July 2025 Market Recap

We are excited to share the latest market insights from the Goldman Sachs Wealth Management Investment Strategy Group (ISG). 

July marked a pivotal month for global financial markets, shaped by significant trade negotiations and central bank actions. 

Here’s a recap on what happened in the market and economy.

The markets: US dollar is up with equities and bonds both ending higher

The US concluded trade talks with several countries. Key among them were deals with the EU, Japan, and Korea. As part of these deals, the three large trading partners also committed to increased US investment and American goods purchases. 

Although tariffs remain elevated, the agreements reduced trade uncertainty and lowered the risk of escalation. 

Trade deals supported the US dollar, which gained 3%—its best monthly performance this year. Conversely, the euro declined sharply.  

Easing tariff concerns and stronger-than-expected corporate earnings propelled US equities to new highs, with the S&P 500 returning 2.2% and the NASDAQ gaining 3.7%. Markets outside the US also advanced, with MSCI EAFE up 1.4% and MSCI Emerging Markets climbing 2.0%. 

Bond yields increased as trade uncertainty receded, and central banks adopted a more "hawkish" stance.  

US 10-year Treasury yields rose 14 basis points to 4.37%, partly due to increased tariff pass-through in the June Consumer Price Index and Fed Chair Powell's comments at the July FOMC meeting describing monetary policy as "modestly restrictive”. 

The US economy: healthy but continues to soften

The US economy remains healthy but shows signs of softening. GDP in the second quarter unexpectedly rose by 3.0% (annualized), recovering from a 0.5% contraction in the first quarter. However, this rebound largely came from volatile net exports, reversing earlier front-loading of imports. 

Private sector final demand notably slowed to 1.2%, a significant moderation from 3.0% in 2024. Hiring is also slowing: July non-farm payrolls increased by only 73,000, while the June and May prints were revised down by a combined 258,000 jobs. 

Higher tariffs are gradually impacting consumer prices. June's headline inflation hit 2.7%, with goods inflation rising in categories most affected by tariffs. ISG continues to expect a pickup in inflation in the coming months as higher tariffs are passed on to consumers, but the process is likely to be more gradual than originally anticipated. 

Against this backdrop, the Fed remained on hold at its July meeting and non-committal to when the next rate cut may be. Fed Chair Powell emphasized that future monetary policy actions would be determined by "incoming data, the evolving outlook, and the balance of risks." Views across FOMC governors are clearly divided, however, as two governors dissented from the decision in favor of a 25-basis-point reduction . 

Looking ahead

ISG continues to expect the Fed to restart the easing cycle at the September meeting and deliver a total of three 25-basis-point rate cuts this year.