Another Good Month for Markets in July 2025 despite the News Flow
Political moves, inflation and market strength all played a role in making it a complex and active month for investments
Introduction and Macro Overview
July 2025 was a month of intense macroeconomic developments, marked by a blend of political maneuvering, monetary policy tension, and surprising market resilience. Inflationary pressures became more pronounced, with consumer prices rising across a range of goods. This was largely attributed to the Trump administration’s escalating tariffs, which began to pass through to consumers. Despite this, core inflation remained moderate, offering some reassurance to markets.
Tariffs dominated headlines, with President Trump deploying them not just as trade tools but as political weapons—targeting countries like Japan, Brazil, and South Korea with aggressive levies. These moves sparked volatility and uncertainty, particularly in sectors like autos, tech, and consumer goods. While trade talks with the EU and China showed some progress, the overall climate remained tense. Final announcements in the past few days have helped calm markets although much detail is still unknown.
The Federal Reserve held its benchmark interest rate steady, resisting political pressure for immediate cuts. Trump’s public criticism of Jerome Powell, including threats to remove him, stirred speculation about the Fed’s independence. Powell resisted calls for rate cuts, as inflation began to creep upward, driven in part by the very tariffs in play the data dependent approach remains. Signals from Fed officials suggested a rate cut could be considered later in the year, especially in light of slowing private sector hiring and mixed economic indicators. As per the chart that follows, the market is still trying to position for further cuts.
Employment data showed a cooling labor market. Nonfarm payrolls were projected to increase by 110,000 in July, down from 147,000 in June. Private and manufacturing jobs also showed subdued growth. The unemployment rate remained stable at 4.2%, and average earnings continued to rise modestly, indicating resilience despite the slowdown.
Markets reflected the mixed signals throughout the month. The Nasdaq reached record highs, driven by strong performance in AI-related tech stocks, while the Dow and S&P 500 showed more muted movements. The S&P 500 continued its upward trajectory, defying the broader uncertainty. Treasury yields fluctuated in response to inflation data and Fed commentary. Gold and oil prices responded to geopolitical tensions and trade developments, with gold rising on safe-haven demand and oil softening due to concerns over global growth.
Globally, Japan’s political landscape shifted as Prime Minister Ishiba’s coalition lost its majority, and the EU’s trade deal with the US, though welcomed, was met with skepticism. Despite these uncertainties, corporate earnings were strong, especially among tech giants, helping to stabilize investor sentiment.
South Africa was indirectly drawn into global trade tensions as part of the broader BRICS bloc. The United States signalled that countries perceived as aligning with anti-American policies could face additional tariffs, with South Africa mentioned among them. While no specific measures were implemented, the warning underscored how geopolitical affiliations are increasingly influencing economic policy. This shift suggests that South Africa’s international positioning may carry greater economic implications if global tensions continue to escalate.
July’s macro environment was a balancing act between political theatrics and economic fundamentals, inflationary pressures and central bank restraint, and global discord and market optimism. As August begins, the question remains whether this equilibrium can hold.
Asset Allocation
DI has seen the equity portion of our asset allocation experience strong growth and we are comfortable with current levels. Going into August which is traditionally a quieter month for markets, due to it being holiday season in most of the Northern Hemisphere, we believe our current allocation reflects a good balance of risk and reward. Our Structured Notes as well as Fixed Income continue to provide a strong yield underpin to the portfolio and assist with managing some of the volatility. The landscape has shifted significantly in the past four months but we are still conscious of a number of risks on the horizon that require us maintain a cautiously optimistic approach to managing portfolios.
Market Performance
July saw another good month for markets despite all the news flow. The S&P500 was up 2.17% for the month, while the MSCI World was up 1.23%. The JSE was also positive producing 2.16% for July. As per the below chart the YTD performance for the S&P500 is up 7.8% (in USD) and the MSCI World is up 9.9% (in USD). Locally the JSE currently has a YTD performance of 17.2% (in ZAR).
Fixed Income
Fixed income markets in July were shaped by a complex interplay of inflation signals, central bank positioning, and geopolitical tensions. Treasury yields fluctuated throughout the month, with longer-dated bonds rising sharply at times as inflation data came in hotter than expected, driven in part by aggressive tariff policies. The Federal Reserve held rates steady (with two dissents) despite mounting political pressure, including public criticism from President Trump and speculation around Chair Powell’s future. Fed officials signalled caution, with some suggesting rate cuts could be considered later in the year if labour market softness persists. Meanwhile, strong U.S. GDP data and resilient consumer spending tempered expectations of immediate easing, keeping bond investors on edge. The yield curve reflected this uncertainty, with short-term rates relatively anchored and long-term yields responding to inflation and fiscal concerns. Relatively the US rates are high amongst their G7 peers.
South Africa’s fixed income market was shaped by a cautiously optimistic shift in monetary policy and improving inflation dynamics. The South African Reserve Bank (SARB) cut the repo rate by 25 basis points to 7%, marking a modest easing stance amid subdued economic growth and well-anchored inflation expectations. Headline inflation printed at 3% in June, at the bottom of the SARB’s 3–6% target range, while core inflation remained similarly contained at 2.9%. The ZAR’s relative strength and easing fuel prices contributed to this benign inflation backdrop. Despite lingering concerns over global trade tensions and domestic supply-side constraints – particularly in logistics – the SARB noted signs of a pickup in economic activity during the second quarter. The rate cut was seen as a supportive move for local bonds, with yields easing slightly across the curve as investors priced in a more accommodative policy outlook going forward.
Equities
Equity markets in July showed notable resilience, navigating a complex macro backdrop of inflationary pressures, political tension, and trade disruptions. Despite tariff escalations targeting countries like Japan, Brazil, and South Korea, major indices such as the Nasdaq and S&P 500 posted gains, supported by strong corporate earnings. Tech giants led the performance: Alphabet reported a surge in cloud revenue driven by AI investments; Microsoft continued to benefit from Azure growth and investor interest in its OpenAI partnership; and Apple delivered steady third-quarter revenue growth, with investor focus on its AI strategy and tariff-related supply chain risks. Meta was a stand out performer as their investment in AI continues to yield results. In contrast, Tesla disappointed, reporting its second consecutive revenue decline and warning of rough quarters ahead, leading to a sharp drop in its share price.
Consumer and financial names also played a role in shaping equity sentiment. Mastercard and Visa benefited from resilient travel and leisure spending, while Procter & Gamble and Colgate-Palmolive faced margin pressures from rising input costs and tariff impacts. Some companies flagged weakening U.S. consumer demand and tariff-related headwinds. Overall, July’s equity landscape reflected a market balancing strong earnings with geopolitical and inflationary uncertainty, maintaining upward momentum despite the crosswinds.
Conclusion
In conclusion, July 2025 was a complex and active month for investments, with political moves, inflation, and market strength all playing a role. Despite the ups and downs caused by tariffs and geopolitical issues, the tech sector showed strong performance. The Federal Reserve's careful approach to interest rates, along with mixed economic signals, added to the complexity. As we move into August, which is usually a quieter month for markets, our current asset allocation balances risk and reward. While we remain hopeful, we are aware of potential risks and will continue to manage our portfolios with cautious optimism. Please feel free to reach out should you wish to discuss any of these aspects with your portfolio manager.