Below are the economic and market highlights for the week:
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In July, strong gains in services offset weakness in manufacturing. The S&P Flash Services PMI jumped to 55.2, up from 52.9 in June. Readings above 50 indicate expansion while those below signal contraction. Meanwhile, on the manufacturing side, the S&P Flash Manufacturing PMI slumped to a seven month low of 49.5 in July, down from 52.9 in June. The slump was driven by companies pulling back on orders as they waited for more clarity on tariffs. The Flash PMIs also showed potential troubles brewing for consumers and businesses as price pressures intensified across both the manufacturing and services sectors. Contrary to popular opinion, it wasn’t all tariff driven. Labor costs due to worker shortages added to the inflationary pressures, driving selling prices for goods and services for the month to one of the largest seen over the past three years. This suggests cost pressures could feed through to households in the coming months and potentially push inflation further above the Fed’s 2.00% target level.
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The housing market continued to struggle in June amid high prices and mortgage rates. Sales of existing homes fell 2.70% in June to a seasonally adjusted annual rate of 3.93 million. Despite the sales drop, home prices continued to climb to a new record high of $435,300, up 2% year-over-year (YOY) for their 24th consecutive month of YOY price increases. Record prices were driven by higher prices in supply-constrained regions which offset growing nationwide supply. Nationwide, month-end inventory stood at 1.53 million, representing a 4.7 month supply, up from 4.6 months in May and 4.0 months in June 2024. The latest figures show housing stock moving closer to the 6 to 7 months considered to be a healthy balance between supply and demand. Meanwhile, new home sales saw more homebuyer interest in June, rising 0.60%. The increase was driven by homebuilders slashing prices to attract buyers. That move helped push the median new home price down 2.90% to $401,800. Flush with inventory at levels not seen since late 2007, homebuilders look likely to keep the sales incentives in place in order to move homes off the books.
The Bull Market Lives On
Records continued to fall as investors cheered strong Q2 earnings and more White House trade deals ahead of the August 1 trade deadline. Of the 169 S&P 500 companies that have reported earnings to date, 82% have topped analysts’ expectations. That helped push the S&P 500 and Nasdaq Composite to another set of record closes. The indices’ gains were also helped by Google-parent, Alphabet’s quarterly results, which beat estimates. The tech giant’s results came a day after the tech sector got a boost from the Trump administration. The White House pledged an “action plan” for artificial intelligence to help boost construction of data centers and encourage exports. The week also brought more progress on trade as the U.S. signed a 15% tariff deal with Japan. More deals are expected in the coming days as the August trade deadline approaches.
It was another solid performance for markets this week. Admittedly there are hints of delusion in the latest round of meme stock trading (Krispy Kreme, Kohls, Opendoor) and even in the mainstream, investors are seemingly wearing rose colored glasses when it comes to their assessment on growing economic headwinds, tariffs, and inflation. Momentum tends to breed optimism and the current rally off of April’s lows increasingly reads like a textbook rally. Using history as a guide, stocks tend to advance an additional 10% after having recovered all of their previous bear market losses. That means the S&P 500 could continue to climb to 6,600 before hitting significant resistance from a technical standpoint. The confluence of positive earnings and improving trade news are catalysts that are likely to remain in place until the tariffs’ impact ultimately materialize into either higher prices or lower profitability in the months ahead.
The Week Ahead
A busy week for markets with the FOMC Meeting, nonfarm payrolls, and Q2 GDP on tap.
Planning Considerations Under the One Big Beautiful Bill Act
The One Big Beautiful Bill Act (OBBBA) that was signed into law earlier this month by President Trump includes a range of provisions that may offer financial planning opportunities for individuals and families. The items discussed below are by no means a comprehensive reflection of the nearly 900-page law, and individuals are encouraged to discuss the impact of the legislation on their unique circumstances with a financial advisor and tax professional. We hope this helps foster these important and timely discussions.
Income Tax Brackets Made Permanent
The new legislation preserves the current income tax brackets. The existing tax rates—10%, 12%, 22%, 24%, 32%, 35%, and 37%—were originally set to expire after 2025 under the Tax Cuts and Jobs Act (TCJA). OBBBA makes these rates permanent, avoiding a reversion to the pre-2018 structure, which had a top rate of 39.6%. The income thresholds for each bracket will continue to adjust annually for inflation. Taxpayers and planners now have long-term certainty about marginal rates which can help with planning.
Increase to Standard Deduction
The OBBBA includes a major update to standard deductions beginning in tax year 2025. The standard deduction is a fixed dollar amount that reduces taxable income for individuals who do not itemize deductions such as mortgage interest, medical expenses, etc. The standard deduction increases to $15,750 for single filers, $23,625 for heads of household, and $31,500 for married couples filing jointly. Careful planning with a tax professional will continue to be important for taxpayers to get the most out of available deductions.
Elevated Gift and Estate Tax Exemptions
The Tax Cuts and Jobs Act of 2017 temporarily doubled the lifetime estate, gift, and generation-skipping transfer tax exemptions from $5 million to $10 million (adjusted for inflation). Under the OBBBA, the higher gift and estate tax exemption that was supposed to expire in 2025 (and revert back to the pre-TCJA $5 million limit, adjusted for inflation) will now stay in place. Under the new law, the gift and estate tax exemptions increase from $13.99 million for single filers and $27.98 million for married couples filing jointly in 2025 to $15 million and $30 million, respectively, in 2026. The OBBBA has eased the end-of-year gifting scramble that many were expecting, however, there may still be important reasons for making gifts sooner rather than later, and discussing with your advisors is always recommended.
SALT Cap Increase
The SALT (state and local taxes) deduction lets taxpayers deduct certain taxes that are paid to state or local governments, such as income tax, property tax, or sales tax, from their federal tax bill. OBBBA temporarily raises the deduction to $40,000 starting in 2025 (from $10,000), with a 1% increase in the cap each year until 2029, before reverting to $10,000 in 2030. The expanded deduction begins to phase out for those with more than $500,000 in modified adjusted gross income, though all taxpayers can claim at least $10,000.
New Senior “Bonus” Deduction
The law added a new deduction for taxpayers over age 65 for each year from 2025-2028. The deduction is $6,000 for single filers and $12,000 for joint filers, and it begins to phase out at $75,000 modified adjusted gross income for single filers and $150,000 for joint filers. For Seniors with income in or near the phaseout ranges, careful planning will be needed to preserve this deduction.
Charitable Deductions for Non-itemizers and Itemizers
Beginning in 2026, the OBBBA reintroduces the deduction for qualified charitable contributions – allowing non-itemizers to deduct cash donations to charity – up to $1,000 for single filers or $2,000 for married couples filing jointly. This provision is not indexed for inflation, and some types of donations are ineligible for the deduction, including to donor-advised funds or private non-operating foundations.
The new legislation caps the maximum tax benefit of itemized charitable deductions at the 35% tax rate. In other words, even if a taxpayer falls into the top marginal tax bracket of 37%, their charitable deduction will not offset income taxed at that highest rate. Instead, the maximum tax benefit they can receive for charitable giving is limited to the 35% rate. Additionally, itemizers who make charitable contributions will only be able to claim a tax deduction to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI).
These changes go into effect in the 2026 tax year. For planning purposes, donors in higher tax brackets who are considering significant philanthropic gifts may want to think about accelerating their gift to 2025 to maximize both philanthropic impact and tax efficiency.
Child Tax Credit Increase
The law permanently increases the credit from $1,000 to $2,200 in 2025 per eligible child. The credit begins to phase out for single filers with modified adjusted gross income above $200,000 and joint filers above $400,000.
Tax Break on Tip Income and Overtime Pay
The OBBBA introduces two major tax deductions for workers: one for tips and another for overtime pay. Under the new law, employees can deduct up to $25,000 in qualified tips and $12,500 in qualified overtime pay from their taxable income. The IRS is expected to issue guidance on who is eligible. These deductions begin to phase out for single filers with modified adjusted gross income above $150,000 and joint filers above $300,000. The law applies retroactively to January 1, 2025, which means employers may need to adjust previously processed payrolls.
Expanded Use of 529 Savings Plans
The new law expands the eligible expenses for which 529 funds can be used. Previously, 529 funds for K-12 students could be used primarily for tuition, with an annual limit of $10,000. Expenses such as tutoring, testing fees, dual enrollment, and educational therapy for children with disabilities are now eligible. And the annual amount was increased to $20,000 starting in 2026.
New Savings Accounts for Children
The OBBBA introduced tax-advantaged accounts for minors called Trump accounts. Children born in 2025 through 2028 will receive a $1,000 initial government contribution. Annual contributions of up to $5,000 can be made by parents, relatives, or any other “taxable entity” until the child reaches age 18, at which point the account follows traditional IRA rules. Employers could also contribute up to $2,500 to an employee’s account, and it wouldn’t be counted as income to the recipient. Earnings grow tax-deferred, and qualified withdrawals are generally taxed as ordinary income.
Expanded Uses for Health Savings Accounts (HSAs)
The legislation widens the types of health plans and participants eligible to use an HSA, allows payments of $150 a month ($300 for a family) for direct primary care arrangements, and makes permanent an extension for telehealth arrangements.
The OBBBA presents opportunities for financial planning, charitable giving, and more. We encourage individuals and families to meet with their advisors to discuss how the new provisions may affect your unique circumstances.