Global Markets Weekly Wrap KW 31 : Global Markets Stumble on Tariffs, Weak Data, and Rate Jitters

Global Markets Weekly Wrap KW 31 : Global Markets Stumble on Tariffs, Weak Data, and Rate Jitters 

It was a bruising week for the markets and for investor sentiment, one of those stretches that reminds us how quickly optimism can unravel when politics, policy, and economic data align in the wrong direction. U.S. equities finished the week nursing their worst losses since the tariff‑driven tumble back in early April. The small‑cap universe bore the brunt of the punishment, with the Russell 2000 sliding just over four percent and the S&P MidCap 400 dropping three and a half percent. The Dow didn't fare much better, falling almost three percent, while the broader S&P 500 was off by more than two percent. The Nasdaq Composite, typically the most volatile of the major indexes, actually held up best this time, shedding just over two percent but still maintaining its year‑to‑date lead.

The story of the week was tariffs and trade policy — and the way those two words alone can dominate the market mood. Ever since President Trump set an arbitrary August 1 deadline for fresh trade deals, investors had been waiting, trying to game out which way the wind would blow. On Thursday came the answer: an executive order raising tariffs on the vast majority of U.S. trading partners, set to take effect August 7. Markets don't like surprises, and this one weighed heavily on stocks right into Friday morning. Alongside this, there were a few glimmers of progress — agreements with the European Union and South Korea, plus an extended negotiation window with Mexico — but the broader message from Washington was clear: tariffs are back in force, and they will be part of the economic landscape for the foreseeable future.

Earnings season did its best to compete for attention. By Friday morning, roughly two‑thirds of the S&P 500 had reported, and the numbers weren't bad. In fact, they were quite good on the surface — more than eighty percent had beaten consensus earnings estimates, and the blended growth rate was running just over ten percent. But beneath that headline strength, companies were warning in unison about the bite from tariffs. Ford Motor put a number on it, saying it expects a two‑billion‑dollar hit this year from trade headwinds. Microsoft and Meta, on the other hand, reminded us that parts of the corporate landscape are still thriving, buoyed by their own strategic tailwinds, including the rapid growth of artificial intelligence‑driven services.

While trade was the spark, the Federal Reserve and the economic data flow added more fuel to the week's volatility. The Fed wrapped up its July policy meeting on Wednesday, holding rates steady for the fifth meeting in a row at a range of 4.25 to 4.50 percent. There was dissent inside the room, with two governors wanting to cut rates immediately by a quarter‑point. The official statement noted that economic activity had moderated in the first half of the year — language that many read as dovish — but Chair Jerome Powell quickly reminded everyone that inflation remains stubbornly above target. He emphasized the central bank's willingness to wait for data before moving, which in turn dialed back expectations for a September cut.

Then came Thursday's inflation data from the Bureau of Economic Analysis, showing the Fed's preferred measure — core PCE — ticking up 0.3 percent in June after a 0.2 percent gain in May. On a year‑over‑year basis, prices were up 2.8 percent, still above the Fed's long‑term target. The same day brought a GDP surprise: the economy grew three percent in the second quarter, a sharp rebound from the half‑percent decline in Q1, largely thanks to a steep drop in imports.

And then, Friday's jobs report landed with a thud. The economy added just seventy‑three thousand jobs in July, far shy of the one‑hundred‑plus‑thousand expected, and prior months were revised down sharply. The unemployment rate ticked up to 4.2 percent. That kind of deterioration can shift the Fed calculus quickly, and indeed, rate‑cut expectations for September spiked right after the report, reversing the mid‑week pullback. Treasury yields tumbled across the curve, with the 10‑year dropping to about 4.22 percent.

Against that backdrop, the Dow closed the week at 43,588, down more than thirteen hundred points. The S&P 500 settled just above 6,238, down one‑hundred‑fifty points. The Nasdaq ended around 20,650, off four‑hundred‑fifty points. Midcaps closed a shade over 3,104, while small caps slipped to 2,166.

The tremors were felt across the Atlantic, where the STOXX Europe 600 slid two‑and‑a‑half percent. The market had been looking for clarity in the new U.S.–EU trade framework but came away disappointed. France's CAC 40 gave up almost four percent, Germany's DAX dropped over three percent, and Italy's FTSE MIB lost nearly two percent. The UK's FTSE 100 was off less than a percent, cushioned somewhat by a weaker pound, which tends to boost the overseas revenues of its multinational heavyweights.

Eurozone data, meanwhile, painted a picture of an economy that is steady but still stuck in low gear. Headline inflation held at two percent in July, matching the ECB's target but running a touch hotter than forecasts. Core inflation stayed at 2.3 percent. GDP managed a tiny 0.1 percent expansion in Q2 from the prior quarter, beating no‑growth forecasts but slowing from the tariff‑front‑loaded 0.6 percent of Q1. The jobless rate stayed at a record‑low 6.2 percent, and sentiment improved modestly, especially in industry, services, and retail. Even UK housing, which wobbled after a tax change, bounced back in July with a six‑tenths‑of‑a‑percent gain.

In Asia, Japan's markets joined the retreat, with the Nikkei 225 off one‑and‑a‑half percent. Technology shares were weak, and the yen slid past 150 to the dollar, prompting verbal intervention from the finance minister. The Bank of Japan kept rates steady at 0.5 percent but nudged its inflation forecast higher, now expecting core CPI to rise 2.7 percent this fiscal year, mostly due to persistent food price increases. The BoJ hinted that rate hikes could be on the table later this year if the data hold up. Industrial production surprised with a 1.7 percent monthly jump in June, while retail sales rose two percent year‑on‑year.

China's markets had their own troubles. The CSI 300 fell nearly two percent, and the Shanghai Composite lost just under one percent. Manufacturing PMIs — both the official and the private S&P Global surveys — slipped back into contraction territory, with readings under 50. Extreme weather was part of the problem, but the broader issue is that domestic demand is still soft and the global trade backdrop is getting murkier. Exporters had been front‑loading shipments ahead of U.S. tariff hikes, but that momentum may now fade.

Further south, Chile's central bank cut its key rate by a quarter‑point to 4.75 percent, noting slower job creation and a soft credit environment but also some resilience in consumption and investment. Inflation has eased to just over four percent, giving policymakers room to act. In Brazil, the central bank stood pat with its Selic rate at a punishing 15 percent, citing persistent inflation risks and a still‑resilient labor market. Officials made clear they're watching U.S. tariff policy closely, especially given the new forty‑percent levy Washington has slapped on certain Brazilian exports.

Stepping back, what ties all of this together is the way trade policy, central bank posture, and economic data are now pulling at each other. Tariffs are inflationary in the near term, which complicates the work of rate‑setters who are trying to cool prices without freezing growth. At the same time, weaker jobs data in the U.S. and slowing momentum in China hint that growth risks are real and rising. This is the kind of push‑and‑pull environment where markets can struggle for direction, whipsawed between hopes for stimulus and fears of policy‑driven slowdowns.

Looking ahead, the near‑term trajectory will hinge on three things. First, whether the tariff headlines keep escalating or whether we see genuine breakthroughs in trade negotiations. Second, how quickly inflation responds — or fails to respond — to cooling demand. And third, whether the jobs market shows any sign of regaining momentum, which would keep the soft‑landing narrative alive.

If tariffs stay in place and the labor market continues to soften, the Fed will find it increasingly hard to wait until late in the year to cut rates. That could give markets some relief, but it would also be a tacit acknowledgment that the economy is slowing more quickly than expected. In the meantime, earnings season will continue to offer its own read on corporate health, and right now, that story is one of resilience under pressure — but also of growing caution.

My read is that volatility is going to remain elevated into the next few weeks. The tariff decision was not just a one‑off event; it's a pivot back toward a more confrontational trade stance, and that ripples globally. Europe is already adjusting expectations, Japan is watching the yen nervously, China is facing fresh headwinds, and emerging markets are recalibrating policy in response. The U.S., for all its relative strength in GDP and corporate earnings, is not insulated from any of this.

In other words, this was not just a bad week — it was a reminder that the balance between growth, inflation, and policy remains delicate. Until one side of that triangle breaks decisively in a more favorable direction, markets are going to have to navigate a landscape where every data point, every central bank meeting, and every trade announcement has the potential to move the needle in a big way. That's the kind of market where discipline matters more than conviction, and where patience — hard as it can be in weeks like this — may ultimately be the most valuable position of all.