July closed with a financial environment dominated by the resilience of the US economy, although not free of structural challenges. The main stock market indexes maintained their positive momentum and reached new all-time highs, supported by better-than-expected corporate results, especially in the technology and banking sectors. The S&P 500 advanced 2.17%, the Nasdaq rose 3.7% and the Dow Jones had a more moderate performance, with an increase of 0.1%. The rotation towards sectors with higher growth potential left defensive sectors such as utilities and consumer staples behind. In the fixed-income markets, the 10-year Treasury yield closed the month at 4.37%, an increase of 15 basis points compared to the end of June.

In terms of macroeconomic data, second quarter GDP surprised on the upside with an annualized rate of 3.0%, beating the consensus of 2.3%. This performance was driven by strong private consumption and a reduction in imports. However, the labor market began to show some signs of moderation during the month of July, creating only 73 thousand jobs against the 110 thousand expected. Moreover, the data for the previous two months were revised downward, with a joint adjustment that reduced the previously reported figures to only 35 thousand jobs (from 290 thousand). In this context and with the latest employment and inflation data, the market is beginning to think that the Federal Reserve was wrong to keep the federal funds rate unchanged in the 4.25%-4.50% range at its meeting at the end of July.

On the trade front, the U.S. reached an agreement with the European Union that replaced a 30% tariff with a final 15% tariff on key imports such as automobiles, semiconductors and pharmaceuticals, while steel and aluminum tariffs remained at 50%. In return, the E.U. committed to $750 billion in U.S. energy purchases and additional investments of $600 billion, including purchases of military equipment. In addition, the U.S. held meetings with China in Stockholm on July 28-29 to extend a 90-day tariff truce that expires on August 12. Although no formal extension was announced, both sides agreed to work toward that goal.

In Mexico, second quarter GDP grew 0.7% quarter-on-quarter with seasonally adjusted figures, beating the consensus of 0.4%, driven by the industrial recovery and the dynamism of the services sector. With original figures, annual growth was just 0.1%, leading to a cumulative expansion of 0.4% in the first half, the lowest level since 2021. A GDP growth projection is maintained at ~0.3% for 2025 and ~1.5% for 2026, which would imply three consecutive years with an expansion below the historical average of 1.9%. Downside risks include the evolution of US trade policy and its potential impact on the bilateral relationship. On the positive side, a more robust recovery in U.S. manufacturing or a rebound in consumption and private investment in Mexico could translate into a better than expected economic performance.

Finally, in search of a more attractive relative valuation and greater geographic diversification, the Investment Group's Investment Committee decided to slightly decrease the stock exposure to the U.S. market and take positions in the German market and in companies of the defense sector in Europe, thus slightly decreasing the total stock market exposure.

‍