The Economic data

The US economy is struggling to find its footing after months of changing consumer and corporate behaviors have begun to affect the economic data. As we saw in the negative Q1 GDP report, many purchasers rushed to build inventories and make purchases ahead of the tariffs(1). With inflation driving prices up, both consumers and companies have reduced their spending(2). However, jobs and wage growth have continued to be positive(3,2), which indicates companies feel they can weather the storm until trade policy is finalized.

Equity & Fixed Income markets

Equity markets gradually moved higher in the first couple of weeks of July despite new tariff threats from President Trump. Specifically, growth companies (such as the technology sector) have benefited from lower input costs and service-based solutions that skirt tariffs largely aimed at physical goods. As earnings season kicks off, investors are cautiously optimistic that companies can continue to drive higher profits and create clear forward guidance in the face of the unknowns.

Fixed Income has struggled in the first half of the month as soft economic data and the prospect of extended uncertainty around trade policy have pushed rates higher. In addition, the Fed continues to underscore its stance that fighting inflation is its primary focus, and with the latest 2.9% core inflation report(4), the odds of near-term rate cuts grow slimmer(5). Nevertheless, Chairman Powell’s recent comments still indicate two rate cuts this year, which would be a nice boost for bond investors.

Bottom line

We continue to see the next few months as pivotal for the economy. Although we do not have data to suggest a recession is imminent, consumers and companies need certainty to move forward. If not, we may see economic data slip even further, creating potential market volatility.

(1) Source: Bureau of Economic Analysis, https://www.bea.gov/news/2025/gross-domestic-product-1st-quarter-2025-third-estimate-gdp-industry-and-corporate-profits
(2) Source: Bureau of Economic Analysis, https://www.bea.gov/news/2025/personal-income-and-outlays-may-2025
(3) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
(4) Source: Bureau of Labor Statistics, https://www.bls.gov/news.release/cpi.nr0.htm
(5) Source: CME Fed Watch Tool, https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html