Bad Breadth

* Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

DJIA 52-wk: +10.06% | YTD: +4.23% | Wkly: -0.07%

S&P 500 52-wk: +14.38% | YTD: +7.06% | Wkly: +0.59%

NASDAQ 52-wk: +17.88% | YTD: +8.21% | Wkly: +1.51%

Technology Select Sector SPDR ETF 52-wk: +18.12% | YTD: +12.20% | Wkly: +1.97%

Market Snapshot – July 14–18

Index Performance & Volatility

S&P 500 ended the week at 6,296.79, up ~0.6% for the week—even after a slight dip on Friday Interactive Brokers+1Raymond James+1AP News.

Nasdaq Composite rose 1.5%, closing the week at an all-time high of 20,895.66 AP News+1Wikipedia+1.

Dow Jones Industrial Average slightly declined 0.1%, closing at 44,342.19 AP News+2AP News+2sterlingcapital.com+2.

Russell 2000 eked out a ~0.2% gain, ending around 2,240 The Times+15AP News+15sterlingcapital.com+15.

Markets recorded their third winning week in four, despite Friday’s mixed session sterlingcapital.com+15AP News+15Interactive Brokers+15.

1. Strong Earnings & Economic Data

Solid Q2 earnings reports—including from PepsiCo, United Airlines, and top banks—helped markets hit new highs on July 17 Business Insider+1The Times+1.

Positive economic signals included a drop in weekly jobless claims and a 0.6% rise in June retail sales Reuters+14Business Insider+14Reuters+14.

2. Tech & AI Leadership

Nasdaq marked its fifth record close of 2025, driven by strong performances from Nvidia, AMD, TSMC, and broad tech outperformance Investors+1myretirementadvisors.com+1.

Despite tariff worries, enthusiasm for AI chips remained high, and Nvidia was approved to resume H20 chip exports to China Investors+1The Guardian+1.

3. Tariff & Trade Pressures

Tariff tensions resurfaced midweek with new threats—from Japan, South Korea, Brazil, and Canada—causing a mild pullback in stocks by week’s end myretirementadvisors.com+1sterlingcapital.com+1.

Investors mostly shrugged off the trade rhetoric, focusing instead on strong earnings and data Investors+5Reuters+5Reuters+5.

Market breadth remains narrow—indices up on concentration at top tech names, prompting caution Barron's.

Record-high investor optimism has dropped cash levels to 12-year lows, potentially signaling a contrarian warning ameriserv.com+15The Australian+15Business Insider+15.

Fed signals turn more dovish—momentum increases for rate cut expectations later this year The Times+6Reuters+6AP News+6.

Trade and tariff policy continues to be in focus leading up to the August 1 implementation deadlines ameriserv.com+3shoreunitedbank.com+3sterlingcapital.com+3.

Upcoming earnings this week include Tesla, Alphabet, Google, and other major tech leaders Investors.

Markets remain resilient, setting new highs supported by earnings and data strength.

Tech-led rally, especially in AI-related sectors, continues to drive gains.

Tariff developments and narrow market breadth warrant caution, but sentiment remains optimistic.

Digging into the One Big Beautiful Bill Act:

Key Provisions for Individuals and Families:

A major feature of the OBBBA is that it makes the 2017 Tax Cuts and Jobs Act individual tax rates permanent. This includes:

Lower marginal tax brackets

The expanded standard deduction was locked in, and will now be adjusted for inflation starting in 2026. In that year, the standard deduction for single filers will rise to $16,550, while married couples filing jointly will be able to deduct $33,100. For 2025, single filers will see a temporary $1,000 increase in the standard deduction while joint filers will receive $2,000.

The repeal of personal exemptions

Higher thresholds for the alternative minimum tax (AMT)

For individuals who own small businesses, OBBBA also made permanent the 20% deduction for qualified business income (QBI) from pass-through entities like S corps and partnerships.

Several new deductions were also added, but many come with income phaseouts or sunset provisions. Here are the key deductions I think will impact most readers:

The state and local tax (SALT) deduction cap rises from $10,000 to $40,000 from 2025 to 2029, but it phases out above $500,000 of modified adjusted gross income (MAGI) and reverts to $10,000 in 2030.

A new $6,000 per-person deduction for seniors (age 65+) begins in 2025 and runs through 2028. It begins to phase out at $75,000 of income for singles and $150,000 for married couples.

A deduction of up to $25,000 for tips and $12,500 for overtime pay is available—but again, both are subject to income phaseouts and expire in 2028.

These new deduction provisions offer targeted relief and are allowed even if the standard deduction is taken, which helps widen their reach. However, they do not reduce adjusted gross income (AGI), meaning they won’t lower exposure to the 3.8% net investment income tax or Medicare IRMAA surcharges.

Key Provisions for Businesses:

OBBBA reinstates and makes permanent 100% bonus depreciation for qualified property placed in service after January 19, 2025. It also adds a new category, Qualified Production Property, for U.S.-based manufacturers and refiners. Importantly, both bonus depreciation and the expanded standard deduction will now be adjusted for inflation starting in 2026, offering longer-term planning consistency for businesses.

Other key changes for business owners include:

Increased Section 179 expensing limits (now $2.5 million), which allows businesses to write off the full cost of eligible assets in the year they’re placed in service, rather than depreciating them over time. For business owners making large capital investments—this can deliver meaningful tax savings and improve after-tax cash flow in the near term. In other words, good for earnings.

Retroactive R&D expensing for 2022 and 2023

More lenient business interest deductibility under Section 163(j), which effectively raises the ceiling on deductible interest expense, especially for capital-intensive industries. Companies that invest heavily in equipment, facilities, or R&D often have large depreciation expenses. Excluding those from the interest deduction formula means more of their borrowing costs can be written off, making financing growth more attractive.

The poor breadth is a sign the market is growing nervous about several related risks. Tariff rates have risen this month and could rise more by Aug. 1 —Trump’s self-imposed deadline for trade deals. That’s raised concerns about inflation as well as margin pressures for companies forced to pay more for their goods—and given shares of economically sensitive companies exposed to tariffs a tough time. The SPDR S&P Retail ETF fell 1% this past week, while General Motors fell 0.9% and Ford Motor declined 5.9%.

That weakness could spread, but it will probably need a stronger catalyst than just possible tariffs. Maybe the Federal Reserve will disappoint investors at its meeting at the end of July. Or maybe Big Tech companies will offer weak guidance when they report later this month. Or maybe Trump doesn’t chicken out, and tariffs spike on August 1. But with breadth as weak as it is, it wouldn’t take all that much.

“Breadth is narrowing, internals are softening, and exhaustion signals are building,” MI2 Partners analysts write. “We’re approaching a pressure point.”

That doesn’t mean the market is in for a nasty slide like the 19% drop earlier this year, but it could be painful enough that investors with cash to put to work might want to hold off for a bit.

Sometimes waiting really is the best policy.

Stock buybacks are replacing dividends as the biggest source of capital returns. That may be creating big risks for income investors.

Investors love buybacks and dividends, but the two forms of capital return aren’t exactly the same. Dividends are a cash payout to a shareholder, while buybacks remove shares, giving remaining shareholders a larger stake of a company.

The S&P 500’s dividend yield has been shrinking. The overall index yields about 1.2%, near the all-time low reached during the dot-com bubble, dragged down by the relatively low payouts of tech giants like Nvidia, which yields only 0.02%.

The index’s paltry yield is a big change from the past. The S&P 500 typically yielded more than the 10-year Treasury note up until the 1960s, notes Deutsche Bank strategist Jim Reid. Just 10 years ago, the S&P 500 and 10-year yielded close to 2%, with the index trading for 17 times earnings. Now it yields about three percentage points less than the 10-year while trading for 22 times estimated earnings over the next 12 months.

Dividends are lagging, but buybacks have picked up the slack. Nvidia, for instance, has repurchased some $40 billion worth of stock over the past year. Combined with the meager dividend, its shareholder yield is a more respectable 1%.

Nvidia isn’t the only company favoring buybacks. Over the past decade, S&P 500 dividends paid have grown about 7% a year on average, according to Bloomberg, while net buybacks—repurchases minus stock issuance—have grown 10% a year. As a result, dividends make up just 43% of capital returns, down from roughly half 10 years ago.

On the surface, the buyback tilt doesn’t look like a problem for anyone besides income investors seeking cash payouts. Nvidia is near an all-time high, and U.S. stock markets have performed well, beating international indexes. “It’s hard to argue with the results,” Reid writes.

An overreliance on buybacks, however, creates a new risk, as stock market valuations get stretched and the U.S. economy shows signs of weakening. “If a downturn hits, buybacks will stop far more quickly than dividends, potentially pulling away a key pillar of market support,” Reid warns. “In a crisis, the lack of durable income from dividends may matter more than markets currently appreciate.”

What can investors do, given the new buyback risk? Preparing is always a good idea. Knowing which stocks are relatively more reliant on buybacks and which stocks have attractive dividend yields with ample earnings to continue protecting and growing dividends in a downturn can mean the difference between pain and gains.

Marathon Petroleum, Boyd Gaming, Kroger, and Nike stand out as heavy buyers of their own stock. That isn’t a problem on its own, but the companies have bought back twice as much stock over the past 12 months than they are projected to earn over the next 12, according to Bloomberg. Losing buyback support could be material for that quartet.

On the other hand, biotech Royalty Pharma, retailer Bath & Body Works, bank Popular, packaging maker Sealed Air, insurer MetLife, and oil-services provider Halliburton yield an average of 2.6%, while paying out only about 25% of net income projected over the coming 12 months. Wall Street likes the stocks, too. The average Buy-rating ratio for the shares is about 75%, above the 55% for the average stock in the S&P 500. The average Buy-rating ratio for the four buyback-heavy stocks is about 47%.

Fundamentals matter, of course, and appearing on a list doesn’t justify buying or selling a given stock. But as buybacks continue to displace dividends, income investors should be aware that all capital returns aren’t created equal.

Tariff announcements due by August 1 could reshape trade-sensitive sectors (energy, materials, autos).

Earnings next week: Tesla, Alphabet, Meta—watch for broad sector spillover effects.

Rate and economic signals: Inflation, retail sales, and Fed commentary in focus as investor caution grows.

Pay attention to Netflix’s earnings report. They beat on almost all fronts, but the stock closed 5.1% lower. With the stock market at historic levels and expectations very high It’s a blueprint that could be replicated throughout the earnings season. I still remain cautious.

— Richie

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