpe Ratio of 1.4

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.