7/25/25: Corporate Earnings Strong Despite Economic Uncertainty

It was a busy week for corporate earnings reports, with the majority of companies reporting better than expected second quarter results despite an uncertain backdrop. Economic data reports were mixed, with the Leading Economic Index (LEI) declining -0.3% m/m and -4.0% y/y in June on low consumer expectations, manufacturing orders, and indications of a softer labor market. The Chicago Fed National Activity Index (CFNAI) improved slightly to -0.1, while the three-month moving average declined to -0.22 in June. The LEI and CFNAI are not forecasting a recession at this time, although slower growth is expected for 2025.

The market also received updates on the health of the US housing market; Existing Home Sales fell -2.7% m/m in June to a nine-month low of 3.93 million units annualized as higher prices deterred some prospective buyers despite rising inventory levels. New Home Sales edged higher by 0.6% in June to 627,000 units annualized after plummeting -11.6% in the previous month. Builders have been offering incentives on new homes to attract buyers facing affordability issues. The average rate for a 30-year fixed rate mortgage remained elevated at 6.74% as of 7/24/25, according to Freddie Mac.

Meanwhile, a measure of business activity, the S&P Global US Purchasing Managers Index (PMI) report, reflected that services activity rose to the highest level this year to 55.2, more than offsetting the decline in manufacturing into contractionary territory to 49.5 for July. Durable goods tumbled -9.3% in June after surging 16.5% in May, with the recent pullback due to fewer commercial aircraft orders. Orders for business equipment dropped -0.7%.

US Treasury yields rose and the yield curve flattened this week, with the 2-year US Treasury note moving to 3.91%, the 5-year rising to 3.95% and the 10-year US Treasury trading at 4.38% as of this writing. Next week will feature important economic events, including the July US Employment Report and Fed meeting. The market is not expecting the Fed to change the federal funds target rate from its current level of 4.25 – 4.50% on Wednesday, but nearly two quarter point rate cuts are priced in for the remainder of 2025.

Next week: Wholesale Inventories, S&P CoreLogic Case Shiller Home Price Index, Job Openings and Labor Turnover Survey (JOLTS), Consumer Confidence, MBA Mortgage Applications, ADP Employment Change, 2Q25 GDP, Federal Open Market Committee (FOMC) Meeting, Personal Consumption Expenditures (PCE), US Employment Report, Institute for Supply Management (ISM) Manufacturing Index, University of Michigan Consumer Sentiment Index.

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