In the month of July, U.S. stock markets surged into record territory on news that the United States had reached trade tariff agreements with Japan and the European Union. This added clarity in the Trump administration’s tariff policy helped propel markets to the upside.
The Closest U.S Allies Get a Tariff “Break”
Before we get into the broader economy, let’s briefly review what we know about trade tariffs so far. The United Kingdom—America’s closest ally—has secured the most favorable tariff arrangement, with trade tariffs set at just 10%. Japan and the European Union, also strong allies of the U.S., have had their tariffs set at 15%. These trading partners have committed substantial sums of investment into the U.S., with Japan agreeing to $550 billion and Europe committing $600 billion in US Investment. The EU also agreed to buy $750 Billion in US Energy. (https://www.npr.org/2025/07/27/nx-s1-5481246/trump-tariffs-european-union)
What About Everybody Else?
The Trump administration has indicated that most other countries will face a general tariff rate of around 20%, while smaller, less developed economies may fall under the 10% tier. Major outliers include China, Brazil, and India, while Russia remains under sanctions. The last two major U.S. trading partners yet to finalize longer-term trade deals are Mexico and Canada. With that said, much of the uncertainty surrounding trade tariffs has, at least for now, subsided.
Weakened U.S. Dollar
Continued weakness in the U.S. dollar has also contributed to markets reaching new highs. Since U.S. markets are denominated in dollars, a weaker dollar boosts asset prices even if underlying company values remain unchanged. This dollar weakness has also fueled gains in the cryptocurrency market, though it wasn’t the only factor. Favorable legislation passed by Congress also played a role in pushing cryptocurrencies higher. Additionally, the weakening dollar has supported gold and silver prices, bringing them near all-time highs.
Earnings and All-Time-Highs
As for earnings, they have mostly met or exceeded expectations, as the full impact of tariffs has yet to be reflected in company results. Most firms have already adjusted their forward guidance to account for future tariffs.
This weekly chart of the QQQ shows that we have been up for 5 weeks straight and are now far from the 10 Period MA. indicating the markets might be ready for a pullback.
From a technical standpoint, markets are currently far above their long-term averages. This over-extension suggests conditions are overbought and could lead to profit-taking. Another notable technical pattern is the formation of an ascending wedge, typically a short-term bearish signal. With markets at all-time highs and technical turning cautious, it’s wise to remain vigilant.
Remember, we are heading into August, the second slowest month of the year and often a time of increased volatility. So, trade well and enjoy your summer, but it’s prudent to stay careful.
Written by Michael DiGioia, Director of Education
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