US-Japan Trade Deal – Perhaps the Largest Ever

Market Recap: 21 – 25 July 2025

Financial Markets

US Stock Market

The week was again positive for the main indices with the S&P500 and the NASDAQ 100 gaining 1.5% and 0.9%, respectively. Markets continue climbing . The small cap index (Russel 2000) was up by 1% and sits slightly above the 200-day moving average, a short-term support. Trading volumes were solid on the SPX and below average on the Russel.

COMMODITIES

Precious metals continue holding their levels. Gold lost 0.4% and silver was flat. Gold is still close to the previous all-time high and has been in the range 3100-3500$. Silver has been strong and will likely trade between 35$/oz and 43$/oz over the next weeks.

WTI crude oil went down to 65$/bbl and the trading range for the near future will likely be 64-71$/bbl.

Bitcoin remains around 118k$ and has support at ~112k$.

US DOLLAR, MONEY SUPPLY

The relative strength of the US dollar (DXY) fell to ~97.7. The EUR/USD is around 1.174$, the GBP/USD is at 1.343$, and the USD/JPY is at 147.67 JPY.

US M2 money supply at the date of 30th June 2025 was up by 0.6%, showing a continuous increase in the money supply since December 2023. Banks didn’t stop lending so far – if the money supply was going down, it would be a warning sign for the economy and equities.

The national financial conditions index (NFCI) released on 14th July 2025 loosened by 2.7%. Note that this indicator is delayed by two weeks. Positive numbers in the NFCI mean tighter financial conditions, while negative numbers indicate looser financial conditions.

BONDS AND OPTIONS

US bond yields (long end) fell slightly this week. Yields now sit at 3.921% for the 2-year and 4.386% for the 10-year. The yield curve has uninverted since a year ago, and lower yields are expected in the next few years, likely as a consequence of a recession and/or interest rate cuts. However, long-term growth and inflation expectations remain at ~4.9%.

The VIX fell to ~15, a level that shows greed and complacency as the overall market is quite expensive and the risks of overvaluation are naturally high. Risk premiums in the options market are less attractive. Similarly to previous weeks, it is our opinion that the overall risk in the stock market (high valuations in the big caps) is considerable. However, we are not bearish as the current stock market levels could very well remain relatively elevated for the remainder of the year!

Comment Section

The US equity markets continue to slowly make new all-time-highs and the probability of any disappointment pushing the market down is high.

This week, we had news about the US-Japan trade deal. President Donald Trump on Tuesday announced a “massive” deal with Japan that includes “reciprocal” tariffs of 15% on the country’s exports to the U.S., with auto duties reportedly being lowered to that level as well. In a post on Truth Social, Trump called the agreement “perhaps the largest Deal ever made,” while adding that Japan would invest $550 billion in the United States and the U.S. would “receive 90% of the Profits.”

The earnings season has begun. Over the next weeks we’ll have a better idea of company’s earnings and outlook for the rest of the year. In general, we believe the odds are on the side of an equity market correction over the next months.

Have a nice weekend, and good luck!!!