CWS Market Review – July 8, 2025

(This is the free version of CWS Market Review. If you like what you see, then please sign up for the premium newsletter for $20 per month or $200 for the whole year. If you sign up today, you can see our two reports, “Your Handy Guide to Stock Orders” and “How Not to Get Screwed on Your Mortgage.”)

If you like market anniversaries, then you’ll be happy to learn that today is the 93rd anniversary of the mega low. On July 8, 1932, the Dow closed at 41.22. In 1929, it peaked at 381.17. By March 6, 1937, the Dow rose 371%. That’s still the greatest rally in history. All you had to do was time it perfectly.

Fortunately, the world is a wealthier place than it was in the 1930s. Alas, we still have tariffs. After hitting a new all-time high last week, the stock market started this week a bit on the weak side. Once again, tariffs are the problem.

It’s not a coincidence that the stock market bottomed in April right as President Trump announced a 90-day pause to his tariffs. The stock market has rallied briskly ever since – not like 1932, but still pretty good.

I think the message is loud and clear: Wall Street hates tariffs.

Yesterday, however, the president announced steep tariffs on 14 countries that are set to take effect on August 1. The market gods were less than pleased.

According to the president’s letters, goods that are imported to the United States from Japan, South Korea, Malaysia, Kazakhstan, Tunisia and several others will face a 25% tariff.

Goods from South Africa and Bosnia will face a 30% rate and Indonesia will have a 32% rate. The president allowed that the tariff rates are open to negotiation depending on each country’s relationship with the United States. The president wrote, “You will never be disappointed with The United States of America.”

In April, Trump imposed steep rates on several countries but the drop in the stock market caused him to announce his 90-day pause. As it turns out, the rates were in effect for only a few hours before Trump delayed them. I guess someone was disappointed. The delay period was about to end this week, but the president extended the pause for another three weeks.

This is where things get a little messy. President Trump has consistently pointed to trade deficits as proof of unfair trade practices, but that’s not necessarily the case. Trade deficits can happen for many reasons, and they can often be beneficial.

Trump’s reciprocal tariffs went as high as 125% on China, but the president was eagerly looking to strike some deals. The president said that the delay was because so many countries wanted to make deals with the U.S.

The issue got more complicated in May when the president’s reciprocal tariffs were struck down by a federal district court. The tariffs are in still effect while the federal courts are looking at the issue.

There are also targeted tariffs. For example, steel and aluminum are dinged at a 50% rate but the U.K. is exempt. Under U.S. law, the president can place tariffs if they’re related to national security.

I’m not sure what the outcome of these tariffs will be. The matter is far from settled and there are many exceptions. For example, Japan and South Korea export millions of cars to the U.S. and both countries will face 25% tariffs.

Then there’s the issue of China. According to the Wall Street Journal, “the Trump administration has for now settled on a tariff of 55% on Chinese imports.” That reflects a lowering of the initial rate to 30% which comes on top of a 25% tariff that existed before Trump took office.

The uncertainty of the tariff policy is having a major impact on issues like investment decisions. Of course, the Federal Reserve has been slow to lower interest rates, but the Fed is also looking out for higher prices from higher tariffs.

There are first-order effects of higher tariffs. For example, economists expect that tariffs will hold back the economy because it will dampen the demand for goods made outside the U.S., but there are other considerations which may not be fully expected.

The policy uncertainty could lead companies to hold off on expansion plans and that could curb the job market. We’re in a position where we don’t know what we don’t know.

The WSJ noted that Allianz, the German insurance company, slashed its growth estimate for the U.S. economy this year from 2.8% to 1.4%, and those forecasts were based on the current level of tariffs.

An Increasingly Narrow Market

This uncertainty is weighing on the market. One potentially troubling sign has been how narrow the stock market’s advance has become. In plain English, that means that fewer stocks are doing the heavy lifting.

On the NYSE, the number of stocks making a new high outpaced those making new lows by only 88 stocks. Historically, whenever that number drops below 100, the stock market hasn’t done very well over the coming months.

Large-cap tech stocks have resumed their leadership while most of the rest of the market has been fairly quiet. Since the market’s low in April, the Magnificent Seven stocks have outpaced the overall market. Research from Bloomberg shows that only 10% of the S&P 500 is driving the market. That’s down from 22% in previous years.

I also like to look at the S&P 500 equal weighted index. In that index, each stock weighs the same: 0.2% of the index. The regular S&P 500 is weighted by market cap. The S&P 500 equal weighted hasn’t made a new high in eight months.

Here’s a look at how the S&P 500 (in blue) has outpaced the Equal Weight (in red) over the last three months:

I suspect that the market will broaden out once the Fed starts to cut rates. Lower short-term rates are usually better for more conservative stocks along with dividend payers.

Speaking of dividends, there’s a fascinating ETF about to debut on the stock market. This week, Roundhill Investments will launch the S&P 500 No Dividend Target ETF. The ticker symbol will be XDIV.

The ETF aims to mimic the S&P 500 but pay no dividends. The benefit of not paying dividends is that it won’t have to pay taxes on dividends. How can it do that? The fund will sell holdings just before their dividend dates.

This is a great way to grow your wealth while avoiding the taxman. Of course, if you sell the ETF for a profit, you’ll still be liable for capital gains.

XDIV plans to invest in other S&P 500 Index funds but will sell positions just before the ex-dividend date. According to Bloomberg, the fund will then rotate from one such index fund into another that isn’t about to pay a distribution.

The goal of the fund is to skip the dividend while avoiding the price dip. It’s an ingenious idea. There are already funds that invest in non-dividend paying stocks of the S&P 500. I’ve often wondered if you could build a fund that reasonably mimicked the S&P 500 without using dividend-paying stocks. You probably could, but it would be complicated. XDIV aims to do it the smart and easy way.

This will probably be another quiet week on Wall Street, but next week might be busier. We’ll have our first Buy List earnings report. On Tuesday, we’ll get the inflation report for June. The retail sales report will be due out on Thursday. That’s all for now. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on July 8th, 2025 at 5:43 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.