Big Tech Helps Nasdaq, S&P 500 Reach New Highs

U.S. equities continued to move higher last week, with the S&P 500 and Nasdaq Composite reaching new highs. Big tech helped drive performance higher. Financials also outperformed, with many firms reporting solid earnings. Energy, health care, and materials underperformed. The Treasury curve steepened.

BEYOND THE HEADLINES:

Fiscal and Monetary Policy: Where Do We Stand?

Companies saw movements in share prices from several government actions. We saw chip-related companies rise after Nvidia announced it would be allowed to sell its H20 AI chip in China. Managed care organizations saw declines in their share prices, with several exposed to possible declines in Medicaid funding. Significant volatility in equities and fixed income arose on news that President Trump was considering firing Federal Reserve (Fed) Chair Jerome Powell. After the president denied those rumors, the market hit new highs at the end of the week.

How Should Investors React to Government Actions?

In a year of extreme volatility, markets have continued to hit new highs. It has been difficult to determine which policies are permanent and which could be reversed—as was the case with several tariff policies announced earlier this year. With another trade deadline approaching August 1 for the European Union and several other countries, more back-and-forth on tariff policy could occur. Equity markets still boil down to how much companies earn and what investors are willing to pay for them. Focusing on fundamentals and valuations for those firms can help tune out some of the noise. Although government policy can have a major impact on earnings, it’s best to consider the long-term earnings of companies that have operated through various political environments. Don’t count out the ability of firms to adapt.

Tariff actions, which have been primarily implemented through executive action, may be less permanent than items that have been implemented through Congress. Investments should typically be considered on a time horizon that outlasts the current administration. For those who need access to investments in a shorter time frame, considering lower-risk investments (e.g., fixed investments) that match their investment timeline may be appropriate.

What Should We Look Forward To?

Although it’s important to watch what happens in Washington, we’ll see ample hard data from companies that are reporting over the next few weeks. Innovations in AI are driving earnings higher for many companies—even as they face trade policy uncertainty. Valuations remain close to Covid-era levels, which means markets are dependent on the continued earnings growth we are seeing from several tech companies. Many pockets of the market are trading at lower valuations, with a lower bar for beating earnings. As this year has shown, there are many ways to diversify your portfolio. Different pockets, including value stocks, growth stocks, and international stocks, have outperformed at various times. Small- and mid-cap stocks are trading closer to their historical average valuations than large-caps.

From a fiscal perspective, we’ve removed some uncertainty now that H.R. 1 (i.e., the One Big Beautiful Bill Act) has passed. The back-and-forth from tariff policy won’t last forever. We recommend watching earnings and valuations as you look to navigate the uncertainty.