The July Labour report gives the first strong signal that the US is slowing, forcing the Fed to act (in September and throughout next year). The possible new FOMC Chair might join the board soon; Chairman Powell’s term ends in May. 2 dissenters (first time since 12/1993) voted for a 25bp cut at the last meeting. Earnings are strong, but valuation is demanding, and now we are entering a more difficult and volatile market until early October. Oracle, in early September, can give us an idea of how strong the overall demand was in July and August. 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 4th – 8th August 2025

Economic data highlights of the week

Mon: UK, CA – Bank Holiday, CH CPI (7/25), US Factory Orders (6/25)

Tue: JP Monetary Policy Meeting Minutes, EU Services PMI (7/25), UK Services PMI (7/25), EU PPI (6/25), US Trade Balance (6/25), US Services PMI (7/25), US ISM Non-manufacturing PMI (7/25), US Atlanta Fed GDPNow (3Q25)

Wed: IN Interest Rate Decision, DE Factory Orders (6/25)

Thu: CN Trade Balance (7/25), DE Industrial Production (6/25), UK BoE Interest Rate Decision (8/25), US Initial Jobless Claims, UK BoE Governor Bailey Speaks, US Fed’s Balance Sheet

Fri: N/A

Sat: CN CPI (7/25), CN PPI (7/25)

Performance Review

Source: Google

InflectionPoint reports:

* What a week! Drama abounds. Let’s start with earnings: very solid reports once again, lifting the average for the quarter to a double-digit figure. Exceptional report from Meta, outstanding from Microsoft, while Apple was good and Amazon was a bit meh. Next, let’s talk about GDP: the official figure of +3% for 2Q25 seemed to excite markets, but the devil was in the details, and growth seemed to be trailing last year’s by a full percentage point. Then comes the President, who has started slapping flamboyant tariffs on countries all over the world (39% on Switzerland was perhaps the most noticeable). Markets did take notice of that, and more, on Friday, when it met the reality that tariffs are here to stay and they will have a lasting impact on the economy. Not to forget the Fed, with the first double dissent on policy since December 1993, as two governors voted in favour of a 25bp cut. Although they had been prescient, they might get it next month, courtesy of the hammer that fell on Friday – the July labour report, which clearly showed weakness in US employment, even though the official unemployment rate is still at 4.2%. While after the Fed meeting, a cut in September didn’t seem likely, it has now turned almost certain, and opened the possibility of 3 cuts this year. On other notes, the EU was still licking its wounds over the trade agreement with the US, with many mentioning that this amounts to a tripling of the existing rate; Chairman Powell also mentioned tariffs as having the potential to lift inflation, although by now the pendulum has swung decisively in favour of eroding employment. The USD had a massive comeback during the week, although it lost part of that gain on Friday, and continues to remain an enigma (albeit now trading below 1.1580). Last week, the Bank of Japan also decided to stay put; however, there are elements of local inflation, so the question is when, not if, they will adjust the official rate. While bottom-up earnings for the whole year are being lifted by the current performance of 2Q25, soon we will start looking at 3Q25, and questions will rise about the perceived slowdown. It will be Oracle, in early September, who will shed some light on how July and August have gone. While Meta also had a strong AI capex highlighted in its earnings announcement, that can change quickly if consumer spending starts to drop, so it is worth paying attention to the strength of the economy and of the consumer, as it could fall off a cliff like the optical networking spending craze did in 2000. 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. 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%). On equities, last week’s drop was close to the mark for US Equities, and hit the mark for EU Equities, still reeling from the trade agreement with the US. Long (US) Equities is confirmed, but this week will be key. As per Switzerland, they certainly had a cold shower in terms of the US tariffs – with rates already at the bottom, we will see what they can do to revive the economy.

* GDP forecasts for 3Q25 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 18.5x. 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 September, as expected, and Chairman Powell mentioned that the outlook is becoming more uncertain, chiefly due to the impact of tariffs. As mentioned previously, there were two dissenters, who voted for a 25bp cut – this is the first time this happened since December 1993, so indeed a very rare event. While after the meeting, a cut in September seemed unlikely and 50/50 at best, things changed completely after the July labour report on Friday. September seems like a good chance for a first cut (80.7%), with a possible second cut in October ( 59.6%). The forecast for December 2025 currently prices in 2 cuts, with rates at 3.75-4.00%, but leaves the door open to a potential third cut (45.8%). If we look at December 2026, at the moment the forecast sees rates at 3.00-3.25%, hence with 3/2 more cuts during the next year. 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 4.25%, and were down 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 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 265.66 and is still above the revised Goldman Sachs top-down estimate of 262. In 1Q25, earnings were strong; more of the same, so far, for 2Q25. There is now a worry that there will be a slowdown, so let’s watch closely both the GDP estimates and the earnings estimates (Oracle) for 3Q25. I remain optimistic, particularly on technology (the main driver for the S&P 500). 

Source: FactSet

* The US GDP closed 2Q25 with a reading of 2.97%, but is not gold all that glitters. The Atlanta Fed GDPNow model starts its forecast for 3Q25 in positive territory, with a current forecast of 2.1%, and as usual, is ahead of the Blue Chips consensus, which is currently around 0.8%. The New York Fed’s Nowcast model has a current forecast of 2.12%, down from 2.37% 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 10.3%, compared with a forecast of 4.9% as of June 30th. Revenue growth is slower, but also revised higher, at 6.0% in 2Q25 vs 4.2% as of June 30th. For 2025, earnings growth is forecasted at 9.9% vs 9.1% as of June 30th, with revenues coming in at 5.5% 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 (June 2026) 25.68%. 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 continuing in earnest. Here’s a list of companies reporting this week. 

Source: Earnings Whispers

Market Considerations

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

Source: Bloomberg Finance L.P., Deutsche Bank Asset Allocation, ISABELNET.com

Source: Carson Investment Research, ISABELNET.com

Revenue growth estimates for 2025 are forecasted to grow by 5.6% (5.0% on June 30th), and earnings growth estimates for 2025 are predicted to grow by 9.9% (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 13.8% (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 Goldman Sachs, which shows that actual earnings have consistently outperformed expected earnings since 2022, except in 4Q22. Thus, the reality is not so grim as it might seem. The second chart from Deutsche Bank points to the market’s margin strength. They have continued to rise, and at current levels, they are the best of the last 4 years. Lastly, Carson Investment Research highlights that, in an election year, returns in August are usually muted, and then comes September, which is one of the most difficult months of the year. It might pay to sell some of your winners after their last hurrah (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 weeks, also thanks to the trade agreement with the US. 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 17.4% 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 17.9% 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 34.9% in the last year and has outperformed the FTSE MIB Index by 1225+ 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.