Summr Weekly Capital Allocator Brief

Weekly Market Recap: Navigating the Three-Way Market Standoff

U.S. equity indices closed last week marginally higher, but beneath the calm surface, asset allocators found themselves navigating a three-way tug-of-war across earnings momentum, monetary policy uncertainty, and global currency shifts.

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1. Earnings Drive U.S. Equities Higher—But Valuations Stretch

Corporate earnings upgrades continue to underpin U.S. equity resilience. The S&P 500 inched higher last week, driven by upward revisions across technology, healthcare, and consumer discretionary sectors. The forward price-to-earnings (P/E) ratio now sits at 22x, notably above its 10-year median of 18x (FactSet, 2025-07-05).

This valuation premium reflects investor confidence in earnings durability, yet also signals that markets are increasingly priced for perfection. With corporate guidance improving, Summr’s allocation desk maintains a tilt toward high-quality U.S. equities—companies with strong balance sheets, pricing power, and stable cash flows.

However, caution remains warranted. In stretched valuation regimes, small disappointments can trigger outsized corrections. We view current levels as favoring selectivity over broad market exposure.

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2. Fed Holds the Line as Inflation Lingers

While risk assets found support, bond markets reflected a different narrative. The 10-year U.S. Treasury yield held steady around 4.40%, as Federal Reserve officials reiterated a hawkish stance. In their July 3 statement, policymakers emphasized that rate cuts remain unlikely until core PCE inflation—currently hovering near 3.2%—falls “convincingly” below the 3% threshold (Federal Reserve, 2025-07-03).

This monetary policy stalemate continues to anchor front-end rates while capping bond market rallies. We expect rate-sensitive sectors like housing and small-cap credit to remain under pressure, while investment-grade corporates remain relatively insulated.

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3. EM Equities Rally on Dollar Weakness

Globally, emerging market (EM) equities outperformed last week, advancing 2.3% amid renewed dollar weakness. The DXY index, which measures the U.S. dollar against major currencies, touched a three-year low (Bloomberg, 2025-07-04). A weaker dollar tends to favor EM assets, reducing debt servicing costs and encouraging capital inflows.

Summr maintains measured EM exposure, focused on regions benefiting from fiscal discipline and improving trade balances. While dollar softness offers tactical opportunities, underlying macro risks in EM economies warrant careful country and sector selection.

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Summr’s Positioning: Leaning Risk-On, But Selectively

At Summr Capital, our allocation desk holds a mild risk-on tilt: • Overweight high-quality U.S. equities and investment-grade credit. • 6% cash allocation retained for flexibility and opportunistic entry points. • Limited EM exposure, focused on select geographies benefiting from FX tailwinds.

We believe thinning liquidity through midsummer calls for patience over aggressiveness. Our mantra remains clear: buy fear, not strength. Rather than chasing rallies in an increasingly fragile market, we’re positioned to deploy capital when volatility resurfaces and valuations reset.

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Looking Ahead:

Key data points we’re monitoring this week: • U.S. CPI and PPI inflation reports. • Corporate earnings season kickoff, with banks reporting. • Fed Chair Powell’s testimony for further monetary policy cues.

As always, past performance is not indicative of future results. Markets are fluid, and discipline—not complacency—remains our edge.

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