By: Darren W. King | Wealth Management
Source: Bloomberg, Inc.
Key Takeaways:
- The Trump administration walks back initial tariff levels and postpone levies until August. Markets pricing negotiation and tariff rates much lower than the initial “shock and awe” levels
- Fed guides to two 25 basis point cuts in 2025 but some voting members see only 1 cut in 2025
- 2025 GDP estimates revised lower to 1.4% from 2.1% earlier in December as stagflation scenarios unfold
- The headline Consumer Price Index ends 2Q2024 at 2.4%, down from 3.8% in the 1Q2024. Inflation expectations moving higher to around 3% by year end with tariff news
- Unemployment finishes June 2025 at 4.1%, down from 4.3% in July 2024 as jobs currently solid
- S&P 500 returns 6.5% as of July 10, 2025
Equity Strategy
Equity markets have exhaled a huge sigh of relief as the Trump administration’s “shock and awe” tariff policy announced in April have been tabled to August as global trading partners negotiate less severe tariff levels. Trump always chickens out, known as the TACO trade, has been the story of 2025. Buy the dip investors have rallied equity markets in the US back to new market highs following resilient corporate earnings, a better-than-expected job growth print and unemployment numbers falling, and extension of current corporate and individual tax rates in Trump’s “big beautiful bill”. While inflation is expected to be elevated, growth is expected to slow with the tariff policy, and tax legislation increases our national debt; corporate earnings still are growing at almost 10% for 2025 with the S&P 500 up 6.5% through July 9. If tariff rates aren’t negotiated lower as the market is pricing, equity markets could be set up for a major disappointment. We continue to favor cyclical sectors over defensive stocks and advise the continued diversification into a larger international allocation.
Fixed Income Strategy
As of July 9, 10-year investment grade corporate bond spreads to the treasury have tightened and are back to historically low levels.In short, the bond market isn’t remotely close to pricing a recession, despite expectations for slower GDP growth and higher inflation. Additionally, the Trump tax bill, which adds $3.3 trillion to the deficit over the next 10 years, puts pressure on interest rates remaining higher in the long run. The corporate bond market is still offering yields greater than 5% for maturities greater than 7 years.
Click here to read the entire Q2 2025 Market Review.
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