Markets Last Week - 07/02/2025

Stocks End the Week Lower
Major stock indexes finished the week in negative territory, though the S&P 500 fared the best with a modest decline of 0.24%. Markets opened sharply lower on Monday following President Donald Trump’s announcement that the U.S. would impose 25% tariffs on imports from Mexico and Canada, along with 10% levies on Chinese imports, starting February 1. However, later that day, Trump agreed to delay tariffs on Mexico and Canada for 30 days, which helped stocks recover some early losses by week’s end.

Investor sentiment was also influenced by a busy week of earnings reports. According to FactSet, 77% of S&P 500 companies that have reported fourth-quarter results so far have exceeded earnings expectations, with an average growth rate of 16.4%, compared to the estimated 11.9%. Additionally, 63% of these companies have also surpassed sales forecasts.

Manufacturing Sector Expands After Over Two Years
Economic data kicked off with the Institute for Supply Management’s (ISM) Manufacturing PMI, which signaled that U.S. factory activity expanded in January for the first time since 2022. However, ISM Manufacturing Business Survey Chair Timothy Fiore warned that potential tariffs pose a "huge threat" to a sustained manufacturing recovery.

Meanwhile, the ISM Services PMI for January declined from December but remained in expansion territory at 52.8, indicating continued growth in the services sector.

Labor Market Slows but Remains Resilient
Friday’s nonfarm payrolls report revealed that the U.S. economy added 143,000 jobs in January, a slowdown from December’s revised 307,000 and below expectations of 170,000. However, the unemployment rate unexpectedly dropped from 4.1% to 4.0%.

Additional labor data reinforced signs of a cooling job market. On Tuesday, the Bureau of Labor Statistics reported that U.S. job openings fell to 7.6 million in December, marking a three-month low. Initial jobless claims rose by 11,000 to 219,000 for the week ending February 1, while continuing claims increased to 1.89 million from 1.85 million, both slightly above expectations.

Treasury Yields Fall Amid Labor Data
Weaker employment data contributed to gains in U.S. Treasuries, with yields falling across most maturities. The market is beginning to factor in potential global growth concerns and disinflationary effects from tariffs. Municipal bonds also performed well alongside Treasuries.

The investment-grade corporate bond market saw higher-than-expected issuance, with nearly half of new deals oversubscribed. Meanwhile, the high-yield market remained active, with steady issuance despite some early-week volatility due to tariff headlines.

Key Index Performance

Index	Friday’s Close	Weekly Change	YTD % Change
DJIA	44,303.40	-241.26	4.13%
S&P 500	6,025.99	-14.54	2.45%
Nasdaq Composite	19,523.40	-104.04	1.10%
S&P MidCap 400	3,206.60	-32.44	2.74%
Russell 2000	2,279.71	-7.98	2.22%

The Bank of England (BoE) lowered its benchmark interest rate by 0.25 percentage points to 4.5%, marking its third cut since August. The Monetary Policy Committee voted 7–2 in favor of the reduction, with two members advocating for a more aggressive 0.50% cut due to a sharper-than-expected economic slowdown.

As a result of weakening economic conditions, the BoE halved its growth forecast for the UK economy in 2024 to 0.75%. The central bank also adjusted its inflation outlook, now expecting price growth to remain above target until 2027, six months later than previously projected.

Governor Andrew Bailey hinted at further rate cuts but emphasized a cautious approach, stating, “We will have to judge, meeting by meeting, how far and how fast”.

Read more about the recent Bank of England interest rate cut here.

Stocks Rise Despite Economic Concerns
European markets ended the week on a positive note, with the pan-European STOXX Europe 600 Index climbing 0.60%, hovering near a record high despite uncertainties surrounding U.S. trade policy and slowing economic growth. Major indexes followed suit, with Italy’s FTSE MIB gaining 1.60%, Germany’s DAX rising 0.25%, and France’s CAC 40 edging up 0.29%. Meanwhile, the UK’s FTSE 100 advanced 0.31%.

Eurozone Inflation Remains Elevated
Inflation in the eurozone stayed above the European Central Bank’s (ECB) target for the third consecutive month in January, with annual consumer price growth rising to 2.5% from 2.4% in December. Core inflation, which excludes volatile food, energy, alcohol, and tobacco prices, remained steady at 2.7%. Notably, services inflation—a key focus for ECB policymakers—stood at 3.9%. ECB President Christine Lagarde attributed the inflation uptick to expected base effects from last year’s energy price fluctuations.

Germany Sees Strong Factory Orders But Weaker Production
Factory orders in Germany surged 6.9% in December, rebounding from a 5.4% decline in November and surpassing expectations for a 2.0% increase. Growth was driven by rising demand for capital goods, consumer goods, and vehicles. However, orders were still 3.0% lower than in December 2023. At the same time, industrial production fell 2.4%, reaching its lowest level since May 2020, with automotive output dropping 10% and machine maintenance and assembly declining 10.5%.