Bloomberg Surveillance: July 29, 2025 - Markets, Economy, and Fed Outlook

Market Outlook and Earnings Revisions

• 💡 Mike Wilson of Morgan Stanley is bullish on 2026, citing a significant increase in earnings revision breadth as a key driver, comparable to the COVID recovery.
• 🚀 The positive earnings revision is attributed to the reflexivity of bearish sentiment, the bottoming of AI capex cycles, and a weaker dollar.
• 📈 Companies are showing signs of operating leverage, indicating a potential rolling recovery rather than a rolling recession.
• ⚠️ Near-term risks include potential increases in cost of goods sold due to tariffs and a backing up of the Treasury market due to supply.

Economic Rebalancing and Tariffs

• 🎯 The White House strategy involves global rebalancing to reduce current account deficits and domestic rebalancing focusing on "Main Street over Wall Street" through regional banking lending.
• 💰 Tariffs are viewed as an import tax that will be shared among exporters, importers, and consumers, with companies possessing pricing power (likely in industrials and value-added supply chains) able to pass costs through.
• 🏢 A tax cut for corporations is intended to offset tariff impacts, encouraging reinvestment and economic growth.

Labor Market and Economic Data

• 📊 Kevin Gordon of Charles Schwab emphasizes the importance of labor data this week, as it will reveal if tariffs are impacting hiring.
• 📉 While tech and Mag 7 are leading, there's a broadening out of the recovery into sectors like industrials and financials.
• ⚠️ Gordon expresses skepticism regarding a full rolling recovery, pointing to softening capex intentions in regional Fed surveys and the potential impact of tariffs on business investment.

Federal Reserve and Inflation Concerns

• ⚠️ Stephen Stanley forecasts zero job growth for Friday's payroll report, citing a reversal of government education jobs and tariff-related uncertainty.
• 🏦 The Fed is likely to look through weakness in government jobs but is concerned about tariffs potentially causing a sustained increase in prices, not just a one-off shock.
• 📉 Unlike 2021, households do not have excess savings, suggesting that price increases from tariffs will lead to softer consumer spending and a broken transmission mechanism for sustained inflation.
• 🤔 The FOMC is expected to be divided regarding rate cuts, with uncertainty surrounding potential Fed Chair appointments adding to market speculation.