Outlook Four concerns have been on top of mind for many investors this year: 1) DOGE-related layoffs impacting unemployment, 2) immigration policies negatively affecting the jobs market, 3) tariffs choking the supply of goods and triggering inflation, and 4) geopolitical concerns (most notably regional wars) sowing uncertainty. So far, 2025 has confounded those who have been overly concerned with stubbornly decent data related to solid employment, continued economic growth, and reasonable inflation. Further, corporate earnings have continued to climb, and defaults have remained muted. This puts many level-headed investors somewhere between the cautious and optimistic camps - or both. We see some evidence that spending is set to moderate, such as 4 months of increases in the Personal Savings Rate.1 However, we do not see significant distress for the majority of companies or in the banking sector. We remain in both the cautious and optimistic camp. . . . U.S. equity markets slid sharply on Friday, reversing all of the week's gains and ending in the red. The sharp decline was largely due to increased escalation in the Middle East between Israel and Iran that led to direct military confrontation. Both countries sent missile strikes aimed at each other, sending oil prices higher. Aside from geopolitical tensions, the markets also digested some key inflation data and received an update on trade developments with China. On Wednesday, following two days of negotiations in London, Trump announced a trade deal with China. He posted to social media, indicating the deal was “done, subject to final approval” from Chinese President Xi Jinping. The deal states the U.S. will impose a 55% tariff on Chinese imports (previously 145%), while China will apply a 10% tariff on U.S. goods. More notably, the terms show China has agreed to resume exports of rare earth minerals (that are critical for the tech and defense industries); in return, the U.S. will allow Chinese students to attend American universities.2 As for the economic calendar, the Consumer Price Index (CPI) and Producer Price Index (PPI), key inflationary reports were published this week. Both sets of inflation data surprised to the downside (better-than-expected). Headline CPI came in at 2.4%, while headline PPI came in at 2.6%. Overall, inflation remains well below its peak level (from 2022 when CPI hit 9%) and continues to trend towards the Fed’s long-term target of 2.0%. It appears tariffs have not yet contributed to higher inflation as many had expected. One reason for this is perhaps because businesses have built up inventories in anticipation of higher costs and have continued to do so during the 90-day pause. This should help alleviate pricing pressure in the meantime. In addition to inflation, other key fundamental data released so far this year have held up solidly despite trade and geopolitical uncertainties. While U.S. GDP (Gross Domestic Product) softened in the first quarter due to a spike in business inventories, growth appears to be tracking very strongly around 3%, according to the Atlanta Fed’s GDPNow forecast.3 This is driven by resilience in consumer spending, despite weak consumer sentiment reports. Lastly, the labor market remains steady in what many are calling a “low hiring, low firing” state. The unemployment rate remains around 4.2%, well below the long-term average of around 5.5%. Wage gains have impressively outpaced inflation, up around 3.9%, meaning consumers are benefiting from positive real wage growth.4 | 
