Exceptional earnings growth trumped ongoing trade conflict, propelling stocks higher for July. With 80% of companies reporting, Q2 S&P 500 earnings growth is trending toward 24%, according to Factset. While part of this is due to tax reform, the results are truly impressive and it should be no surprise they are driving equity prices higher.

In the first week of the month, tariffs went into effect on $34 billion of Chinese goods, and in the second week, President Trump announced intention to levy duties on an additional $200 billion. Like scary headlines from recent years, market reaction to new trade war news is declining over time. Investors are realizing that tariffs are real and trade conflict will persist for some time to come, but also that at the macro level it represents just one factor among many.

Late in the month, Facebook announced slower than expected growth expectations, sending the stock down over 20% and dragging down tech stocks in general. The one day decline marked the greatest single-day loss in market value for a single stock in history. While dramatic, the stock remains roughly flat for the year and tech stocks overall continue to outpace the broader market. Still, in our view, the event illustrated that the FAANG stocks contain more, not less, risk than the market overall and that they are priced for near-perfect results. Most are still delivering, including Apple, which beat expectations and became the first trillion dollar US public company in early August.

Fed Chairman Powell said the economy remains on good footing and reiterated the likely plan to continue to gradually raise rates. Bonds were little changed for the month.

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