Last week marked the halfway point of 2025. And while it’s been quite a ride so far, the S&P 500* is up 5.4%.
Moving to the second half of the year, we at Cornerstone want to take a step back and assess where things stand today as a bridge to what really matters for investors, which is the upcoming earnings season.
First and foremost, we have three major near-term concerns.
One is July 9, which is when “tariff exemptions” are to be lifted. There’s no way to know if this date is a negotiating tactic or definitive.
We've already seen plenty of instances where counterparties have responded to this type of pressure. That opens the possibility for the tariff waivers to be further extended.
Next is the Federal Reserve meeting on July 29-30. We’ll be watching because we believe this will be a potentially important inflection point for the Fed to provide realistic clarity for markets on rate cut expectations moving forward.
Lastly, July seasonality is historically favorable:
Along those lines, it’s noticeably bullish how the equal-weight S&P 500 has begun to break out:
This is a strong sign of expanding market breadth and offers a very constructive under-the-hood view.
Also constructive is the fact that the underlying subsector of regional banks is breaking out in unison with the S&P 500:
This matters because this subsector is historically supportive of extensive, bullish market breadth. Furthermore, the next couple weeks will come with a significant amount of important economic data.
For example, just last week the ISM Manufacturing Index, which measures manufacturing activity, came in at 49.0 (a surprise to the upside). We mentioned recently how this index being below 50 can be bullish.
While this data was positive, the underlying commentary was most interesting. It’s clear there are still discussions happening about who will absorb any implied tariffs:
We’ll keep watching this closely. In sum, while it might surprise many, the overall picture from the June ISM wasn’t ominous. There is no widespread evidence of pricing pressures yet.
Another data point we find interesting is the monthly Job Openings and Labor Turnover Survey (JOLTS) data:
While largely in line, it was interesting that May came in above the April levels. Also, that increase in job openings we can see in the data seems contradictory to the current popular narrative.
Finally, our favorite contrarian indicator is still telling us that sentiment is unusually bearish, even as stocks rose over the past couple months. The American Association of Individual Investors (AAII) is more bearish than it’s been in a decade:
To us, this is clearly indicative of how many people have simply missed out on this explosive recovery rally. Theoretically, this would confirm there isn’t too much fervor or general enthusiasm that would endanger the current market rally.
Analyze Inflows
Notice I said “theoretically,” because for now it’s important to check the data to see if it supports said theory, thus founding it in factual data. To do this, let’s analyze inflows of “big money” investors.
As a quick reminder, the trusty Big Money Index (BMI) from our friends at MoneyFlows is calculated by taking a 25-day moving average of “big money” activity. While it may have appeared the BMI was going to quickly dip below overbought, as the averages rolled on, the BMI quickly reset and exceeded levels it hit only a week ago:
Is this indicative of continued strength going into the second half of the year? And why the recent further uptick?
Digging deeper, we can see how equity inflows have begun to increase over the last week or so:
Even more important is the recent and sudden surge in exchange-traded fund inflows:
Big buying in broad ETFs helps explain the recent breakout in equal-weight indices and expanding market breadth overall.
Most importantly, all this is happening with a rise in volumes that is almost exclusively inflows:
Seeing big inflows, including in ETFs, on elevated volumes, with minimal outflows is historically indicative of a bull market in full effect.
The last piece of data to reflect this quick transition since the April 8 lows is where money is going. This is the MoneyFlows sector ranking on April 8:
Defensive sectors like utilities and staples were on top. Big growth areas like technology and discretionary were at the bottom of the table.
Fast forward two and a half months and it’s clear how growth has roared back in less than a quarter:
When growth sectors like technology, financials, and industrials are on fire like this, equities tend to surge higher.
So, no matter what the talking heads creating the news headlines say lately, the fact that growth areas continue to collect capital inflows is all the talking we need.
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