Stock Market Update Thursday July 31, 2025
- Jul 31, 2025
- 5 min read
Stock Market Update Thursday July 31, 2025 Stocks surged out of the gate on the heels of yesterday’s tech-fueled rally, but bullish momentum faded fast. The S&P 500 reversed course giving up early gains in a broad-based fade. SPX down 0.4%, QQQ down 0.6%, IWM down 1.0% on the day.
Away From Stocks: Treasuries were largely directionless, with yields on the 2- and 30-year notes steady at 3.94% and 4.89%, respectively. Crude retreated toward $69 a barrel, while gold held the line at $3,292 per ounce, consolidating recent downside. Bitcoin slipped below $117,000 in a light-volume drift. The VIX climbed over a point to flirt with 17, reflecting a modest uptick in market unease.
Federal Reserve Holds Rates Steady Amid Growing Policy Divergence
The Federal Reserve opted to maintain its benchmark federal funds rate within the target range of 4.25%–4.50%, as expected by market participants. Fed Chair Jerome Powell characterized the current monetary stance as “modestly restrictive,” citing a resilient labor market and “historically low unemployment.” The decision was widely priced in by financial markets, but the key takeaway from today’s FOMC meeting was the unprecedented policy divergence within the Committee.
For the first time since 1993, two Federal Reserve Governors—Michelle Bowman and Christopher Waller (both appointed by President Trump) issued dissents, voting in favor of an immediate rate cut. While dissent is not uncommon, a double dissent among these two Governors is rare and signals a fracturing consensus at the central bank. Both dissenters had previously telegraphed a dovish tilt in their public remarks, suggesting their votes reflect a growing concern over downside risks to growth.
In contrast, the June FOMC decision had been unanimous. However, the July 9, 2025 release of meeting minutes revealed emerging fault lines, with some participants favoring preemptive easing should incoming data confirm further disinflation. Others remained firmly in the hawkish camp, citing persistent inflationary pressures, elevated short-term inflation expectations, and robust economic activity as justification to delay cuts until 2026 if necessary.
The June Summary of Economic Projections (SEP) underscored this policy split. Although the median forecast continued to pencil in two rate cuts in 2025, the dispersion of individual forecasts widened significantly, reflecting deepening uncertainty among Fed officials.
Chair Powell struck a measured tone, acknowledging that recent inflation readings could reflect transitory price shifts but cautioned that sticky inflation remains a material risk. He emphasized the need for continued data dependency and policy flexibility. On labor markets, Jerome Powell highlighted that while labor demand has cooled, the decline in the break-even employment threshold suggests the labor market is approaching equilibrium—albeit through a softening in both labor supply and demand, which introduces potential downside risks to employment. By contrast, Governor Adriana Kugler took a more hawkish stance in recent remarks, arguing that the economy exhibits no significant weakness to justify easing, reinforcing the position of those advocating for a higher-for-longer policy path.
The Fed’s next policy decision is scheduled: September 16–17, with critical economic releases due before then—including two Nonfarm Payrolls reports and two PCE inflation prints, starting with Thursday’s Core PCE and Friday’s Jobs Report. Powell is also expected to provide further guidance at the Jackson Hole Economic Symposium in August, which could serve as a key inflection point for market expectations.
Quantitative Tightening Progress Report
The Federal Reserve’s balance sheet reduction continues at a steady pace, reinforcing its commitment to Quantitative Tightening (QT) as a tool for normalizing monetary policy. As of the most recent reporting week, Reserve Bank credit declined by $15 billion, bringing the total portfolio of interest-bearing securities—including Treasuries and agency MBS—to $6.596 trillion. This marks a $32 billion contraction since the final week of June and represents a cumulative decline of 26.1% from the March 2022 peak, when the Fed's balance sheet reached its all-time high amid pandemic-era stimulus measures. The ongoing runoff in securities holdings—achieved through portfolio maturities and reinvestment caps—is contributing to tighter financial conditions and reduced system-wide liquidity. The Fed continues to emphasize that balance sheet policy will complement, but not replace, interest rate policy as the primary instrument for controlling inflation.
Bottom Line:
Our Technical View: Rally Remains Intact, But Signs of Exhaustion Emerging. The current market rally continues to exhibit strong technical underpinnings, with price action, breadth, and sector rotation supporting further upside into August. Despite a 31% surge in the S&P 500 since early April, investor sentiment remains measured, suggesting the market is not yet extremely overbought. Historically, equity market tops tend to be gradual, often forming over weeks or even months, as markets present multiple exit opportunities before a meaningful reversal. This aligns with our W.D. Gann Cycle Pivot Dates, which are shared exclusively in our premium Discord community.
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