This week, earnings season has wrapped with roughly eight in ten S&P 500 companies beating estimates. The average beat was about 8%, above the 10-year average of 6.9%. The forward 12-month price-to-earnings ratio sits near 22, which is above the five-year average near 20. Stocks are not cheap, but as long as revenue and profit growth keep coming, valuations are still reasonable.

Tariff Impact: Mixed but Manageable

Tariffs were expected to hammer margins, but the reality so far is mixed. The administration has floated phased tariffs that start lower and step up over time, with some implementation delays and carve-outs by sector. That path has softened the immediate hit, but uncertainty around the rules remains high.

Inflation Signals Diverge

On inflation, July consumer prices held steady, suggesting the latest tariff waves haven’t yet pushed headline prices higher in a broad way. Producer prices, though, jumped the most in about three years which is a sign cost pressure is building upstream even if it hasn’t fully reached shoppers yet. Some companies have been absorbing costs or front-running imports, which can delay pass-through.

The Reliability of Economic Data

That raises the bigger question: can we trust the data? Economic reports like the Jobs Report and the Consumer Price Index (CPI) are based on surveys. The Jobs Report combines a survey of households with a separate survey of employers. The CPI measures prices from a “market basket” of goods and services. All of this data is preliminary when first released. The figures are routinely revised as more survey responses arrive and the data is checked against more complete records, like tax filings. Recently, fewer people and businesses are responding to these surveys. For example, the response rate for the JOLTS (Job Openings and Labor Turnover Survey) has fallen from over 60% a decade ago to around 35% this year. Lower response rates can make the initial data less precise and lead to larger revisions later. While revisions are a normal part of the process, some have been large. Last year, for instance, an annual revision lowered previously reported job gains by about 800,000 for the period of April 2023 to March 2024.

Separately, recent personnel changes at the Bureau of Labor Statistics (BLS), including the replacement of its Commissioner, have led former agency leaders to voice concerns about maintaining public trust in the government’s economic data. For investors, the takeaway is that any single report should be treated as a headline, not a verdict. Trends over three to six months carry more weight, and company-level data on orders, backlogs, and margins often tell you more about the path of earnings than the first pass of a government release.

The Rise of the Retail Investor

The current stock market is exhibiting a unique character: while broad market volatility has settled to lower levels, a select group of individual stocks, particularly in the artificial intelligence sector, are experiencing significant price swings and trading near the top of their recent ranges. This dynamic, where every market dip is met with eager buyers, is largely being shaped by a powerful and increasingly influential force—the retail investor. The surge in everything AI is not a sideshow; it is the main event, driven by a new generation of investors who have fundamentally altered the market landscape.

In recent years, the role of the individual investor has transformed from a minor player to a market-moving force. This shift has been driven by a confluence of factors that have completely reshaped the investing world. The democratization of market access through commission-free trading and fractional shares allows individuals to invest with any amount of capital and then leverage up using stock options. This accessibility is amplified by user-friendly mobile platforms that have put the power of the stock market in the palm of everyone’s hand. Furthermore, social media platforms and online forums have become virtual trading floors where investors share ideas and strategies, sometimes leading to coordinated buying in specific stocks that creates significant upward price pressure followed by steep crashes.

AI and the “Buy the Dip” Mentality

A defining feature of this retail-influenced market is the unwavering “buy the dip” mentality. The conviction that any sell-off is a buying opportunity has been reinforced by years of swift market recoveries. This behavior creates a floor for stock prices and shortens the duration of corrections, as dips are quickly met with a wave of buying. This capital is often channeled through thematic investing, with no theme being more dominant this year than artificial intelligence. Enthusiasm for the transformative potential of AI has led to a massive influx of retail money into a concentrated group of companies, causing a wide performance gap between these favored stocks and the rest of the market. This focus on a compelling story and strong price momentum can, at times, take precedence over traditional valuation metrics, leading to situations where stock prices become detached from their underlying financial performance in the short term.

The Future Landscape: AI and Labor

In conclusion, the 2025 market is defined by the retail investor’s coming of age. Their collective influence has resulted in a market that remains resilient through sell-offs but is also defined by highly concentrated leadership. The critical undercurrent to this dynamic is the accelerating adoption of AI. AI is transforming industries far more quickly than expected, creating significant implications for job security. Looking forward, this technological shift is poised to become a dominant economic force. As automation replaces jobs, it could suppress wage growth and introduce deflationary pressures into the labor market. While this rapid implementation of AI stands to benefit corporate profitability, it will likely be at the expense of hiring and will cause significant disruption across entire sectors. It will create a clear divided where those who innovate will thrive and those who do not will struggle to compete.

Have a great weekend!

Sources

• Earnings Season: ~80% of S&P 500 companies beat estimates.
• Average Beat: ~8% (vs. 10-year avg of 6.9%).
• Forward P/E Ratio: Near 22 (vs. 5-year avg near 20).
• Inflation: July consumer prices steady; Producer prices jumped most in ~3 years.
• JOLTS Survey Response Rate: Fell from >60% to ~35%.
• Job Revisions: Previous job gains lowered by ~800,000 for April 2023–March 2024.

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