A new era of trade is upon us. Late last week, US President Donald Trump announced a fresh wave of tariffs, leaving the likes of Canada, Switzerland and Brazil reeling. Overall, the new levies - which will take effect this week - are less punitive than those announced on ‘liberation day’. However, they still leave America’s effective tariff rate at 17.3% - the highest it has been since 19351.
The question is: do markets care?
Well, sort of. US equities wobbled on Friday, and Europe saw its biggest one-day sell-off since 9 April. This morning, however, markets are firmer, with the FTSE 100 and European bourses up versus last week.
Zoom out a bit further and the picture is remarkably positive. The S&P 500 achieved its third consecutive month of growth in July and the tech-focused Nasdaq is on a four-month streak. Closer to home, the FTSE 100 sits above 9,100 points after breaking through 9,000 for the first time last month.
April’s stomach-lurching losses are a distant memory.
Upbeat earnings season
There may be a reasonable explanation for this. After all, companies are reporting some excellent financial results. According to FactSet data, US players achieved a blended earnings growth rate of 8.6% in the second quarter - well above the 4.9% everyone expected.
Some more big names are due to report this week, including Disney and Fox Corporation in America and BP and Diageo in the UK.
Crucially, the world’s biggest companies are starting to reap the rewards of artificial intelligence (AI). Alphabet, Amazon, Apple, Meta and Microsoft all posted double-digit growth last week, driving the Nasdaq higher. The Financial Times points out that Microsoft and Meta combined are now worth US$5.9tn - about twice as much as the entire FTSE 1002.
Clouds on the horizon
Investors can’t help looking over their shoulders, however. This is partly due to the stance of the US Federal Reserve. Last Wednesday, the bank held interest rates at 4.25% to 4.5% for the fifth month in a row, despite growing pressure from President Trump. It is clearly still worried about the effect tariffs will have on inflation.
Meanwhile, the triumphant return of Big Tech means ‘American exceptionalism’ is back on the menu. That’s fine for now but, if the AI narrative falters, the fallout could be nasty. Let’s not forget what happened to Nvidia’s share price earlier this year when Chinese rival DeepSeek burst onto the scene.
Sources:
1The Budget Lab 28.07.25
2FT. 01.08.25