Economic and Market Review
August 1, 2025
| Equity Indices | YTD Return |
| Dow Jones | 2.82% |
| S&P500 | 6.30% |
| NASDAQ | 7.10% |
| SPDR Developed World Ex-US | 16.61% |
| MSCI–Emerging | 12.47% |
| Bonds (Yield) | |
| 2yr Treasury | 3.70% |
| 10yr Treasury | 4.24% |
| 10yr Municipal | 3.20% |
| U.S. Prime Rate | 7.50% |
| Commodities | |
| Gold | $3360.17/oz |
| Silver | $37.09/oz |
| Crude Oil (WTI) | $67.16/bbl |
| Natural Gas | $3.04/MMBtu |
| Currencies | |
| CAD/USD | $0.73 |
| GBP/USD | $1.33 |
| USD/JPY | ¥147.70 |
| EUR/USD | $1.16 |
Overview
The stock market capped the week by having a down day to open August as renewed economic fears unsettled investors. The month of relative stability ended on a soft note although not enough to end the month in the negative.
The final week of July was the worst week for the market since the early April tariff announcements. The sell-off was driven by a new round of tariffs, and jobs data that showed deepening cracks in the labor market. Since April, 258,000 jobs had been revised out of previous jobs reports, and a weak 73,000 were created in July. Total unemployment remained steady at 4.2%.
The substantial down-revision culminated in the chief of the Bureau of Labor Statistics being terminated, who was previously approved unanimously by the US Senate. Kevin Hasset, the Director of the National Economic Council and an in-the-running for the next Fed chair, signaled that the White House would desire more explicit oversight of economic data releases.
A long-standing trade provision known as the de minimis exemption, which for years allowed goods valued under $800 to enter the United States tax and duty-free, has been eliminated and will roll off on August 29th, 2025. The rule was originally intended to reduce the administrative burden on US Customs; though it has quickly become a cornerstone of many e-commerce retailers such as Temu and Shein. Additionally, the sheer volume of mail utilizing the exemption has raised concerns over illicit activity or incorrectly declared goods. Earlier in 2025, the US had announced its plan to end the exemption for China, Mexico and Canada, with the new order extending to all countries globally.
Long-Run Tariff Impacts
Several revised tariff figures were announced in mid July, the new duties are based on whether a nation was able to negotiate a revised trade agreement with the United States. Key rates include a 50% rate for Brazil, 39% for Switzerland, 25% for India, and 40% for Laos. The European Union negotiated a 15% rate for most goods, a significant increase from the previous 4.8% average, but lower than the 30% threatened. Thailand secured a 19% tariff, reduced from a threatened 36%. The Canadian rate was increased to 35%, from 25%, though it appears that at this time that goods governed under CUSMA are exempt – which is north of 95% of goods. According to RBC the CUMSA exemption has resulted in the effective tariff rate being around 5% though it is becoming more difficult to estimate which goods apply, and which do not given the piecemeal policy.
Mexico, the US’s largest trading partner, has received a 90 day extension to tariffs on its goods while a deal is worked out. The stated figures are 25% on all goods, 25% extra on cars, and 50% extra on steel, aluminum and copper. Copper tariffs only apply to intermediate products, with ore and finished products being exempt. Like Canada, goods under CUSMA are exempt, which results in an effective tariff rate below 5%.
The Yale Budget lab now estimates that as importers shift away from tariffed goods, the effective tariff rate will still be the highest rate since the 1930s at 18.3%. In the aggregate, real GDP growth will likely be weighted down by around 40bps over the long term, with peak unemployment effect being 70bps higher by the end of 2026. Ironically, the hardest hit is expected to be advanced manufacturing, where the US still holds a competitive advantage.
The median cost per household is estimated now to be $2,200 annually. Consumers face high increases in clothing and textile prices in the short-term, with an estimated 38% increase on apparel. Though Yale estimates shifts toward tariff-free manufacturing will likely reduce this to 17% in the long-run.
FOMC Split on Rate Cut
After ceasing rate increases in late 2024 with a range of 4.25% to 4.50%, the Fed had spent most of 2025 in “wait-and-see” mode. While economic data came in moderated, inflation continued to be above what the Fed wanted. In communications, the FOMC appeared to be more willing to cut in the second half of the year.
With the introduction of tariffs, which add uncertainty and inflationary pressure, the Fed once again elected to keep rates steady. The result was a 9-2 decision, the most split the FOMC has been since September 2019 and one of the few times since the global financial crisis the FOMC has been split on matters of rates.
The majority argued that with inflation “somewhat elevated” and the labor market “solid,” a restrictive policy stance remained appropriate. Though, critics posit that political pressure from Trump had all-but-ensured the FOMC would assert its independence by not cutting.
The dissenters argued that the Fed should “look through” the temporary, “one-off” price increases caused by tariffs and focus on the weakening economic outlook, especially around the labor market. The dissenters may have been right to be concerned about the job market, as previously discussed, two days later more than 258,000 jobs had been revised out of previous jobs reports, and a weak 73,000 jobs were created in July.
US Companies Cut Investment in China to Record Lows
Since China joined the WTO in 2001, the US-China trade relationship has surged to be more than $500 billion in annual trade. Though since 2018, the trade relationship has been on shaky ground with a mixture of intellectual property disputes, capital controls, and protectionism from both nations.
According to the member survey of the US-China Business Council, only 48% of US companies plan to invest in China during 2025, compared to 80% this time in 2024. While some is tariff anxiety, much of it is a decline in optimism regarding a Chinese economic recovery. Official figures show continued investment growth, though the impacts of the property crisis are undeniable. Based on measures of economy-wide credit expansion, it appears the broader Chinese economy continued to contract through the end of 2024.
In response, nearly 40% of companies are reorienting their supply chains, with many looking to Southeast Asia, India, and Mexico as alternatives. The decline in investment marks a significant shift from the historic optimism for the Chinese market, which was expected to yield trillions in economic benefits and also perhaps democratic reforms in China.
Congress Moves to Regulate Crypto
Stablecoins are crypto currencies designed to maintain a stable value. Unlike speculative coins like Bitcoin or Ethereum, stablecoins are typically pegged to currencies like the US dollar. Theoretically, these allow for a more frictionless movement of the crypto market as users can exchange speculative assets instantly for a fee often less than a fraction of a percent.
As of the end of July, the stablecoin market is around $267 billion, growing more than $2 billion per week thus far in 2025 with the entrance of traditional financial institutions and even payment processors into the market.
With a 308-122 vote, the House moved to approve the GENIUS bill. The bill begins the process of regulating cryptocurrency, specifically stablecoins. The crypto industry broadly backed the bill and had spent some $240 million in lobbing in 2024. Ironically, the traditional banking industry spent just $64.9 million during 2024.
| Before GENIUS | After | |
| Backing of the Coins | Many issuers claimed to be 1-to-1 backed, but the quality and the existence of the reserves were not always verified by independent auditors. Additionally, the ‘stablecoin’ name could be used by different forms. | To be considered a stablecoin, all issuers must back their coins with 1-to-1 assets like US dollars, US government debt. Also establishes auditing requirements. |
| Redemption Right | During times of market stress, some platforms would halt redemptions of stablecoins. | Establishes a legal right for customers to redeem coins for US Dollars at any time, 1-to-1. |
| Oversight | An unclear framework of who specifically regulated crypto, which parts were regulated, or who consumers can turn to. | Establishes clearly that stablecoins fall under traditional banking oversight bodies. |
| Illicit Activity | AML (Anti-money-laundering) and KYC (know-your-client) requirements were piecemeal and often not enforced. | Given they are now regulated as traditional banking bodies, stablecoin issuers must follow AML and KYC regulations. |
| Insolvency Protection | Customers would be considered normal creditors, with little chance of recovering their assets in the event of a failure. | Stablecoin holders are considered primary creditors, the same as depositors. |
