July is usually a positive month for stock markets, and this year was no exception. American indices closed the month with gains, as did most European markets. However, capital inflows into European markets have slowed compared to the first half of the year. On the other hand, valuations across the Atlantic are very high following multiple record highs, while the impact of the new tariff regime imposed by Donald Trump remains difficult to predict. In the near future, markets can expect increased volatility and nervousness, but as long as companies report strong results, there is no clear signal for a downward trend.
Since the start of 2025, the broad U.S. market index S&P 500 has gained 7.8%, with the tech-heavy Nasdaq rising even more. However, these gains have not been uniform: in February, March, and April, U.S. indices experienced declines, during which global capital showed a clear preference for European exchanges. April proved to be the most volatile month when Trump’s so-called “Liberation Day” triggered a sharp selloff. After this drop, the market bounced back impressively.
As a result, both Nasdaq and S&P 500 repeatedly set all-time highs, including in the last week of July. August began with declines triggered by macroeconomic data: fewer-than-expected new jobs in the non-farm sector and the largest downward revision since 1979 of previous months’ figures dampened investor sentiment. This led the U.S. president to dismiss the head of the Bureau of Labor Statistics, responsible for collecting these data. However, the next trading session saw gains.
“July was another month of gains, with indices setting new records, so investors will likely consider it a successful month. Although the earlier lead of European markets over American ones, very visible at the start of the year, is fading. Investors are now wondering whether this is a lasting shift or just a pause, as European indices have outperformed U.S. indices since the beginning of the year,” said Tomasz Korab, CEO of EQUES Investment TFI, in an interview with Newseria.
Investors are asking how much longer the U.S. market can keep rising. After two years of gains exceeding 20% annually, U.S. stock valuations have reached very high levels, with price-to-earnings ratios around 22–23 compared to a long-term average near 17. Nevertheless, company earnings continue to grow. Among firms that have already reported Q2 results, 70% exceeded expectations. There are forecasts that 2025 could see more than 20% gains in U.S. indices.
“We are coming off a very long streak of gains, record-high valuations, relatively high ratios, and great economic uncertainty, so I expect a lot of nervousness in the markets,” predicted Tomasz Korab. “High valuations usually mean high investor expectations. If these are not met, the punishment is severe: investors express disappointment by withdrawing capital, causing sharp declines. After long bull runs and record valuations, high volatility typically follows. This year we already saw mood swings after the so-called Liberation Day with sharp drops followed by quick rebounds. Investors should be prepared for stress.”
Investor sentiment is also influenced by global trade developments. On July 27, President Donald Trump and European Commission President Ursula von der Leyen announced a deal on tariffs for mutual imports between the U.S. and EU. The agreement was widely seen as a failure for European negotiators. Its key points include a 15% tariff on most goods exported from the EU to the U.S., including cars, car parts, medicines, and semiconductors. Steel and aluminum imports into the U.S. would be subject to a 50% tariff. European companies committed to purchasing $750 billion worth of U.S. energy raw materials, increasing investments in the American market by $600 billion, and buying U.S. military equipment.
“When it comes to tariffs, markets and investors are getting tired. Since April, rates and rules have changed so many times that the market is exhausted by the uncertainty. Still, the U.S.–EU deal is very important because together they represent 43% of the global economy and 30% of world trade. So this agreement governs a significant portion of the global economy,” noted Tomasz Korab. “Most analysts and markets perceived it as negative for the EU, but the reaction was moderate, with small stock market declines in Europe and slight gains in the U.S.”
Many analysts and economists also point out that the deal overlooked the large surplus in services that the U.S. has in trade with the EU.
“We expect investor attention to continue focusing on macroeconomic data in the coming months because it is very hard to estimate the final impact of all these ongoing agreements,” Korab said. “The global flow of goods, supply chains, and trade are still forming and disrupted by short-term reactions, as investors increase or reduce inventories in anticipation of tariffs. Once this period of turbulence passes, analysts and investors will try to assess the long-term effects of the new global trade order on individual economies, company prospects within those economies, and ultimately on stock prices and other financial instruments.”
