S&P Hits Records, Fed Holds Fire, Gold Falls – What Smart Money Is Doing Next

Good morning traders and investors,

As we kick off another pivotal week in the markets, I'm seeing some fascinating dynamics that demand our immediate attention. The convergence of major earnings releases, Federal Reserve policy decisions, and significant geopolitical developments has created what I believe to be one of the most compelling trading environments we've seen this year.

Let me start with the elephant in the room – the US-EU trade deal that broke over the weekend. Trump's announcement of a 15% tariff on European exports, down from the initially threatened 30%, has sent ripples through global markets that we're still processing. This isn't just about trade numbers; it's about market psychology and restoring confidence in transatlantic economic relationships.

Market Performance Overview

The numbers tell a compelling story this week. The S&P 500 has delivered its fifth consecutive record close, sitting pretty at 6,388.64 with a solid 1.32% gain over the past week. What excites me most about this move is the underlying strength – we're not seeing the frothy, momentum-driven rallies that often precede corrections. Instead, this feels like genuine institutional accumulation backed by solid fundamentals.

But here's what really catches my attention – the market's ability to maintain these levels while absorbing significant news flow. That's the hallmark of a mature bull market with genuine staying power.

Volatility Landscape: The VIX Story

The VIX at 15.16 tells us everything we need to know about current market sentiment – and it's not what you might expect. We've seen an 8.12% decline in the fear gauge over the past week, which on the surface suggests complacency. But I'm reading this differently.

This level of volatility compression, particularly heading into what promises to be the busiest earnings week of the season, suggests institutional confidence rather than retail complacency. Smart money isn't hedging aggressively because they see limited downside risk in the current environment. The combination of solid economic fundamentals, reasonable valuations in many sectors, and the recent trade deal resolution has created what I call a "Goldilocks volatility environment" – not too hot, not too cold, but just right for sustained upward momentum.

However, I'm keeping a close eye on the 14-15 VIX level as a potential floor. If we break below 14 convincingly, we might be entering dangerous complacency territory that could set us up for a sharp reversal. For now, though, this level suggests healthy market conditions that favour momentum strategies over defensive positioning.

The Magnificent Seven Earnings Extravaganza

This week represents the culmination of earnings season, with four of the "Magnificent Seven" tech giants reporting results that will likely determine market direction for the remainder of the quarter. Meta and Microsoft report on Wednesday, followed by Amazon and Apple on Thursday – a lineup that collectively represents over $10 trillion in market capitalisation.

What I'm watching isn't just the headline numbers, but the commentary around artificial intelligence spending and cloud infrastructure investments. The market has been pricing in massive AI-driven growth for months, and we're finally at the moment of truth. Microsoft's Azure growth rates, Meta's Reality Labs spending efficiency, Amazon's AWS margins, and Apple's services revenue trajectory will provide the clearest picture yet of whether this AI revolution is translating into sustainable profit growth.

The options market is pricing in significant moves across these names, with implied volatility suggesting average post-earnings moves of 4-6%. That's substantial for companies of this size, and it tells me that institutional investors are positioning for binary outcomes rather than gradual adjustments.

Federal Reserve: The Steady Hand

The Fed's two-day policy meeting, concluding Wednesday, represents a fascinating study in central bank communication under political pressure. With Trump's increasingly vocal criticism of Jerome Powell and calls for immediate rate cuts, the Fed finds itself navigating treacherous political waters while maintaining its independence mandate.

I expect no rate changes this meeting, with the fed funds rate remaining at 4.25%-4.5%. What matters more is Powell's press conference at 2:30 PM Wednesday, where his commentary on tariff impacts and inflation expectations will provide crucial guidance for the remainder of 2025. The market is currently pricing in a 65% probability of a rate cut by September, but I believe that's overly optimistic given the Fed's stated concerns about tariff-driven inflation.

The key inflection point will be Thursday's PCE inflation data, expected to show a year-over-year increase to 2.4% from 2.3%. If we see upside surprises here, particularly in the core services component, it could push rate cut expectations well into 2026. Conversely, a softer reading might give the Fed more flexibility to ease policy sooner than currently anticipated.

Commodities: Gold's Retreat and Oil's Consolidation

Gold's 1.83% weekly decline, with Gold trading at 3338, reflects the market's reduced appetite for safe-haven assets following the US-EU trade deal. The combination of persistent geopolitical tensions, central bank buying, and concerns about currency debasement continues to support a constructive long-term outlook for precious metals.

I'm viewing this weakness as a potential buying opportunity for patient investors. The technical setup suggests support around the 3,300 level, with any break below that potentially targeting the 3,200-3,250 range. For tactical traders, I'd consider establishing positions on any test of these support levels, particularly if we see concurrent weakness in the dollar.

Oil presents a more complex picture, with prices down 0.98% for the week to 74.85. The underlying crude oil market is caught between competing forces – robust summer driving demand and concerns about Chinese economic growth. The recent inventory data has been mixed, but I'm seeing signs that the market is finding its footing around current levels. The 65-68 range for WTI crude appears to be establishing itself as a new trading range, supported by OPEC+ production discipline and seasonal demand patterns.

International Markets: UK Strength Amid Currency Weakness

The FTSE 100's impressive 1.57% weekly gain demonstrates the resilience of UK equities despite ongoing currency headwinds. This outperformance relative to other European indices suggests that the market is finally recognising the value proposition in UK stocks, which have traded at persistent discounts to global peers for several years.

The strength in UK equities comes despite the pound's continued weakness, with GBP/USD declining 0.36% for the week. This currency weakness is providing a tailwind for FTSE 100 companies with significant international exposure, as their overseas earnings translate back into sterling at more favourable rates.

I'm particularly bullish on UK banks and energy companies in this environment. The combination of rising interest rates, improving credit conditions, and currency translation benefits creates a compelling setup for these sectors. Additionally, the potential for increased M&A activity in the UK market, driven by attractive valuations and currency dynamics, adds another layer of support for UK equities.

The GBP/USD technical picture suggests we're testing key support around the 1.34 level. A break below this could target 1.32, but I suspect we'll see buying interest emerge at these levels from both fundamental and technical perspectives. The Bank of England's relatively hawkish stance compared to other central banks should provide some support for sterling over the medium term.

Economic Data Calendar: Jobs, Inflation, and Market Implications

This week's economic calendar reads like a greatest hits collection of market-moving data releases. Tuesday's JOLTS report will provide our first glimpse into July labour market conditions, followed by Wednesday's ADP payroll data and Thursday's jobless claims. The crescendo comes on Friday with the official July jobs report, which could significantly influence expectations for Fed policy.

I'm particularly focused on the relationship between job openings and wage growth. If we see continued tightness in the labour market accompanied by accelerating wage pressures, it could complicate the Fed's path toward rate cuts. Conversely, signs of labour market cooling without significant unemployment increases would provide the "soft landing" scenario that markets are currently pricing in.

Thursday's PCE inflation data represents the week's most critical release from a policy perspective. The expected increase to 2.4% year-over-year would mark the highest reading since early 2024, potentially reinforcing the Fed's cautious approach to rate cuts. I'll be watching the core services component particularly closely, as this has been the most persistent source of inflationary pressure.

Trading Strategies and Risk Management

Given the current market environment, I'm recommending a balanced approach that capitalises on momentum while maintaining defensive positioning for potential volatility spikes. Here are my specific recommendations for the week ahead:

Short-Term Momentum Plays (1-2 week horizon)

Technology Sector Rotation: With earnings season in full swing, I'm favouring a barbell approach in tech. Consider establishing positions in both mega-cap winners (MSFT, META) and smaller, more nimble players that could benefit from AI adoption. Entry points should be on any pre-earnings weakness, with position sizes limited to 2-3% of portfolio value per name.

Volatility Selling Strategy: The current VIX level of 15.16 presents opportunities for premium collection. Consider selling put spreads on SPY with strikes 5-7% out of the money, expiring in 2-3 weeks. This strategy benefits from time decay while providing some downside protection. Risk management is crucial here – close positions if VIX spikes above 18.

Medium-Term Value Opportunities (1-3 month horizon)

UK Equity Exposure: The combination of attractive valuations and currency tailwinds makes UK equities compelling for medium-term investors. I recommend a 5-7% allocation to EWU or direct exposure to FTSE 100 components, particularly in the financial and energy sectors.

Gold Accumulation Strategy: Use any weakness in gold below $3,300 per ounce as accumulation opportunities. I suggest dollar-cost averaging into positions over the next 4-6 weeks, with a target allocation of 3-5% of portfolio value. This serves both as inflation protection and portfolio diversification.

Risk Management Protocols

Position sizing remains critical in this environment. I recommend limiting individual equity positions to 3-5% of portfolio value, with sector concentrations not exceeding 15-20%. The current low volatility environment can be deceptive – maintain stop-losses at 7-10% below entry points for individual names, and consider portfolio-level hedging if exposure exceeds comfort levels.

For options strategies, implied volatility levels suggest that selling premium remains attractive, but be prepared to adjust quickly if market conditions change. The earnings-driven volatility this week could create opportunities for both buyers and sellers, depending on timing and execution.

Portfolio Integration Framework

The key to success in the current environment is maintaining flexibility while staying true to core investment principles. I recommend a core-satellite approach, with 60-70% of equity allocation in broad market exposure (SPY, QQQ) and 30-40% in tactical positions based on the opportunities outlined above.

Rebalancing should occur monthly or when individual positions deviate more than 2% from target allocations. This disciplined approach helps capture gains while maintaining appropriate risk levels across different market environments.

Looking Ahead: Key Catalysts and Market Themes

As we navigate the remainder of this critical week, several themes will likely dominate market sentiment and trading activity. The intersection of earnings results, Federal Reserve communications, and economic data releases creates a perfect storm of potential market-moving events.

The most immediate catalyst is Wednesday's Fed decision and Powell's subsequent press conference. While no policy changes are expected, the tone and content of Powell's remarks could significantly influence rate cut expectations for the remainder of 2025. Any dovish surprises could fuel additional market gains, while hawkish commentary might trigger profit-taking in growth sectors.

Thursday's earnings releases from Amazon and Apple represent the final major test for the technology sector's lofty valuations. These companies have been key drivers of the market's recent strength, and any disappointments could trigger broader sector rotation. Conversely, strong results accompanied by optimistic forward guidance could propel the market to new highs.

The geopolitical landscape remains supportive following the US-EU trade deal, but I'm monitoring developments in Asia-Pacific markets closely. The mixed performance we've seen in Chinese and Japanese markets suggests that global growth concerns persist despite the positive trade developments.

Final Thoughts and Market Outlook

The current market environment reminds me of the best trading conditions I've experienced in my career – sufficient volatility to create opportunities, but not so much as to create systemic risks. The combination of solid fundamentals, reasonable valuations in many sectors, and supportive policy environments creates a backdrop that favours active management and tactical positioning.

However, complacency remains the biggest risk in this environment. The low VIX readings and consistent market gains have created a sense of inevitability around further advances that concerns me. History teaches us that the most dangerous market environments are often those that feel the safest.

My base case scenario for the remainder of July and into August remains constructive, with the S&P 500 potentially testing the 6,500 level if earnings results meet or exceed expectations. The key support levels to watch are 6,300 on the S&P 500 and 21,000 on the Nasdaq – breaks below these levels would suggest a more significant correction might be underway.

For currency markets, I expect continued dollar strength against most major currencies, with the notable exception of the British pound, which could find support from Bank of England policy divergence. The commodity complex should remain range-bound in the near term, with gold finding support around 3,300 and oil consolidating in the 65-68 range.

The week ahead promises to be one of the most consequential of 2025 for market direction and investor sentiment. Stay nimble, manage risk carefully, and remember that in markets like these, the ability to adapt quickly often matters more than being right about long-term direction.

Trade safely and profitably,

Samuel Leach

This newsletter is for informational purposes only and should not be considered personalised investment advice. Past performance does not guarantee future results. Please consult with a qualified financial advisor before making investment decisions.