Good morning,

Big Tech earnings are rolling in, Powell’s rate call lands this afternoon, and Washington is turning up the heat on tariff dodgers.

Meanwhile, job openings just hit a seven-month low, putting fresh pressure on the Fed to finally cut rates. On the other hand, GDP data out today is expected to show a strong rebound…

… but economists warn it’s mostly smoke and mirrors from temporary import drops ahead of tariff hikes.

In the stock market, large caps are doing the heavy lifting while small caps barely budge, and we’ve got the year’s biggest business deal shaking up the rails.

Union Pacific and Norfolk Southern are fusing in an $85 billion mega-merger to create America’s first coast-to-coast railway.

There's a lot to unpack before Powell steps to the mic at 2 p.m. Let’s dig in.

Bulls vs. bears: Big Tech 

Five things to know before opening bell

🛑 Job openings sink to 7-month low

Fresh labor market data is turning up the heat on Powell. June’s job openings fell to 7.44 million from 7.71 million in May, marking the lowest level since last year. Hiring slowed as well, adding to the case for the Fed to move toward rate cuts sooner than expected.

🏦 Fed decision day

Rates are almost certain to stay put this afternoon, but the decision might not be unanimous. Two Fed officials have already gone public calling for cuts. Powell will have a hell of a press conference at 2 p.m. Eastern after weeks of pressure from the White House and Wall Street.

🚨 DOJ cracks down on tariff dodgers

Companies trying to skirt Trump’s import tariffs are officially on notice. The Justice Department says it’s launching a crackdown on “trade and customs fraudsters,” warning firms that misclassifying goods or dodging duties will face enforcement action.

🚂 $85B rail mega-merger

Union Pacific is buying Norfolk Southern for $320 a share in an $85 billion deal that will create the first coast-to-coast U.S. railway. It’s the year’s largest corporate transaction and a historic reshaping of the rail sector, though both stocks closed lower on the news.

📊 GDP rebound may be a mirage

Today’s Q2 GDP print is expected to show a 2.3% expansion, swinging sharply from Q1’s contraction. But economists warn the growth is likely temporary, driven by falling imports rather than real consumer strength. “Spending has gone nowhere since last year,” said Moody’s chief economist Mark Zandi, noting tariff and rate pressures still loom for the second half of 2025.

🥇 Large caps run the show

Microsoft and Meta headline today’s earnings slate, giving Big Tech another shot at pushing the Nasdaq and S&P 500 to fresh highs. 

But it’s not just the Magnificent 7 fueling this rally. Large caps across the board are doing most of the heavy lifting while small caps barely move.

🏢 Large caps keep pulling ahead

While small caps have barely moved since last December’s peak, mega- and large-cap stocks keep hitting records. 

The divide is striking even this year alone. The S&P 500 is up 8.6% year-to-date, while the Russell 2000 has mustered a mere 0.5%.

Truist co-CIO Keith Lerner says that gap isn’t closing anytime soon.

“A key question for the second half of the year is whether market leadership will broaden. Small- and mid-cap stocks remain well below prior highs, partly due to weaker earnings.”

He added that a shift toward smaller stocks would require “both economic improvement and broader earnings growth,” and until then, he’s sticking with large-cap equities tilted toward growth.

⚖️ A make-or-break moment for small caps

Citi strategist Scott Chronert says this earnings season could decide whether small- and mid-caps finally catch a bid.

“This reporting season is critical for [small/mid caps] and more cyclical sectors as earnings growth has been paltry for more than two years," he said.

"Good results this quarter and conviction in forward estimates are critical for investors to believe the return to positive EPS growth is near and for US stock performance to broaden.”

🚨 Tariff inflation isn't coming. It's here

Inflation is no longer just a fear hanging over retailers. It’s already showing up in price tags across the country. And economists expect tomorrow’s PCE report to show just that.

📈 Economists see higher prices

June’s CPI rose 0.3% month-over-month and 2.7% year-over-year, and EY chief economist Greg Daco says tariffs were behind “roughly a quarter” of those hikes:

“Prices for household equipment and furnishings, appliances, window and floor coverings, and toys experienced their largest gains since the early 2020s, while prices for computers, audio and video equipment, and apparel posted notable gains.”

Meanwhile, Goldman Sachs economist David Mericle estimates tariffs have already added about 0.2% to consumer prices, and that’s just the start.

“Tariff effects are likely to push core inflation back above 3% over the next year, despite an underlying trend that we see as steadily moving back to 2%.”

The good news is Mericle expects this to be a “one-time effect” rather than a spiral into persistent high inflation.

🛍️ Retailers stuck in the middle

Companies are trying to decide whether to absorb costs or raise prices, and neither option is painless. Spotify CEO Daniel Ek says he’s taking the long game.

“It’s a lot better to keep the customer around for a longer time than to lose the customer and then try to re-acquire the customer back at a later point," he said. 

But eating those costs risks disappointing earnings and, according to RBC economist Michael Reid, could ultimately hit jobs.

“Our concern is that tariffs will start to add pressure to margins… The result will likely be cost-cutting in the wages space (i.e., layoffs) to bolster profits.” 

🌟 A rare bright spot

Despite higher prices and tariff worries, consumer confidence ticked up in July. The Conference Board’s index improved across employment, business conditions, and income expectations.

“Consumer confidence has stabilized since May, rebounding from April’s plunge, but remains below last year’s heady levels. In July, pessimism about the future receded somewhat, leading to a slight improvement in overall confidence,” said The Conference Board's senior economist Stephanie Guichard.

💡 Buy the dip? History says buy the peak

“Buy the dip” worked wonders a few months ago, but hitting new all-time highs doesn’t mean you’ve missed your shot. History suggests that even at market peaks, there’s still plenty of upside left.

🔎 Data shows highs aren’t scary

TKer editor Sam Ro dug through S&P 500 data from 1988–2024 and found that buying at record highs often outperforms buying on random days, at least over longer stretches:

• 6 months: 6.1% vs. 6%

• 1 year: 13.4% vs. 12.4%

• 2 years: 28.9% vs. 25.3%

• 3 years: 46.3% vs. 40%

• 5 years: 80.9% vs. 74.7%

“The S&P 500 on average has generated positive results… but investing specifically at all-time highs has actually generated higher average returns over these time horizons,” Ro wrote.

🚀 Rally may have more in the tank

Deutsche Bank strategist Binky Chadha says stocks have fully recovered from April’s tariff-fueled slump, but positioning is still neutral.

“Equity positioning tends to align with earnings growth but is currently still below what we expect for Q2… Our outlook out to year-end sees a rise in equity positioning as one of the drivers of further upside for equity prices.”

DB expects earnings growth to dip in Q3 because of tariffs, then rebound heading into year-end, potentially pushing stocks above today's levels.