This year has been marked by unpredictability, with markets adjusting as the government, companies, and consumers navigate a shifting economic landscape. The full effects of tariff policies and stricter immigration enforcement have yet to be felt and may take months—or even years—to work their way through the economy. While many tariffs are already in place, averaging 18%, some remain unresolved, and even those settled may still be modified or prove temporary. Today’s “new normal” is characterized by inconsistency and the testing of economic ideas unseen in markets for decades.
With the events of the first half of the year, markets have adapted and remained resilient through this chaotic process. Each day, economists, investment managers, and businesses are facing more uncertainty and uncharted waters than they have in years. To date, corporate profits have continued to grow, and inflation movements have been modest. While tariffs may be inflationary, it is difficult to determine if the adjustment will be a one-time shock to the system or have longer-term implications.
We believe it’s a good sign that 80% of companies in the market have beaten earnings estimates. Remember that more than half of the year-to-year earnings growth comes from the Magnificent 7. We will see how adept companies are at making decisions relating to supply chains and price increases. Passing along higher costs may happen gradually as the market adapts to recent changes, helping companies maintain market share and allowing consumers to adjust more slowly. Expectations remain that we will see higher inflation by year-end, as evidenced by the recent rise in the Producer Price Index.
This year, AI investment has been enormous, accounting for 59% of our real GDP growth. More than half of the electric capacity projected over the next five years is expected to be consumed by data centers. This trend may ultimately increase costs for consumers. Transitioning to AI could have a huge impact on productivity in the longer term. As with past innovations, new technologies often take time to show meaningful efficiency gains—just as we saw with the adoption of computers.
The market is increasingly expecting the Fed to lower rates. Potentially lower interest rates, lower taxes, and deregulation may help mitigate the adjustments due to tariff and immigration policies. Industries that have relied on undocumented workers could ultimately see increased wages, which would impact prices. The big bet is that AI will boost overall productivity.
We have lived through market cycles and uncertainty, but our focus has always been on building a fully diversified portfolio and an asset allocation that will assist you in meeting your objectives. Our approach is grounded in years of research, adaptability, and a consistent focus on managing overall risk. It is more important to meet your goals than to take undue risks in attempting to accomplish them—and potentially failing to reach them.
While the markets have continued to show their resiliency, so has our investment approach. Unpredictability will continue and, if you don’t panic or get emotionally driven, we will continue to help you chart a course to keep you on track to meet your goals. We are here to address any concerns or changes in your situation. Please continue to keep us informed of any developments that could impact your financial well-being.
