Outlook The continued optimism of stock investors is reflected in the price levels of most major market indices (i.e., S&P 500 is sitting at all-time highs). This comes in contrast to the potentially negative impact of ongoing tariff negotiations and letters sent to many major countries at levels generally well above 20%.1 Further, the ADP jobs report showed a decline of 33,000 jobs.2 However, this came in contrast to the official Department of Labor Report, which generally paints a positive picture.3 As the corporate earnings season picks up this week, we will get a bottom-up perspective on tariffs and the economy. This comes in addition to updates on inflation and retail sales. While the upcoming reports could affect our perspective, we are currently cautiously optimistic given our view that households have reasonably low leverage4, wages are growing faster than inflation5, and investors in corporate bonds see very little concern for credit defaults (i.e. Low credit spreads).6 This indicates to us that companies are in good shape. . . . The U.S. equity markets ended the week slightly lower. Nonetheless, the major benchmarks (S&P 500, Dow Jones Industrial Average, and Nasdaq) remain at record highs. The S&P 500 even closed another new intraday high of 6,290.22 points on July 10th. Trade developments dominated the headlines, as U.S. President Donald Trump announced new tariffs on more than 20 countries and extended the 90-day pause to August 1st. Tariff rates, ranging between 20% - 50%, will go into effect on August 1st unless a trade deal is reached sooner. The new levy rates, for the most part, are comparable to those announced on April 2nd; however, some have been modified to reflect the changing environment. For example, Vietnam and the U.K. have signed trade deals with the U.S. and saw a reduction in their announced rate. Improving the U.S.’s position in global trade through tariffs has been an important objective of the current administration. We have yet to see such effects cause an inflation rise, as many of the added costs have been absorbed before reaching the consumer. Actions from distributors/retailers to stockpile inventories ahead of the imposed tariffs most likely also helped limit the impact on inflation. While the extent of future impact is unknown, we would not be surprised to see inflation drift slightly higher in the coming months or see potential pressure on profit margins. However, any progress towards additional trade agreements should ease trade tensions, leading to lower tariff rates, which should, in turn, keep inflation in line and reduce growth risks. The central bank (whose dual mandate targets maximum employment and price stability) has been settled into a wait-and-see position amid economic uncertainty. Fed Chairman Jerome Powell has maintained the view that the committee is well-positioned to wait for greater clarity on the impact of tariffs on inflation. The labor market, while cooling, has remained resilient, which has allowed the Fed to keep such a position. As for inflation, the personal consumption expenditure (PCE) measures at 2.3%7, while the fed funds rate is at 4.3%8, meaning monetary policy is still restrictive. The Fed’s long-term target for inflation is 2.0%. Any progress towards this target should give the Fed room to cut interest rates. The futures market is currently pricing in an expected hold at the July meeting, with a 43.5% probability of (2) 25 basis point cuts by the end of 2025.9 As mentioned in the outlook, we remain cautiously optimistic going into the second-quarter earnings season, which will kick off this week with reports from major banks and other household names, including JPMorgan Chase, BlackRock, Goldman Sachs, Bank of America, along with Johnson & Johnson and Netflix. |
Upcoming Reports Monday: N/A Tuesday: Consumer Price Index (CPI), NY Empire State Manufacturing Index Wednesday: Producer Price Index (PPI), Beige Book Thursday: Retail Sales, Philadelphia Fed Manufacturing Index Friday: Housing Starts, Building Permits, Michigan Consumer Sentiment and Expectations |
Aviance Capital Partners is a Naples, FL-based registered investment advisor with advisors in Naples and Orlando. We provide professional wealth management, financial planning, and investment strategies since 2009. Our financial advisors are fiduciaries, offering services such as retirement income planning, tax-efficient investing, and customized portfolio management, all designed to help clients achieve their long-term financial goals. Whether you're preparing for retirement or seeking a tailored investment management strategy, Aviance’s wealth advisors in Naples and wealth advisors in Orlando provide financial planning and investment management services to investors in all of Florida and beyond. Thank you for reading. If you have any questions or concerns, or would like to speak with a member of our team, please click the button below to reach out to us. We would love to hear from you! |
