Despite the selloff today, markets were largely flat except for the Nasdaq, whose momentum gave it another boost this week. Prepare yourself for the coming second-quarter earnings announcements, as they will likely move markets in the coming weeks. I don’t expect they will be uniformly good or uniformly bad despite fears regarding the economy or impacts from the tariffs. We will, however, gain a peek into how these companies are handling or adjusting to the shifting economic currents.
Second-quarter earnings began this week with many of the largest banks reporting. JPMorgan kicked off earnings season with a solid beat, posting $15 billion in profit as corporate dealmaking rebounded more than expected last quarter. Citigroup, meanwhile, smashed expectations, reporting total revenue that was up by 16% from the same period a year ago. Overall, it was a good week for the US’ biggest banks, providing further evidence that they’re weathering the tariff-induced economic uncertainty better than most.
As for inflation, the latest figures show an increase of 2.7% in June (y/y), up from 2.4% in May. Though it is not far above the Fed’s target of 2% annual inflation, it is the direction that has some concerned. In June, prices grew 0.3% overall, but certain categories showed a larger rise than others. For example, clothes prices rose 0.4%, home furniture prices grew by 1%, and toy prices jumped 1.8%. This could mean a further delay by the Federal Reserve in cutting interest rates, even in the face of a leaked draft letter by President Trump terminating Fed Chair Jerome Powell. It has been an exceedingly hot summer, but it appears to be a scorcher for Mr. Powell. While the Supreme Court ruled President Trump could not fire Powell over policy disagreements, it did confirm he could be removed for cause. For now, the markets appear to be taking it in stride, not believing it will come to this.
Regarding tariffs, we learned this week that President Trump has proposed a 30% tariff for Mexico and the EU effective August 1st. While this latest round of threats isn’t new and shouldn’t come as a surprise, it does seem increasingly likely that at some point these tariffs will become permanent. That is to say, the current approach of threatening and then delaying may be coming to an end sooner rather than later. I don’t know if you’ve tried to buy something from abroad recently, but it is becoming more fraught. Anecdotally, I recently purchased an espresso accessory from a well-regarded shop in Canada only to discover my $100 purchase was going to cost considerably more. Fortunately, they emailed me, and I was able to cancel the order, but it brought home the reality of these tariffs.
In closing, I turn to gambling. No, I do not advocate gambling and abhor losing money to the house. But for those high-stakes gamblers among you, there is a provision in the Big Beautiful Bill that you may not like the odds of. Buried in the 900-page bill is a new provision allowing only a 90% deduction of gambling losses. In the past, if you won $100,000, and then lost $100,000, you would owe zero taxes as the wins and losses net out. The new provision would have you owe taxes on $10,000 since only 90% of the losses would be deductible. Gamblers could end up paying taxes even if they finished the year with a net loss. The bill hasn’t been reconciled and could change in its final form, but recognize you may lose even after losing. Now you know.
Bruce J. Mason, MBA
