'Risk-on' Sentiment Seen After Fresh Record Highs

Published as of: July 18, 2025, 9:14 a.m. ET

(Friday market open) Housing and sentiment data arrive today after Netflix (NFLX) earnings and guidance topped expectations late Thursday but failed to impress investors. Stocks edged higher out of the gate, building on yesterday's record close, and are on pace for weekly gains. "Markets have a risk-on tone," said Kathy Jones, chief fixed income strategist at Schwab.

Consumer sentiment—due at 10 a.m. ET—has been on the recovery path but remained historically low at 60.7 last month. Analysts expect a slight climb in July to 61.5. As always, the inflation aspect is key. Year-ahead inflation expectations fell to 5% in June from 6.6% in May. Retail sales rebounded in June, suggesting consumers are on the mend, but sentiment is another piece of the puzzle. So are housing starts and building permits, which were slightly better than expected for June.

Stocks rallied broadly yesterday to new highs for the S&P 500 index and Nasdaq Composite. It was the second straight day of upside earnings surprises, and more companies than usual are exceeding expectations. That said, the bar for success was low, with analysts not expecting huge gains. Improved June retail sales and jobless claims added to bullish sentiment. A relatively calm bond market has also been supportive for equities, said Liz Ann Sonders, chief investment strategist at Schwab. It's "crucial" to look under the surface of inflation data to see the impact of tariffs, "which are becoming noticeable, especially for imported goods," Sonders added.

1. Volatility begins to stretch muscles: After falling to five-month lows in early July, the Cboe Volatility Index (VIX) showed life at mid-month but remains below its long-term average of 20. It topped 17 earlier this week after falling toward 15 a couple weeks ago. "The VIX has started to creep higher, which suggests at least some reach for protection, and that likely has to do with seasonality, which is transitioning into a more bearish stance historically," said Nathan Peterson, director of derivatives analysis at the Schwab Center for Financial Research. Though seasonality can affect trading, and stocks fell in recent years during the late summer, past isn't precedent. Looking ahead, the VIX futures complex rises moderately the rest of the year to above 20 by September and above 21 by November. A climbing VIX often correlates with pressure on stocks.
    
2. M&A chance seen for banking industry: Mergers and acquisitions (M&A)—an important source of profit for the big Wall Street banks like JPMorgan Chase (JPM) and Goldman Sachs (GS)—rebounded in the second quarter, and bank executives were optimistic on earnings calls that this could continue. However, they've been wrong before. Though biotech and energy are traditionally where M&A is quite active, the banking industry itself may see activity before long, if banking executives are right. It's more likely to take place in the regional banking space, according to a report on CNBC earlier this week. Big banks might not look for "horizontal" acquisitions in their own space due to regulatory restrictions, but could look to add helpful pieces from outside the industry, possibly in the technology arena as banks embrace AI.
    
3. Next Fed meeting comes at inopportune time: The Producer Price Index and Consumer Price Index reports are out of the way, but arguably the Federal Reserve won't have all the information policy makers might want when it gathers to make its next rate decision less than two weeks from now. The Fed decision is July 30, the day before the June Personal Consumption Expenditures (PCE) price index, the Fed's favored inflation report, and two days before the July nonfarm payrolls report. Both of those could shape the September decision. July 30 also features monthly data on personal income and spending. "Long-term yields might stay elevated given trade policy uncertainty and fiscal concerns," said Collin Martin, director, fixed income strategy, at the Schwab Center for Financial Research. Meanwhile, hopes for a July rate cut appear a bit quixotic, but rose slightly early today as Fed Gov. Christopher Waller argued for a July move, saying the job market is weaker than it appears.

• Netflix dropped 1.7% in pre-market trading. The numbers in its latest earnings report looked solid, helped by positive "Squid Game" revenue and a weaker dollar, and Netflix raised its guidance. But from the market's reaction it's possible there were "whisper" hopes for even better. Also, shares were up about 43% year to date heading into Thursday's results, meaning some of the positive news might have been built in.
   
• 3M (MMM) climbed 2.6% in the early going as earnings exceeded Wall Street's forecasts and the company raised its full-year outlook. The company projected a smaller hit from tariffs amid easing trade tensions between the U.S. and China, Reuters reported.
   
• American Express (AXP) gained 1.6% in pre-market trading as earnings and revenue topped analysts' expectations. The company said it saw record card member spending in the quarter with strong demand for the firm's premium products.
   
• Chipotle (CMG) climbed 1.5% ahead of the open, helped by an upgrade to Outperform by BMO Capital.
   
• Eli Lilly (LLY) inched higher after slumping 3.5% yesterday. The decline came after a Chinese company and its U.S. partner said early this week that their Chinese-developed weight-loss drug looked nearly as good as Eli Lilly's Zepbound in late-stage trial results, Barron's reported.
   
• Bitcoin (/BTC) rose just slightly early, but stocks related to crypto, including Circle Internet Group (CRCL), and Coinbase (COIN), were up more than 2% after the U.S. House of Representatives on Thursday passed the "Genius Act." The legislation creates a regulatory framework for so-called "stablecoins," which are cryptocurrency tokens backed by the dollar, Reuters reported. The total value of the crypto market topped $4 trillion for the first time after the bill passed.
   
• Micron (MU) inched up after a drop yesterday related to Goldman Sachs (GS) lowering its rating on shares of a South Korean chip maker. The firm, SK Hynix, which supplies high-bandwidth memory (HBM) to Nvidia (NVDA). The analyst said HBM pricing could decline next year, Bloomberg reported. Micron also competes in the HBM space. 
   
• Chevron (CVX) climbed 3% before the open, lifted by a CNBC report that it was victorious in a mediation case versus Exxon Mobil (XOM) over which company owned the right to certain oilfields in Guyana. The decision allows Chevron to move ahead with its $53 billion acquisition of Hess (HES), CNBC reported. Shares of Hess jumped 7.4%.
   
• Norfolk Southern (NSC) added 4% on a Wall Street Journal report that Union Pacific (UNP) is in talks to acquire the company.
   
• The Atlanta Fed's GDPNow reading for second quarter Gross Domestic Product (GDP) growth fell to 2.4% Thursday from the previous 2.6%. The downward move reflects lower real personal consumption expenditures growth in recent data releases. The first government estimate is due July 30.
   
• June housing starts rose 4.6% month over month and building permits climbed 0.2%, reaching seasonally adjusted annual rates of 1.321 million and 1.397 million, respectively. However, single unit starts and permits fell 4.6% and 3.7% monthly, which could temper enthusiasm, Briefing.com noted.
   
• Chances of a Fed rate cut later this month were less than 5% early Friday, according to the CME FedWatch Tool, and odds of at least one cut by September were around 61%. 

The U.S. dollar index ($DXY—candlesticks) has enjoyed a slight recovery since bottoming in late June, though it's still down sharply for the year. The recent run higher came as the 10-year Treasury note yield (TNX:CGI—purple line) popped to one-month highs near 4.45% as decent economic data reduced odds of a September rate cut. That possibility is now roughly a coin flip, according to futures trading. A Fed that keeps rates higher for longer is often bullish for the dollar. The 50-day moving average for the dollar index (blue line) is around 98.80, just above Thursday's levels, and may be a resistance point. The dollar index tested but couldn't take out the 50-day on separate occasions in May and June, and hasn't traded above it since February.

Check out the Investors' Calendar for a summary of the top economic events and earnings reports on tap this week.

July 21: June leading indicators and expected earnings from Cleveland-Cliffs (CLF), Domino's Pizza (DPZ), and Steel Dynamics (STLD).
July 22: Expected earnings from Coca-Cola (KO), General Motors (GM), Halliburton (HAL), Lockheed Martin (LMT), Northrop Grumman (NOC), Philip Morris (PM), Sherwin-Williams (SHW), Capital One (COF), and Texas Instruments (TXN).
July 23: Existing home sales and expected earnings from AT&T (T), Freeport-McMoRan (FCX), GE Vernova (GEV), General Dynamics (GD), Hasbro (HAS), Hilton Worldwide (HLT), Alphabet (GOOGL), Chipotle (CMG), CSX (CSX), IBM (IBM), T-Mobile (TMUS), and Tesla (TSLA).
July 24: ECB interest rate decision, June new home sales, and expected earnings from American Airlines (AAL), Dow (DOW), Honeywell (HON), Southwest Airlines (LUV), Union Pacific (UNP), Intel (INTC), and Newmont Mining (NEM).
July 25: June durable orders and expected earnings from Aon (AON) and HCA Healthcare (HCA).