Making Sense of a Wild Day in the Market
We got ADP jobs numbers, GDP data, the Fed meeting, Microsoft's and Meta's blowout quarters and even a trade agreement. Let's put it all together.
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How would one even go about describing one day in the life of those who make a living in U.S. financial markets? Especially if that day were Wednesday, July 30, 2025? The day started out innocently enough. First, the ADP Employment Report for July reflected a stronger month for private sector job creation than most economists expected. Still ahead of the opening bells at 11 Wall Street and up at Times Square, the Bureau of Economic Analysis would publish its first estimate for U.S. second quarter gross domestic product.
The trade balance was again a factor. Maybe "the" factor. Unlike Q1, where the headline print looked weaker than reality, this print actually showed up stronger than what is real or "organic." Inflation? We'll hear more on July inflation on Thursday morning, but the stats we got covering Q2 inflation made inflation, at least at the headline level, look dead. The GDP Price Index for the quarter printed at the Fed's target growth rate of 2.0% (q/q, SAAR), down from 3.8% for Q1 and below expectations. The PCE Price Index for the quarter hit the tape at growth of 2.1%, down from 3.7% for Q1 and also well below expectations for something closer to 2.9%.
Was that enough to provoke the Fed? Traders had to show caution, and that's exactly what they did. Inflation appeared to be put in its place, though some economists still expect a tariff-driven pop. Economic growth really was not that strong, but the headline print made it look so. That was enough for Powell and company to sit on their collective hands and punt the football into September.
After the Fed was done with their dog and pony show, came earnings and wow, just wow, did those earnings change the ballgame. If Microsoft MSFT did not hit a home run, then I don't know what a home run is. Meta Platforms META? Well, that was a darned grand slam. At zero-dark thirty on Thursday morning, I see those two names up more than 8% and 11% respectively.
Oh, did I mention that after those closing bells down on Wall Street and up in midtown, that there was trade news? If another huge trade deal, this time with South Korea, was not enough, the president also finalized those 50% tariffs on not all, but certain types of copper imports. That forced a major sell-off in copper futures, while others celebrated the trade deal.
If one traversed all of that successfully then one has more than earned their place at this table. So, pour yourself a cup of Joe, and sit down. The fun has just begun. More data on inflation lies ahead this morning, followed by more key earnings reports this evening followed by "July Jobs Day" and the president's global trade deadline tomorrow. You get to Saturday morning in one piece, you will have earned it.
Another Trade Deal
The Trump administration pulled off yet another masterful trade deal with yet another major economy on Wednesday afternoon. The president announced through his Truth Social platform that a 15% tariff would be set on goods imported from South Korea, and that South Korea had been allowed to invest $350 billion in the U.S. as a means to buy down their rate from the 25% that had been threatened.
As with major deals recently struck with the E.U. and Japan, trade partners are being permitted the opportunity to pay a substantial toll to access U.S. markets to essentially reduce their agreed upon tariff rate. As with those other deals, the tariff on U.S. exports to South Korea will be 0%. In addition to that $350 billion (not as part of), which Pres. Trump will control, South Korea will purchase $100 billion of liquefied natural gas and other U.S. energy products and invest a large undefined sum in the U.S. for their purposes.
Pres. Lee Jae Myung of South Korea will visit the White House to determine the size of that investment. As part of the deal, South Korea will have to open up its domestic markets to U.S. automobiles, trucks and agriculture.
'Technically Strong'
In a paradox of sorts, the Bureau of Economic Analysis posted a GDP growth print of 3.0% (q/q, SAAR) for the second quarter. I say "paradox of sorts" because the economic strength perceived in that report due to the "3 handle" hurt the Trump administration's chance at seeing the FOMC implement an already unlikely short-term rate cut on Wednesday afternoon.
For the kids in the back who never really paid attention in economics class, the trade balance or imbalance impacts GDP significantly, though you and I, if we don't work in businesses impacted by trade, might not feel it. Imports go up or exports go down... GDP goes down. Imports go down or exports go up... GDP goes up. Well, for this second quarter estimate, Imports were down 30.3% (q/q, SAAR). That added 5.18% to the 3% final answer. Got it?
There are a lot of components, so don't get too nervous. The U.S. economy still grew for the quarter; it just didn't go bonkers. Same thing happened back in the first quarter. That headline print hit the tape at -0.5%. Imports for Q1 were up 37.9% as many tried to front-run the president's early April "Liberation Day." Imports had a -4.66% impact on the final print of -0.5% for that quarter.
For those new kids, if you want to learn about GDP, print out Tables 1 & 2 on the BEA's release, usually found on pages six and seven. To see how the "organic economy" is really performing, skip down to line 32 on Table 1. This line is labeled "Final Sales to Private Domestic Purchasers" and largely strips out the impacts of the trade balance and government spending. (By the way, Federal spending was down 3.7% for Q2 after being down 4.6% for Q1 for the knuckleheads who think that federal spending is still rising.)
By looking at line 32 on Table 1, armchair economists will see that for Q2, the organic economy grew 1.2%, despite the headline rate of 3% and grew 1.9% for Q1 despite the headline rate of -0.5%. The real economy was not as weak as advertised back in Q1 and was not as strong as advertised for Q2.
On the Fed
As has long been the standard at the Fed, the FOMC policy statement published on Wednesday was an unimaginative "cut and paste" job that would not get a passing grade in an Economics 101 class. That's largely by design, because the FOMC, outside Powell, who is a lawyer by trade, largely consists of academic economists who lack a lot of real-world experience. Hence, they really don't understand how Main Street nor even Wall Street operates, are prone to consistently generate unforced policy error and try to retain as much optionality as possible when forced to publish material for public consumption.
This statement opened with "Although swings in net exports continue to affect the data." This was a slight change from "have affected the data" and is an attempt to place any blame that might come down the pike elsewhere. In a nod to the weaker data under the hood in the second-quarter gross domestic product data, a line in the second paragraph changed from "Uncertainty about the economic outlook has diminished but remains elevated" to "Uncertainty about the economic outlook remains elevated." The committee removed the part about economic uncertainty diminishing. At least they actually read the GDP report.
Very interestingly, of the 12 voting members of the FOMC, seven are members of the Board of Governors and five are regional branch presidents. The seven governors (including the chair) and the president of the New York Fed hold permanent voting rights, while the other four slots rotate.
Well, this statement had the least support for the Fed chair from his governors for any statement issued in over 30 years. Fed Govs. Christopher Waller and Michelle Bowman (both Trump nominees from his first term) dissented in favor of reducing the target range for the Fed Funds rate now. In addition, Fed Gov. Adriana Kugler (a Biden nominee) was absent from the meeting and did not vote. Kugler has not been seen as especially dovish, so she likely would have voted with the majority, but her absence left Powell with the support of just four governors out of seven including himself.
Powell offered no clear path forward on the direction of monetary policy at his press conference. The Fed Chair did say that the committee will be laser-focused on incoming data. There will be two months of data on consumer-level inflation and the national labor market situation between now and the next FOMC policy meeting on Sept. 17, so one can see why he would punt the said football.
That said, being data dependent is something this Fed chair has been successfully at. He cut rates aggressively ahead of last year's national election, breaking with a century of precedent when there was no real supportive case for a rate cut and now where the case is fairly clear, he has gone in the opposite direction.
Good luck today, warriors. Full battle rattle this morning. Let's look sharp out there.
Economics
(All Times Eastern)
08:30 - Initial Jobless Claims (Weekly): Expecting 221K, Last 217K.
08:30 - Continuing Claims (Weekly): Last 1.955M.
08:30 - Personal Income (Jun): Expecting 0.2% m/m, Last -0.4% m/m.
08:30 - Personal Spending (Jun): Expecting 0.4% m/m, Last -0.1% m/m.
08:30 - PCE (Jun): Expecting 0.3% m/m, Last 0.1% m/m.
08:30 - Core PCE (Jun): Expecting 0.3% m/m, Last 0.2% m/m.
08:30 - PCE (Jun): Expecting 2.4% y/y, Last 2.3% y/y.
08:30 - Core PCE (Jun): Expecting 2.8% y/y, Last 2.7% y/y.
09:45 - Chicago PMI (Jul): Expecting 41.5, Last 40.4.
10:30 - Natural Gas Inventories (Weekly): Last +23B cf.
The Fed
(All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights
(Consensus EPS Expectations)
Before the Open: ABBV (2.91), BIIB (3.88), BMY (1.13), CCJ (.51), CMCSA (1.18), CVS (1.46), RBLX (-.38)
After the Close: AMZN (1.31), AAPL (1.43), CLX (2.21), KLAC (8.55)
At the time of publication, Guilfoyle was long CCJ, MSFT equity.
