From mid-July through early August, US equity markets experienced both rallies and retreats, influenced by corporate earnings, Federal Reserve policy signals, and shifting trade dynamics. Strong non-farm payrolls at the start of July lifted markets into the Independence Day period, yet optimism gave way to caution as the Fed’s June meeting minutes revealed internal disagreements over interest rate direction.
On August 1, sweeping tariffs took effect for other countries that did not manage to reach a settlement with US, raising the average US import tax rate to historic highs. Markets initially dipped but quickly rebounded, buoyed by robust corporate earnings and expectations of Federal Reserve easing. Technology stocks led the rebound with NASDAQ reached fresh highs.
A new month... brings about a new set of tariffs
Trade negotiations also advanced with a number of critical regions and countries such as the EU, Japan, South Korea, Taiwan, and ASEAN countries with a new set of tariffs lower than those announced in April, added to the optimism that the average tariff rate may end up lower than expected for the rest of the countries that are still negotiating. The stock market of EU, Japan and Vietnam rallied on news on an improved tariff rate with US.
Meanwhile, the administration announced plans for targeted tariffs: 100 percent on semiconductor imports and up to 250 percent on pharmaceuticals. Crucially, firms manufacturing semiconductors in the US would be exempt—a move expected to benefit Intel, Texas Instruments, and foreign companies with US facilities such as TSMC and Samsung. The intention of the tariffs is to encourage foreign manufacturers to set up their factories in US. In the pharmaceutical sector, imports of generics and active ingredients from India and parts of Europe could face steep markup, raising domestic healthcare costs and triggering possible retaliatory actions abroad. The market responded with a muted reaction with more focus on the earnings season, rather than the potential impact as the market feels that the Trump administration is probably exaggerated tariff amount and using that as a leverage to garner more deals
In another abrupt turn, US-India relations soured. President Trump replaced earlier friendly tariff talks with a punitive 50 percent tariff on Indian exports, citing India’s continued imports of Russian oil and perceived support for Russia amid the Ukraine war. India paused planned US defense procurements and Prime Minister Modi responded defiantly, stating he “was ready to pay a very heavy price” to protect farmers, dairy producers, and fishermen. The tariff followed reports that US–India trade negotiations would remain suspended until the dispute is resolved. The move threatens India's export competitiveness, and economists estimate up to a 0.6 percentage-point drag on GDP growth if tariffs persist.
US economy powers ahead despite the tariff threat
The US economy powered ahead with a slew of strong earnings from US companies and brought renewed momentum. Banks like JPMorgan and Citigroup, alongside technology giants such as NVIDIA and Alphabet, reported better-than-expected results, pushing major indexes to new highs.
July’s economic data provided additional context. Non-farm payrolls rose by only 73,000, down sharply from June’s 147,000. The three-month average sits near 35,000, and the unemployment rate climbed to 4.2 percent. This may be a warning light on the impact of US tariffs on the domestic employment, but the concerns are offset by strong corporate earnings.
The Federal Reserve on Wednesday kept interest rates unchanged for the fifth consecutive meeting as it remains under intense pressure from President Donald Trump and his allies to lower borrowing costs. The central bank left its benchmark lending rate at a range of 4.25% to 4.5%, where it has been since December
On the bright side, the weaker employment numbers may increase the chances for three interest rate cuts before year-end and continued strength in the tech sector despite the increasingly protectionist trade landscape.
Portfolio Performance and Strategy Going Forward
The portfolio delivered a good performance during the month of July with returns of +1.9% (Cash), +1.95% (CPF OA), and +1.79% (SRS). The portfolio has regained the losses caused by a combination of the US tariff wars and the sharp depreciation of the US Dollar. The recovery for this month mainly came from China and US equities, with a slight recovery of the USD/SGD providing additional support.
The greatest laggard for the month was the India fund, where optimism that India would secure a favorable trade deal and push the stock market higher quickly faded, causing Indian equities to fall behind. Meanwhile, countries that have received unfavorable trade terms are continuing their behind the scenes negotiations, and given the relatively muted market reaction to the latest set of tariffs, the situation may follow a pattern similar to China and Japan, where Trump initially raised tariffs to a high level, prompting outrage, before lowering them to a more reasonable rate.
In the current geopolitical landscape where the US has branded China as its number one rival, it will still need India’s support, as India has traditionally been at odds with China, to help contain China’s rise. Hence, I expect the 50% tariff rate imposed on India will be rolled back to a more reasonable value in an attempt to pull India away from aligning too close to Russia and China. I will continue to monitor the India position and switch to a more certain market if relations between the US and India continue to deteriorate.
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