Don’t Let the Great Yield Slip Away
Chart of the Week:
U.S. Earnings Beat Expectations; Balanced Allocation to Equal-Weight and High-Quality Stocks Advised
Over 90% of U.S. corporates have reported 2Q results, with 81% beating earnings forecasts. Overall profit growth rose 11.8% YoY, well above earlier single-digit estimates. Trade negotiations between the U.S. and other nations are showing progress, and the number of companies citing recession risk dropped sharply from 124 in 1Q to 16 in 2Q. Sector-wise, technology outperformed on EPS growth. With easing political and economic uncertainty and solid earnings momentum, U.S. equities have firm downside support.
Market Recap 1:
Mixed U.S. Inflation Data Lifts Rate-Cut Bets; Equities Extend Gains with Volatility at Lows
U.S. CPI came in below expectations, with investors downplaying tariff impacts on inflation. Treasury Secretary Bessent noted weak labor data, suggesting a possible 50 bps cut, boosting odds of a Fed rate cut in September. Equities advanced with volatility near historic lows, while earnings grew double digits, led by tech and semiconductors.
Market Recap 2:
Trump Executive Order and Rising Odds of September Fed Cut Support Crypto and Yen
U.S. inflation data was mixed: July CPI rose 2.7% YoY, unchanged from June, while July PPI jumped to 3.3% YoY vs. 2.4% prior and 2.5% consensus. Despite soft CPI, surging PPI trimmed market expectations for a 50 bps September cut to 25 bps. In credit, shorter-duration and high-yield bonds outperformed on rate-cut bets.
What’s Trending:
Trump Executive Order Opens Door for Alternative Assets via Retirement Funds
Trump recently signed an executive order directing the Labor Department to review 401(k) and similar plans to expand investment access into private equity, crypto, and other alternative assets. Plans offering a “Brokerage Window” already allow participants to invest beyond core options—including equities, bonds, ETFs, and crypto-related products—though available assets differ across platforms. Currently, only 2% of funds flow through this channel, with crypto allocations still minimal.
In Focus 1:
Slowing Growth Lifts Rate-Cut Odds; High-Quality Bonds Offer Yield-Locking Window
U.S. July CPI rose 2.7% YoY, flat vs. June and below expectations. Housing inflation eased, the main driver of disinflation, while used cars and household goods lifted core goods prices. Medical care, airfares, auto insurance, and leisure pushed core services higher, driving core CPI up from 2.9% to 3.1% YoY. With tariff negotiations progressing and labor markets softening, consumption momentum may weaken in 2H, limiting inflation pressures a year out.
In Focus 2:
Attractive Yields Provide Steady Income; Focus on Sectors with Positive Credit Outlook
From January to July, U.S. investment-grade corporate bond returns were shaped by three key factors:
1. With the Fed pausing rate cuts, mid- to short-duration bonds outperformed.
2. Despite tariff-driven spread widening in April, spreads mostly hovered near historical lows, with BBB-rated bonds offering relative yield advantages.
3. Passage of the “Big and Beautiful” Act and debt-ceiling resolution supported fiscal expansion and a steeper yield curve, driving notable spread compression in policy-benefiting sectors such as financials and industrials. Looking ahead, bonds in financials, telecom, and utilities offer attractive levels amid an economic slowdown.
