Mixed economic data pointing to a slowdown?

U.S. real GDP surged at an annualized 3.0% in Q2 2025, a rebound from a −0.5% contraction in Q1, driven largely by a sharp decrease in imports and a pickup in consumer spending, while core domestic demand (final sales to private purchasers) rose only 1.2%, a reminder of underlying softness beneath the headline strength. This morning’s jobs report revealed that nonfarm payrolls grew by just 73,000 in July, well short of expectations, with prior months revised down by a combined 258,000 jobs, and the unemployment rate ticked up to 4.2%.

• While the headline GDP report looked good on the surface, the details were less impressive
• Like the pull forward (increase) of imports in Q1 was a hit to GDP, the decline in imports after tariffs were announced significantly increased GDP in Q2
• The sharp decline in Q2 imports added approximately 5.3% to the GDP reading
• The 1.2% rise in core domestic demand growth was likely a better read of how the economy is doing
• On the labor front, the lower-than-expected number and the large revision down in prior months are a cause for concern
• The 2-month revision was the largest since 1979
• Taken together, it seems like the economy is showing signs of slowing, bolstering the case for rate cuts

Fed seems torn on rate cuts

The Federal Open Market Committee (FOMC) concluded its July 29–30 meeting by holding the federal funds rate steady at 4.25%–4.50%, marking the fifth consecutive pause as inflation remains “somewhat elevated” and the labor market stays strong.  While the majority favored maintaining policy, Governors Michelle Bowman and Christopher Waller dissented, calling for rate cuts amid mounting concerns over slowing job growth, marking the first dual dissent since 1993. Fed Chair Jerome Powell emphasized a data-dependent approach, warning that recent tariffs and labor market uncertainty warrant caution before easing, dampening market expectations for a September rate cut. Following the announcement, Treasury yields ticked higher and the U.S. dollar surged, reflecting the market’s adjustment to a more hawkish tone.

• The reason there is little dissent in Fed decisions is that historically the Fed viewed dissent as a risk to its credibility
• Notably, two Governors dissented together for the first time in 30 years
• This is especially notable given President Trump’s constant public pressure to lower rates
• In addition, both Waller and Bowman then issued statements to reiterate their views
• The Non-Farm payroll data today quickly validated their concerns of a slowing job market
• While rates rose on the back of the Fed decision, they reversed course following the jobs number
• Probability for a September rate cut also first declined and then reversed course after the labor data

MAG7 dominance changing

This quarter’s tech earnings underscored a growing divergence between software-driven platforms and hardware-centric firms. Meta and Microsoft posted standout results: Meta’s revenue rose 22% with EPS up 38%, expanding its operating margin to 43%, while Microsoft’s 18% top-line growth, 24% EPS increase, and ~45% margin were powered by 39% Azure growth and surging adoption of its AI Copilot tools, despite ramping capex to over $30 billion next quarter. Amazon delivered 13% revenue growth to $167.7 billion and EPS of $1.68, but despite strong AWS growth (+17.5%), the company issued soft operating income guidance, leading to a 7% after-hours selloff—highlighting investor sensitivity to cloud AI execution and margin durability. In contrast, Apple's revenue growth of 10% was driven by iPhone and services sales, but the company faces rising tariff headwinds and slower AI adoption. Meanwhile, Tesla's revenue fell 12%, and operating margins dropped to ~4%. CEO Musk has cautioned of “rough quarters ahead” due to weakening EV demand. The common thread: companies with scalable software and visible AI monetization paths are outperforming, while those tied to hardware cycles or high capex without near-term payoffs are under pressure.

• With five of the MAG7 reporting earnings this week, it was a good opportunity to see if they will continue to dominate
• META and MSFT both showed very healthy revenue and earnings growth
• And although CAPEX for AI also grew, both companies showed margin improvement
• For the last several quarters, many have questioned whether or not all of this AI CAPEX would have a good return on investment
• This quarter was the first time we may be witnessing the early benefits
• On the back of earnings, MSFT became only the second company to cross the $4 trillion market cap (following Nvidia)
• Contrary to this, the hardware-heavy AAPL and TSLA did not impress the market
• While TSLA has been investing heavily in AI and Elon Musk clearly plans for TSLA to be an AI company in the long term, AAPL has continued to struggle in this area
• AAPL’s tariff guidance also highlights the additional friction for hardware companies versus software businesses
• It will be important to continue to monitor the dominant leaders of the market from the last few years, as it is likely that not every company will participate in the same way going forward

Crypto framework outlined

In a landmark address this week, SEC Chair Paul Atkins unveiled “Project Crypto”, a sweeping regulatory agenda aimed at modernizing U.S. securities law to fully integrate cryptocurrencies, decentralized finance, and tokenized securities into the capital markets framework. Atkins directed SEC staff to draft clear rules defining when crypto assets qualify as securities, and proposed exemptions and tailored disclosures for ICOs, airdrops, and staking activities. These remarks closely follow a 160-page White House report by the President’s Working Group on Digital Asset Markets, which mapped out recommendations to establish a “fit‑for‑purpose market structure” and enable federal-level trading of digital assets under SEC and CFTC coordination. The report also advocated for legislation like the CLARITY Act and the GENIUS stablecoin bill, while signaling a broader shift toward the U.S. as a global hub for crypto innovation. Together, the SEC’s new strategic direction and the White House roadmap represent a clear pivot from the previous era of enforcement to one of regulatory facilitation and capital‑formation opportunity.

• Project Crypto is a very healthy development for the capital markets
• As technology has changed the nature of the economy and capital markets, our regulations have not kept pace
• As these new rules are rolled out, expect many new adopters of crypto and blockchain technology
• The use of this technology will allow for more efficient capital markets, lowering the barriers to entry
• There are also many use-cases, such as De-Fi, which were not previously workable under the incumbent regulatory framework
• This week, JP Morgan, led by the long-time crypto sceptic Jamie Dimon, announced a partnership with Coinbase
• This would have been unthinkable a few years ago, and we would expect more such announcements from incumbent financial institutions going forward

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