Overview

U.S. large-cap stocks, as measured by the S&P 500 Index, gained 2.2% in July, marking the third consecutive month of gains. The Russell 2000 Index of U.S. small-cap stocks ended the month up 1.7%. In contrast, U.S. intermediate-term bonds, represented by the Bloomberg U.S. Aggregate Bond Index, finished July roughly flat, down 0.3%.

Preliminary second-quarter GDP estimates showed that the U.S. economy grew at an annualized 3.0% quarter-over-quarter—a notable improvement from the 0.5% contraction reported in the first quarter. Consumer and government spending were the main drivers of this recovery. Consumer spending rose 1.4%, compared to 0.5% in the first quarter, while government spending increased by 0.4%, reversing a 0.6% decline. However, not all signals were strong: the ISM Manufacturing PMI remained in contractionary territory in July, with a reading of 48. The employment component within manufacturing dropped to its lowest level since July 2020. According to the Institute for Supply Management, “for every comment on hiring, there were two on reducing headcounts.” While the ISM Services PMI showed service sector activity continuing to expand, the prices paid component rose to 69.9% in July—the highest reading since October 2022.3 Tariffs and tariff-related costs were cited as the key reason for rising costs.