EB Daily Market Report - Brief Update - Tuesday, July 1, 2025

Note

There are almost zero earnings this week, so we're going to take a break on updating our ChartLists until next weekend. I am working on the July Seasonality Report and hope to have that out to everyone tomorrow at some point. July has a history of being a very strong month for U.S. equities.

Market Update

Welcome to July and the 2nd half of 2025!

It's been quite the volatile year so far, but I think we did a very nice job of avoiding the biggest pitfalls and riding the majority of rallies. It's never easy to go against the masses, because psychology is not on our side. Prices fall as bad news escalates. Getting out when the news is mostly rosy and then holding your nose and jumping back in when news is awful isn't something that many can do. I think Warren Buffett is very prophetic when he says, "Buy when others are fearful and sell when others are greedy". Essentially, that sums up the first half of 2025, doesn't it?

So what's in store during the 2nd half?

Well, one piece of excellent news is that small caps (IWM) have kicked off July in grand fashion. During this morning's speech, Fed Chief Powell suggested that the Fed would already have cut rates if it weren't for tariffs. That's an admission that the Fed has failed to act due to what MIGHT happen in the future and it also puts a TON of pressure on the Fed to cut rates if inflation continues to show little impact from tariffs. Of course, Fed Chief Powell has spoken out of both sides of his mouth, in my opinion, so I'll wait to see if the Fed actually follows through and cuts rates. I'm on record saying that they will surprise and cut rates at their July meeting and I think Powell just opened the door for that first cut of 2025.

The market's reaction with money rotating heavily towards small caps sort of confirms my belief that lower rates will be a boon for the small cap IWM. Leading the charge today is the regional banking ETF (KRE), which also should do very well in a falling interest rate environment:

I see an absolute breakout and a relative breakout. This very well could be the start of a very solid advance in the regional banks.

Here's the latest on the IWM as it makes another breakout from its recent confirmed reverse head & shoulders bottom:

A strong finish on the IWM would be quite bullish with the next really key overhead resistance level up at 229. Of course, the ultimate measurement from the reverse head & shoulders pattern is closer to 250. I believe there's a good chance of a quick rally to get us there - perhaps much quicker than most might expect. We were close to that level when future rate cuts were on the table back in 2024. I believe rate cuts back on the table would result in massive accumulation in small caps.

We'll see.

Happy trading!

Tom