Five for Friday
July 18, 2025
Market Momentum, Switchers vs. Stayers, Rate Cuts, Productivity, and Takeout
1. Momentum
This week marked 65 trading days from the April market low (~3 months), and the ~26% gain for the S&P 500 ranks among the best stretches of the last 80 years. Our partners at Strategas note two things about the history of such strong runs: 1) they tend to portend strong returns over the next 6-12 months (as does making new all-time highs); but 2) they also tend to portend a period of weakness/choppiness over the next month or two. This will be important context to keep top of mind if stocks wobble at some point this Fall (which is already typically a rougher time for the market), and especially since we cannot know the catalyst ahead of time. Will it be higher rates? Another tariff tantrum? Something unforeseen? Whatever it is, it will likely be nerve-wracking—but holding the line has been the right move across history.
2. Wages
Something interesting is happening in the labor market. While the 2021-22 period saw quit rates spike and job-switchers secure record wage gains (aka “The Great Resignation”), today’s environment is almost exactly the opposite: wage growth for job-stayers is higher than switchers (a rare occurrence) and quitting is below pre-Covid levels. This suggests a cooling labor market with muted hiring activity (especially outside of a few hot sectors like healthcare and education) but firing hasn’t necessarily picked up—despite all of the macro headwinds, initial claims for unemployment insurance have remained quite low. It is also a sign that wage pressure is less likely to be a source of higher inflation going forward—which, along with growth in shelter costs cooling, should allow some wiggle room for the economy to absorb any price hikes caused by tariffs.
3. Rates
Rising tension between the White House and Federal Reserve could be one of the more impactful news stories. President Trump wants the Fed to lower interest rates (in large part to fuel economic growth) but the Fed has held rates steady due to uncertainty on the inflation picture. That debate aside, it’s worth remembering that while short-term interest rates are primarily set via Fed policy, the long-term rates that affect most borrowers are also influenced by expectations for economic growth, fiscal policy, inflation, and more. Recall that since the Fed started cutting interest rates on Sept. 19, 2024 (with a jumbo-sized 50 basis point cut, no less), the 30-year fixed mortgage rate has actually risen from around 6% to just under 7%. More rate cuts don’t necessarily mean more relief for borrowers.
4. Artificial Intelligence
I recommend this quick read from Chicago Fed President Austan Goolsbee on productivity growth, its importance to the U.S. economy, what’s behind the post-Covid surge, and whether it’s sustainable. Of the four major explanations for the productivity surge (work-from-home, labor reshuffling, new business formation, new technology), only new technology (such as A.I.) would lead to more than a one-time pop, Goolsbee concludes. He notes that of the industries with the biggest surge in productivity, “7 or 8 of the top 10 look tech- or A.I.-intensive,” and that while productivity gains from new tech (electricity, computers, etc.) tend to start in that technology’s core industry, they tend to spread across the full economy. All to say, the A.I. / productivity story is critical for the next decade of investing and policymaking.
5. Did you know
that, per the National Restaurant Association, “nearly 75% of all restaurant traffic now happens off-premises” (i.e., almost 3 out of 4 restaurant orders are now taken to go). Interestingly, this has coincided with (and perhaps spurred on) a productivity surge in the U.S. restaurant industry, with sales per employee, annualized and inflation-adjusted, spiking in recent years, and remaining 15-20% higher than pre-pandemic levels after decades of zero improvement. Big shocks catalyze big changes, and the fallout from the Covid-19 pandemic continues to impact our economy and behavior.
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