July 6, 2025
Weekly Market Outlook
By Geoff Bysshe
Last week, the market made up for its holiday-shortened schedule with an impressive display of several bearish mirages, one-by-one, fading into the next bullish oasis that further fueled the bulls’ confidence.
The Two July Highs
Last week also established a bullish pattern at the start of what is typically one of the most bullish months of the year. July is also a pivotal month for determining market reversals that often frighten investors in the late summer and early fall. This tendency for July to identify the high is particularly pronounced after significant rallies, such as the one we’re experiencing.
The first July high isn’t a price point; it’s investor enthusiasm. There were several demonstrations of this last week, but the market’s strongest such message came on Friday when the nonfarm payrolls reported numbers that were “status quo.”
There is a growing feeling that the labor market is weakening. This feeling is shared by Fed Chair Powell, and therefore, viewed as a potential lever that could push the Fed to lower rates.
Leading up to the report, vocal investors seemed increasingly certain that they saw Thursday about to provide hard data indicating a long-awaited acceleration of significant weakening in the labor market.
In fact, consensus estimates for growth in payrolls ranged from 106k-110k, but the Street’s whisper number was believed to be as low as 95k.
As a result, the reported number of 147k jobs added was substantially higher than the mirage of weakness that preceded the report. Furthermore, the unemployment rate, which was previously 4.2% and expected to rise to 4.3%, instead fell to 4.1%.
Finally, the other component of the bears’ mirage of trouble in the current labor market is wage inflation. That mirage also evaporated when the expectations for average hourly earnings to rise from 0.3% to 0.4% reported a decline to 0.2%.
While the media will pick apart the reams of data in the report to find all kinds of reasons the “market got it wrong,” the big picture is that the key metrics continued the “status quo” slowly weakening trends in the labor market, but investors were expecting worse, and that’s bullish.
Furthermore, there is a loud desire for the Fed to cut rates, but Thursday’s market action demonstrated that it is certainly not a requirement for this market to move higher. In fact, fed funds markets' expectations for a rate cut in July dropped from about 23% to about 4%, and the odds of a cut in September’s meeting fell from about 90% to 73%.
Considering the seasonally strong performance of July shown below, and several other bearish mirages that are in the process of following the same bullish path as Thursday’s labor report, the summer is likely to heat up!
Are Expectations of Rising Unemployment Rate Another Bearish Mirage
Chair Powell has pointed to the unemployment rate as a key metric for measuring the strength of the labor market and an important factor in determining monetary policy. He’s also suggested that the trends in immigration are likely to have a material impact on the unemployment rate.
In a January 2025 news conference, he remarked, "The flows across the border have decreased very significantly, and there's every reason to expect that to continue. But job creation has come down a bit, too. So if those two things come down together, that can be a reason for the unemployment rate to stabilize." wsj.com
Simply put, less immigration may put downward pressure on the unemployment rate and create a counterintuitive situation where new job creation data declines and the unemployment rate remains low.
The chart below shows the existence of this relationship over the last year. Since July 2024, the 6-month average of change in nonfarm payrolls has dropped from about 225k to about 160k last month (blue line). During this time, border encounters have declined from 90k to under 10k.
During the same time, the unemployment rate has been locked in a very tight range of 4.0% to 4.2%.
In case the implications for monetary policy are not obvious…
The administration is determined to dramatically reduce the number of immigrants in the U.S., which may prolong the time it takes for the unemployment rate to rise to a level that concerns equity bulls and the Fed feels justifies cutting rates.
The Bearish Tariff Mirage
The 90-day tariff pause is only days away, and the market’s reaction to most tariff announcements appears to be positive. The market doesn’t appear to believe the extraordinary threats that led to the pause will materialize, and therefore, the certainty that can be gained by a tariff agreement has been bullish. For example, Wednesday’s announcement of an agreement on a 20% tariff rate with Vietnam resulted in positive action in stocks and in some cases, like Nike, the bullish moves were substantial.
It may be a good bet to expect the days following July 9th to be bullish as fear of the effects of tariffs rapidly declines.
Tariff Inflation?
Even if the tariffs don’t create a substantial slowing in the economy, there is still a concern that they will lead to inflation. Chair Powell, for example, is expecting to shape monetary policy around measurable impacts of tariff inflation.
However, there hasn’t been any substantial evidence of this in the macro data points. It may be too early to expect it in the macro data, but the upcoming earnings season should provide some insight into where the costs of the tariffs are being absorbed or passed on to.
This will potentially make the second “July High” a very timely indicator. The second July High is the July Calendar Range.
The July Calendar Range
After a substantial move up or down in the market, the July Calendar Range serves as the range that can identify trend changes in the same way that a break in the January Calendar Range identifies a new trend.
If you’re not familiar with MarketGauge’s Calendar Range tactics, I’d recommend that you contact Rob Quinn for a demo conversation on how you can learn how it can help you be on the right side any market’s trend – index, stock, ETF, etc.
For example, the chart below shows the S&P 500 with the July Calendar Range High and Low shown with blue and magenta lines, respectively.
As you can see from the annotations, learning how to identify range breakouts and reversals allows you to clearly determine when to be bullish and bearish.
The simple application of the range in 2025 will be to wait for it to form, and then, within a couple of weeks, earnings season will begin to weigh on or lift the market. The range will tell you if the movement is strong enough to expect the trend to continue or reverse.
Beware of Animal Spirits
The first half of the year was filled with bearish challenges or mirages like a tariff induced recession, tariff fueled inflation, budget legislation that would balloon the deficit and spike interest rates, war in the Middle East, a weakening labor market, and more.
As we enter the second half of the year, investors appear to have been able to digest, look past and even use all of the bearishness to fuel a bull that climbs a wall of worry.
In fact, according to the AAII sentiment data shown below, the spread between the % of Bulls vs Bears has not been this bullish since January 2025.
Last week’s market action was also indicative of a renewed and emboldened bull market. As you can see from the chart below, the market broadened out as demonstrated by IWM outperforming SPY and QQQ, and the equal weight ETFs of RSP and QQEW outperformed their respective cap. weighted ETFs, SPY and QQQ.
Furthermore, the rotation into underperforming areas isn’t coming at the expense of the market leaders.
With the July Range or some other good risk management tactics, it looks like the risk for the active investors isn’t in Bearish mirages, but rather in missing the upside should animal spirits continue to gain momentum.
If you don’t have a methodical approach to the market (algorithmic or discretionary), now’s the time to double down on discipline and risk management and let the upside take care of the rest.
If you’d like a demo of how we do this as self-sufficient trader, set up a free call with Rob Quinn. If you’d like to see how you can have it done for you or if you’re an RIA looking for systems that can help your clients, contact Ben Scheibe at ben@marketgaugepro.com.
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 Every week we review the big picture of the market's technical condition as seen through the lens of our Big View data charts.
The bullets provide a quick summary organized by conditions we see as being risk-on, risk-off, or neutral. The video analysis dives deeper. |
Summary: Markets are firmly in risk-on mode, with bullish price action across sectors, strengthening internals, surging growth leadership, and volume signaling broad accumulation. Although gold and interest rates remain in consolidation, the market shows strong seasonal momentum and breadth, supported by low volatility and 100% positive risk gauges.
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