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Trading Day: Fading trade deal relief?
Published by Global Banking and Finance Review
Posted on July 28, 2025
8 min readLast updated: January 22, 2026
Global Banking and Finance Review
Company
Published by Global Banking and Finance Review
Posted on July 28, 2025
8 min readLast updated: January 22, 2026
Market reactions to the U.S.-EU trade deal show mixed results, with European stocks hit and U.S. indices reaching new highs. Key economic implications are discussed.
By Jamie McGeever
ORLANDO, Florida (Reuters) -TRADING DAY
Making sense of the forces driving global markets
By Jamie McGeever, Markets Columnist
Investors' initial response to the U.S.-EU trade deal framework saw the euro and German stocks slammed lower on Monday, while the S&P 500 and Nasdaq notched fresh closing highs in choppy trade, also supported by optimism around U.S. tech earnings.
More on that below. In my column today I look at whether the Q2 earnings season could be an inflection point for U.S. stocks - does the 'Mag 7' megacap concentration persist, or is the market finally beginning to broaden out?
If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today.
1. Out-gunned Europe accepts least-worst U.S. trade deal 2. U.S. tariffs will be test of luxury brands' pricingpower 3. EU's lopsided Trump trade deal will be short-lived 4. Fed rates are going nowhere fast: Mike Dolan 5. Bank of England poised to slow QT after rise in yieldsToday's Key Market Moves
* FX: Euro falls 1.2%, dollar index up 1%; both biggestmoves since May 12. * STOCKS: Germany's DAX falls 1% after U.S.-EU trade deal,S&P 500 and Nasdaq notch fresh closing highs. * BONDS: U.S. yields rise 3 bps at long end, curve snaps7-day flattening streak. * COMMODITIES: Oil rises 2.4%, biggest rise in over twoweeks.Fading trade deal relief?
The relief and feel-good factor for markets that Sunday's U.S.-European Union trade deal initially sparked waxed and waned on Monday, with European assets hit hard and Wall Street trading in negative territory for much of the session.
The S&P 500 and Nasdaq did manage to set new closing highs. The trade deals with the UK, Japan and now the EU are seen as significant wins for Washington and President Donald Trump, as they secure higher tariffs on imports into the U.S. without retaliation and include commitments for additional investment. Many Europeans have criticized the EU for caving in.
Oppenheimer Asset Management on Monday raised its year-end target for the S&P 500 index to 7,100, the highest among major Wall Street brokerages, betting on easing trade tensions and strong corporate earnings.
But as commentator Matthew Klein noted on Monday, it is odd that the country unilaterally making things more expensive for its citizens is somehow deemed to be "winning".
The longer-term impact on the U.S. economy and revenues remain to be seen, but most observers agree growth will slow, and inflation and unemployment will rise in the short-term. Joseph Wang, CIO at Monetary Macro, estimates that the "trade war is concluding with an effective tax hike worth about 1% of GDP."
With the tariff on most imports from the EU now set at 15%, America's overall average effective tariff rate is now 18.2%, according to the Yale Budget Lab, the highest since 1934.
Attention now turns to Stockholm, where U.S. Treasury Secretary Scott Bessent and China's Vice Premier He Lifeng are seeking to extend a tariff truce by three months. These talks, set to conclude on Tuesday, could also pave the way for a meeting between Trump and Chinese President Xi Jinping in late October or early November.
On top of trade, there are plenty market-moving developments and events for investors to monitor this week, including top-tier corporate earnings, policy meetings in Japan and the U.S., and the latest U.S. inflation and employment reports.
This week is the busiest of the second-quarter earnings season with over 150 companies in the S&P 500 scheduled to report, including four of the 'Magnificent Seven' tech giants later in the week. Tuesday's focus will likely center on Visa, Proctor & Gamble, and Boeing.
Elsewhere, the U.S. Treasury on Monday said it expects to borrow $1.007 trillion in the third quarter, almost double the April estimate mainly due to the lower beginning-of-quarter cash balance and projected lower net cash flows.
Is U.S. stock rally near 'Mag 7' turning point?
As investors brace for the busiest week of the U.S. earnings season, with four of the 'Magnificent Seven' tech giants reporting, debate is picking up again about these megacap firms' influence over U.S. equity indexes and whether we could be seeing the beginnings of true market broadening.
By some measures, this small clutch of tech titans' profits, market cap, and valuations as a share of the wider market has never been bigger. Broader indices are at record highs, but strip out these firms and the picture is much less rosy.
Indeed, since the beginning of 2023, the S&P 500 composite - the benchmark 'market cap' index increasingly dominated by the 'Mag 7' - has gained 67%, more than double the 'equal-weight' index's 32%.
Only two years ago, the S&P 500 composite/equal-weight ratio was 0.66, meaning the composite index was worth around two-thirds of the equal weight index. That ratio is now 0.84, the highest since 2003.
There's good reason for that.
According to Larry Adam, chief investment officer at Raymond James, 12-month forward earnings estimates for the S&P 500 have outpaced estimates for the equal-weight index by 14%. And Tajinder Dhillon, senior research analyst at LSEG, notes that the 'Mag 7' last year accounted for 52% of overall earnings growth.
Many investors and analysts consider it unhealthy to have the fate of the entire market dependent on so few companies. It may be fine when they're flying high, but not so much if one or two of them take a dive. Plus, it makes stock picking more difficult. If the market basically goes where the 'Mag 7' or Nvidia go, why should an investor bother buying anything else? That's a recipe for market inefficiencies.
YACHTS AND ALL BOATS?
There have recently been nascent signs that the market may be broadening out beyond tech and AI-related names, largely thanks to positive news on the trade front. Last week, the equal-weight index eclipsed November's high to set a fresh record.
Raymond James's CIO Adam notes that the equal-weight index outperformed the S&P 500 last week for the fourth week in the last 13. More of the same this week would mark its first monthly outperformance since March.
Can it hit this mark? Around 160 of the S&P 500-listed firms report this week, including Meta and Microsoft on Wednesday and Amazon and Apple on Wednesday. It's not a stretch to say these four reports will move the market more than the rest combined.
LSEG's Dhillon says the Mag 7's share of total earnings growth is expected to fall to 37% this year and 27% next year. The expected earnings growth spread between Mag 7 and the wider index in the second quarter - 16.4% vs. 7.7% - is the smallest since 2023, and will shrink more in Q3, he adds.
Larry Adam at Raymond James, however, thinks the recent market broadening is a "short-term normalization" rather than a "material shift". He thinks the earnings strength of the tech-related sectors justifies the valuation premium on these stocks.
Regardless, what we know for sure is that fears about the market's concentration and narrowness have been swirling for years and there has yet to be a reckoning. The equal-weight index's rise to new highs last week suggests the rising tide is lifting all boats, not just the billionaire's yachts.
Essentially, the Mag 7 and large caps are outperforming, but if you peel back the onion, other sectors like financials and industrials are also doing well. And look around the world. Many indices outside the U.S. that aren't tech-heavy are approaching or printing new highs also, like Britain's FTSE 100 and Germany's DAX.
"To see the largest names leading isn't a worrisome sign, especially as they are backing it up with very strong earnings," says Ryan Detrick, chief market strategist at Carson Group. "This isn't a weak breadth market, it is broad based and a very healthy rally."
This week's earnings might go some way to determining whether this continues for a while yet.
What could move markets tomorrow?
* U.S. consumer confidence (July) * U.S. JOLTS job openings (June) * U.S earnings, including Proctor & Gamble, Visa, Boeing * U.S. Treasury auctions $44 billion of 7-year notesWant to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here.
Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias.
(By Jamie McGeever; Editing by Nia Williams)
Corporate earnings refer to the net profit of a company after all expenses have been deducted from total revenue, often reported quarterly.
Market concentration refers to the extent to which a small number of firms dominate total sales in a market, impacting competition and pricing.
Economic growth is the increase in the production of goods and services in an economy over a period, typically measured by GDP.
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