By Joseph Adinolfi
A busy week of corporate earnings, a Fed meeting, a deluge of economic data and Trump’s Aug. 1 tariff deadline are just some of the things on the calendar
A seemingly unstoppable stock-market rally has pushed valuations on shares of the biggest U.S. companies toward levels last seen near the market’s 2021 peak.
Even smaller, unprofitable companies have tallied big gains recently, igniting another bout of meme-stock mania.
The S&P 500’s SPX push further into record territory has carried the cyclically adjusted price-to-earnings ratio for the index toward levels last seen around the 2021 stock-market peak. Investors might remember that a painful nine-month bear market followed.
As worries mount that frothy markets could spill over into another selloff, investors will need to walk a tightrope during the week ahead, as the summer doldrums are interrupted by a flurry of potential event risk.
A few things worth watching: Investors will face down the busiest week of corporate earnings season for S&P 500 companies, along with a flurry of economic data culminating in Friday’s July jobs report.
Friday additionally marks President Trump’s Aug. 1 trade-deal deadline, while policy meetings for several major central banks are also on the calendar, including the U.S. Federal Reserve and the Bank of Japan. The beginning of the week will see the release of the Treasury Department’s latest financing estimates, which are expected to reflect a flood of Treasury-bill issuance.
“Any time you have high valuations, you should be on guard for surprises,” said James St. Aubin, chief investment officer at Ocean Park Asset Management, during an interview with MarketWatch. “The biggest risk is that all of this optimism is already priced into markets.”
Busiest week for earnings
Corporate earnings have been off to a strong start, according to an analysis from FactSet’s John Butters. Earnings surprises – that is, results that surpass Wall Street analysts’ forecasts – have surpassed the five-year average, although these same analysts repeatedly lowered the bar as the second quarter dragged on.
Still, the real test lies ahead. This week, 163 members of the S&P 500 are due to report, making it the busiest week of the earnings season. This includes four members of the “Magnificent Seven” – Microsoft Corp. (MSFT), Meta Platforms Inc. (META), Amazon.com Inc. (AMZN) and Apple Inc. (AAPL) These companies will share their latest results at a time when the largest 10 companies in the S&P 500 – a group that includes all seven Magnificent Seven members – have seen their weighting in the index balloon to nearly 40%, according to Goldman Sachs.
Results for the cohort have been mixed so far. Alphabet Inc. (GOOGL) (GOOG) saw its shares rise after it reported earnings last Wednesday, adding to a winning streak for the stock. Meanwhile, Tesla Inc. shares (TSLA) slumped after Chief Executive Elon Musk warned of a few rough quarters ahead.
Companies don’t necessarily need to report a poor number to see their shares react negatively. Take Netflix Inc. (NFLX): The streaming giant saw its shares encounter a bit of turbulence after it reported earnings last week.
“The numbers don’t have to be bad, they just have to be worse than what had been priced in,” St. Aubin noted.
David Bianco, Americas CIO at DWS, said earnings outside of these dominant tech names could pose an even bigger risk for the market. He is specifically looking at how manufacturing and consumer-facing businesses have responded to President Trump’s tariffs.
“I think as the earnings season goes on, you will hear companies point out that earnings growth is slowing, that the tariffs are having some impact on profit margins and that they expect an even greater challenge from the tariffs in the back half of the year,” he said.
Tariff deadline
The White House has announced a handful of trade agreements in recent days, including pacts with Japan, the Philippines and Indonesia. But deals with some of the biggest U.S. trading partners, including the European Union, Canada and Mexico, have yet to be reached.
The big risk for markets is that no progress will be made by Friday, and that instead of delaying the deadline once again, the White House follows through with its threat to reimpose higher levies.
“If we get to Aug.1 and the administration makes an announcement saying some of these tariffs are going back to a level like what we saw in April, that could create some volatility,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial, during an interview with MarketWatch.
Data deluge and central-bank meetings
A flurry of U.S. economic data are due next week. Reports on the docket include the personal-consumption expenditures (PCE) price index – the Fed’s preferred inflation gauge – and the ISM manufacturing reading for July.
But the main focus will be a wave of labor-market reports, culminating with the July jobs report due out on Friday.
Economists are expecting that 102,000 new jobs were created in July, according to a consensus estimate released by the Wall Street Journal. That means the bar is pretty low, St. Aubin said.
Still, previous July reports have signaled surprising levels of weakness, so investors would be right to brace for the possibility of a repeat. Last year, a soft July report helped set off a “growth scare” that contributed to the Aug. 5 Japanese yen (USDJPY) carry-trade unwind.
Fed Chair Jerome Powell will deliver his postmeeting press conference on Wednesday. DWS’s Bianco expects Powell could gently push back on investors’ expectations for an interest-rate cut in September.
Both the S&P 500 and Nasdaq Composite COMP finished in record territory on Friday, with the S&P 500 tallying its fifth straight record close, FactSet data showed. The Dow Jones Industrial Average DJIA also climbed, as all three indexes tallied weekly gains.
-Joseph Adinolfi
This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
07-27-25 1200ET
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