Five for Friday - July 25, 2025

Guidance, Tariffs, Rate Cuts, A.I., and Communication

1. Earnings

This week marked a big ramp-up of Q2 earnings season, the period in which most public companies deliver their financials, projections, and general updates to investors. It’s too early for any broad takeaways, but I did want to point out something that, to me, exemplifies the resilience and adaptability of U.S. companies. For the second quarter—the three-month period that included the Apr. 2 tariff rollout, stock market crash, Iran strikes, and more—the percentage of companies issuing negative earnings guidance (i.e., “we’re expecting profits to be lower than we initially thought”) was actually below the 5- and 10-year average. Time will tell what the full impact of 2025’s historic levels of policy uncertainty will be, but for now, companies are managing the situation with tact—and projecting better-than-feared profit growth.  

2. Tariffs

On April 2, President Trump unveiled a series of import duties that would take the average U.S. tariff rate to its highest level in a century. In response, the S&P 500 saw one of its sharpest four-day crashes in history and U.S. Treasury yields skyrocketed, ultimately spurring the president to announce a 90-day pause on the tariffs. Over three months later, despite the still-looming threat of significantly higher tariffs, the S&P 500 sits at an all-time high. In some ways, we face a game of chicken: investors clearly do not believe tariffs will be as high as April 2 levels (or anywhere close) or stocks wouldn’t be at record highs… but because stocks are at record highs, President Trump is unlikely to feel the same pressure as he did when he announced the 90-day pause in early April. All to say, if August 1 brings another round of broad and punitive tariff rates, we should not be surprised if markets—bonds and/or stocks—revolt (i.e., fall) in protest.  

3. Rates

Home prices fell in June (via Redfin), marking three straight monthly declines for the first time in the index’s 13-year history. As they conclude: “home price growth has stalled as a surge in housing supply met weak demand, with sellers greatly outnumbering buyers, who have been deterred by elevated mortgage rates and steep prices.” Despite all the hoopla around Trump vs. Powell and whether tariffs spur inflation, this is one of the clearest cases for near-term interest rate cuts: shelter costs are by far the biggest component of the CPI inflation basket and rose faster than overall inflation for years. That’s changing. Both home price growth and rent growth are cooling, which will ultimately flow into the official CPI readings (inflation excluding shelter has already been below the Fed’s 2% for some time). Political drama aside, rate cuts are likely coming.  

4. A.I.

A smart coworker recently made the comment that if A.I. is going to use so much energy, “it better cure cancer.” We’re likely a ways off from that, but there are genuine reasons to be excited about what A.I. is contributing to the field of medicine. As Stanford’s 2025 A.I. report details, “the past year has witnessed remarkable progress in A.I. models applied to protein sequences…understanding these sequences is fundamental to biology, influencing drug discovery and disease research.” It’s early, but A.I.-driven approaches are proving faster, more cost effective, and often more accurate, fueling rapid growth in the protein structure prediction space ‒ a critical element of drug discovery. Just this month, Isomorphic Labs (born via Google’s A.I. group, DeepMind), announced it is preparing to launch human trials of A.I.-designed drugs. The viral videos get the attention, but there are groundbreaking applications of A.I. occurring all over—and advancing at a breakneck pace.   

5. This weekend

159 years ago, the first successful transatlantic telegraph cable was put into service, taking communication time between Europe and America from "two weeks to two minutes.” The economic impact was (predictably) widespread and immediate; scroll about halfway down to read about the positive shock to U.S. exporters, who overnight gained a level of price transparency previously only dreamed about. New technology à efficiency gains à profits: a tale as old as time. 

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