Small Business Optimism, consumer credit data: What to Watch
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Diverging Reports Breakdown
What To Expect in Markets This Week: Tariff Deadline, Amazon Prime Day, FOMC Minutes
The deadline for the U.S. to negotiate “reciprocal” tariffs is Wednesday. Federal Reserve meeting minutes, consumer credit levels, and initial jobless claims will also be in focus during the week. Amazon holds its annual Prime Day sale, while Delta Air Lines, Conagra Brands, and Levi Strauss are among the companies scheduled to report earnings. The S&P 500 and Nasdaq finished Thursday at record highs, while the Dow wasn’t far off its own high-water mark. President Donald Trump on Friday signed a big taxation-and-spending bill into law, but it’s not clear if it will affect the economy or the stock market. It’s unclear if Trump will reimpose the tariffs or extend the deadline again for countries that haven’t yet negotiated a deal. The deadline is Wednesday, after a 90-day pause on the elevated “Liberation Day” tariffs.
Federal Reserve meeting minutes, consumer credit levels, and initial jobless claims will also be in focus during the week.
Amazon holds its annual Prime Day sale, while Delta Air Lines, Conagra Brands, and Levi Strauss are among the companies scheduled to report earnings.
The “reciprocal” tariffs deadline, Federal Reserve meeting minutes, and Amazon Prime Day highlight this week’s economic and business calendar.
Investors will also be watching for data on consumer credit levels and jobless claims. Delta Air Lines and Conagra Brands lead this week’s corporate earnings.
Markets were at highs at the end of last week’s trading, which was shortened by the Independence Day holiday. The S&P 500 and Nasdaq finished Thursday at record highs, while the Dow wasn’t far off its own high-water mark. President Donald Trump on Friday signed a big taxation-and-spending bill into law.
Read to the bottom for our calendar of key events—and one more thing.
Tariff Deadline, Prime Day, FOMC Meeting Minutes in Spotlight
After a 90-day pause on the elevated “Liberation Day” tariffs, the deadline for the U.S. to negotiate new deals with a host of trading partners comes Wednesday. Tariffs could go back to the levels announced in April for countries that haven’t yet negotiated a deal. President Trump has announced trade deals, including agreements with the U.K. and Vietnam, but several other countries have yet to reach agreements on the import taxes. Trump said he has ended negotiations with Canada. It’s unclear if Trump will reimpose the tariffs or extend the deadline again for countries that haven’t reached a deal.
Wednesday’s release of the minutes from the June Federal Reserve meeting will give investors insight into how Fed officials are viewing the economy, as central bankers watch economic data as they decide how to set interest-rate policy. Reports on consumer credit levels and jobless claims also will be released this week.
Investors will be watching Amazon (AMZN) as it begins its annual “Prime Day” sale on Tuesday. After sales hit an all-time high at last year’s event, Amazon has extended this year’s sale to four days from two.
Corporate earnings reports will trickle in this week, preceding the full start of earnings season the following week. Delta Air Lines (DAL) earnings are scheduled for Thursday, following a quarterly sales increase with higher passenger revenue. Slim Jim parent Conagra Brands (CAG) reports on the same day, coming after an underwhelming previous-quarter earnings report that showed sales and profit declined due to supply constraints. Levi Strauss (LEVI) also will deliver its quarterly earnings update the same day, as the company grapples with how to handle tariffs.
Quick Links: Recap Last Week’s Trading | Latest Markets News
This Week’s Calendar
Monday, July 7
Nothing scheduled
Tuesday, July 8
Amazon Prime Day begins
Consumer credit (May)
More Data to Watch: NFIB small business optimism index (June)
Key Earnings: Aehr Test Systems (AEHR)
Wednesday, July 9
U.S. “reciprocal” tariffs deadline
Wholesale inventories (May)
Minutes for June FOMC meeting
Key Earnings: AZZ (AZZ) and Bassett Furniture (BSET)
Thursday, July 10
Initial jobless claims (Week ending July 5)
Key Earnings: Delta Air Lines, Conagra Brands, Levi Strauss
Friday, July 11
Monthly U.S. federal budget (June)
Amazon Prime Day ends
One More Thing
College is a big step for students, but only about one in five of their parents believes they can handle the bills for tuition and other costs. Investopedia’s Elizabeth Guevara takes a closer look at how parents are handling the cost of college.
US Economic Forecast Q2 2025
We expect the average tariff rate on imports from Canada and Mexico to steadily fall to about 3% by next year. We expect the 10-year treasury yield to hover near 4.5% for the remainder of this year, despite a softening in economic data. The Fed’s hesitance to cut rates quickly is due to the inflationary impulse of tariffs, which bring the core PCE price deflator up to 3.6% on a year-over-year basis by the fourth quarter of 2025. Elevated trade barriers on US imports as well as exports slow the pace of international trade, with real imports of goods and services falling 1.8%. As a result, real GDP growth is expected to be 1.4% in 2025 and 1.7% in 2026. We assume the Fed is able to take a more dovish approach to monetary policy by starting with the 25-basis-point cut in each quarter of 25. The final budget bill is projected to add less to the federal deficit than previously expected.
Baseline:
Our baseline forecast is closest to how we expect the economy will grow based on a set of assumptions made at the time of analysis. Despite recent court rulings, we expect that the average tariff rate remains around 15% throughout the forecast period, though the country- and product-specific rates are expected to change. For example, we expect the average tariff rate on imports from Canada and Mexico to steadily fall to about 3% by next year. This happens because exporters in those countries will increasingly be able to comply with requirements of the United States-Mexico-Canada Agreement (UMSCA),3 bringing the average tariff rate down over time. In addition, we anticipate a 50% average tariff on China, which is about where they were as of May 14, 20% on the European Union, and 10% on most other countries.
We also assume that the provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire at the end of this year are ultimately extended, preventing a tax increase in 2026, and that additional tax cuts are also included in the final budget bill. Although the overall bill is expansionary relative to what would happen if the provisions were allowed to expire, it offers only limited upside next year relative to the government’s tax and fiscal stance this year. Part of this is due to the assumption that there is a more modest increase in the deficit as a result of the final legislation relative to what the US House of Representatives passed initially.
Longer-term interest rates have increased recently, as bond investors demand higher yields to lend to the US government. We expect the 10-year treasury yield to hover near 4.5% for the remainder of this year, despite a softening in economic data and a 50-basis-point cut from the Fed in the fourth quarter of 2025. The 10-year treasury yield begins to decline slowly in 2026, falling to 4.1% by 2027 and remaining there through the end of 2029. The Fed’s hesitance to cut rates quickly is due to the inflationary impulse of tariffs, which bring the core PCE price deflator up to 3.6% on a year-over-year basis by the fourth quarter of 2025. The inflationary impulse proves to be temporary, allowing the Fed to cut rates slowly throughout 2026, bringing the federal funds rate to a range between 3% and 3.25% by the first quarter of 2027.
In this scenario, the higher tariff costs coupled with elevated interest rates cause businesses to slow their pace of investment and hiring throughout the remainder of 2025 and into 2026. This may lead to the unemployment rate to rise to 4.6% in 2026. Elevated trade barriers on US imports as well as exports slow the pace of international trade, with real imports of goods and services falling by 7.1% in 2026, and real exports falling 1.8%. As a result, real GDP growth is expected to be 1.4% in 2025 and 1.5% in 2026. Real GDP accelerates in 2027 and 2028 before settling into its steady-state growth rate of about 1.8% in 2029.
Trade tensions ease (upside):
Our upside scenario assumes that more trade agreements are finalized, allowing the average tariff rate to move substantially lower. The average tariff rate falls to about 7.5% by the end of 2025. Imports from Canada and Mexico quickly become compliant with the USMCA, rapidly reducing the effective tariff rate from both countries even ahead of the updated USMCA agreement we expect to be reached in 2026. The average tariff on China comes down to about 30%, while the European Union faces a tariff of just 5%.
Despite much lower tariffs, the US economy is still expected to grow at a slower rate in 2025 compared with the previous two years. In particular, consumer spending had been growing at a much faster rate than income, suggesting that consumption would slow this year. However, lower tariffs allow for inflation to fall more quickly, which gives consumers additional purchasing power.
As inflation subsides, the Fed is able take a more dovish approach to monetary policy. We assume the Fed cuts rates by 25 basis points in each quarter starting with the third quarter of 2025 and ending with the fourth quarter of 2026. The final budget bill extends current tax provisions but is projected to add significantly less to the federal deficit than previously expected. This prevents a rise in taxes while also calming bond markets. The yield on the 10-year treasury is expected to fall to 4.25% by the fourth quarter of 2024.
More trade deals and lower tariffs unleash business investment, which had been subdued due to economic policy uncertainty. Lower interest rates and inflation also help to support business investment. Additionally, we assume that deregulation and gains from artificial intelligence improve, leading to a rise in productivity growth over the forecast period.
Trade deals fall apart (downside):
Our downside scenario includes a bigger rise in tariffs in the United States and abroad relative to our baseline. We assume that the average tariff rate rises to about 25% as negotiations for new trade agreements stall and existing agreements fall apart. Notably, the tariff rate on imports from China rises to 75%, while imports from Canada, Mexico, and the European Union all face 25% tariffs. The rest of the world generally faces 10% tariffs. We also assume that the bond market reacts to the higher tariffs and the passage of the budget bill, sending the yield on the 10-year treasury above 5% in the fourth quarter of 2025. This forces the US government into an austerity trap where cuts to spending and higher tax rates are required to bring the interest rate on government bonds back down.
As a result of the bond market turmoil and austere fiscal policy, the US enters a recession in the fourth quarter of 2025 and does not return to its prerecession level of real GDP until early 2027. All sectors of the economy face sizable declines in 2026. Real GDP falls 1.7% with consumer spending, government spending, business investment, imports, and exports all declining on a year-over-year basis. The 10-year treasury yield falls gradually, remaining above 4.5% until the end of 2026.
Given the bond market reaction to fiscal policy, real federal spending declines in 2026 and 2027, creating a substantial drag on economic growth. Federal spending remains weak in 2028 and 2029 as policymakers are hesitant to introduce stronger spending out of fear that the bond market will react negatively. With the public and private sectors shedding jobs, the unemployment rate rises to 6% in the middle of 2026 and remains at 4.5% in 2028.
With both inflation and the unemployment rate rising quickly, the Fed is stuck choosing between its inflation and full employment mandates. As a result, it remains on hold until the fourth quarter of 2025. It initially cuts by just 50 basis points in the fourth quarter as inflation continues to accelerate. However, once there is turmoil in bond markets and there is evidence that inflation may be turning the corner, the Fed cuts rates more aggressively. In the first quarter of 2026, it cuts rates by 100 basis points, followed by further 50-basis-point cuts in each of the next three quarters. Only in 2027 is the Fed able to slowly raise rates back toward neutral.
Small Business Optimism Grows: What’s Ahead for ETFs?
Small business owners grew more optimistic in May, according to the latest data from the National Federation of Independent Business. Small businesses serve as a vital barometer of the U.S. economy. The rebound in optimism could reflect a stabilizing business environment, offering a bullish signal for market sentiment and boding well for small-cap stocks and ETFs. We have highlighted a few top-ranked ETFs that could be better plays going forward. These funds have a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), suggesting their outperformance in the months ahead. They are iShares Core S&P Small-Cap ETF IJR, iShares Russell 2000 ETF IWM, Vanguard Small-cap ETF VB, Schwab U.s. Small- Cap ETF SCHA and Vanguard Russell 2000ETF VTWO. The funds have an average daily volume of about 826,000 shares. They have an AUM of $62.4 billion and an average annual fee of 5 bps.
Small businesses serve as a vital barometer of the U.S. economy. The rebound in optimism could reflect a stabilizing business environment, offering a bullish signal for market sentiment and boding well for small-cap stocks and ETFs.
Given this, we have highlighted a few top-ranked ETFs that could be better plays going forward. These are iShares Core S&P Small-Cap ETF IJR, iShares Russell 2000 ETF IWM, Vanguard Small-Cap ETF VB, Schwab U.S. Small-Cap ETF SCHA and Vanguard Russell 2000 ETF VTWO. These funds have a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), suggesting their outperformance in the months ahead.
Economic data in May reinforced optimism. After five consecutive months of declines, consumer confidence rebounded. The U.S. labor market remained resilient amid the tariff chaos. The economy added more-than-expected 139,000 jobs in May and the unemployment rate remained unchanged at 4.2% (read: S&P 500 Wraps Up Best May Since 1990: 5 Top Stocks in the ETF).
The share of business owners expecting improved business conditions jumped 10 percentage points month over month to 25%, while those anticipating higher real sales volumes rose 11 points to 10%.
Although optimism recovered in May, uncertainty is still high among small business owners as taxes, tariffs and inflation fear are keeping owners on edge. Taxes have emerged as the top concern, cited by 18% of the respondents. This is the first time this issue has ranked highest since late 2020, surpassing worries about labor quality and inflation.
Inflation remains a concern, too, with 14% of owners listing it as their biggest problem even though consumer prices rose just 2.3% year over year in April, the lowest reading since February 2021.
According to World Bank forecasts, U.S. economic growth will likely slow down to 1.4% this year from 2.8% in 2024, citing the burden from Trump’s tariffs. The agency also stated that the rise in trade barriers, heightened uncertainty and the spike in financial market volatility are set to weigh on private consumption, international trade and investment.
ETFs in Focus
We have profiled the abovementioned ETFs here:
iShares Core S&P Small-Cap ETF (IJR)
iShares Core S&P Small-Cap ETF is the largest and most popular ETF in the small-cap space, with an AUM of $78.1 billion and an average daily volume of 4 million shares. It follows the S&P SmallCap 600 Index and holds 629 stocks in its basket, with none accounting for more than 0.6% of the assets. Industrials, financials, consumer discretionary and information technology are the top four sectors with double-digit exposure each. The product charges investors 6 bps in annual fees.
iShares Russell 2000 ETF (IWM)
iShares Russell 2000 ETF tracks the Russell 2000 Index and holds 1,934 well-diversified stocks in its basket. IWM has key holdings in financials, industrials, healthcare, and information technology. iShares Russell 2000 ETF has AUM of $61.9 billion and trades in an average daily volume of 30 million shares. It charges 19 bps in annual fees (read: 3 Factors That Could Give Struggling Small-Cap ETFs a Boost).
Vanguard Small-Cap ETF (VB)
Vanguard Small-Cap ETF follows the CRSP US Small Cap Index and holds a basket of 1,349 stocks, with none holding more than 0.5% of the assets. Vanguard Small-Cap ETF is widely spread across various sectors, with industrials, consumer discretionary, financials, information technology and healthcare being the top five. Vanguard Small-Cap ETF has AUM of $62.4 billion and trades in a solid average daily volume of about 826,000 shares. It charges 5 bps in fees per year from investors.
Schwab U.S. Small-Cap ETF (SCHA)
Schwab U.S. Small-Cap ETF tracks the Dow Jones U.S. Small-Cap Total Stock Market Index, holding 1,713 stocks in its basket. Each security accounts for less than 0.5% of the assets. SCHA is widely spread across sectors, with financials, industrials, health care, information technology and consumer discretionary having double-digit exposure each. Schwab U.S. Small-Cap ETF has amassed $17 billion in its asset base and sees a solid volume of around 2.3 million shares a day. It has an expense ratio of 0.04%.
Vanguard Russell 2000 ETF (VTWO)
Vanguard Russell 2000 ETF tracks the Russell 2000 Index, holding 1,955 stocks in its basket, with none making up for more than 0.7% of the assets. It is widely spread across various sectors, with financials, industrials, healthcare, consumer discretionary, and information technology being the top five. Vanguard Russell 2000 ETF has accumulated $12.3 billion in its asset base and trades in an average daily volume of 1.3 million shares. The product charges 7 bps in annual fees.
Source: https://finance.yahoo.com/video/small-business-optimism-consumer-credit-230000933.html