Investor sentiment was tested early in the second quarter, as “liberation day” tariff announcements in April led to the sharpest selloff in global stock prices since the pandemic. In response to both the selloff and signs of stress in the economy, the U.S. administration paused the threatened tariffs, extending major trading partners a ninety-day respite. Even with the delay, leading economists warned that plans to implement trading levies could slow economic growth, increase inflation, and undermine investor confidence.
In addition to new tariffs coming from the U.S., geopolitical hostilities have made economic forecasting and business planning more difficult for multinational companies. With ongoing wars in the Middle East and Ukraine, the U.S. strike in Iran added to an already tense environment. During times of military conflict, oil prices have typically been a concern for investors, as high energy prices have been associated with stagflation (an economic environment featuring high inflation and minimal growth). Notably, times have changed as the U.S. has transitioned to a net exporter of oil, in turn making the domestic economy less vulnerable to spikes in energy prices.
As the quarter ended, the “One Big Beautiful Bill Act” came into focus with a supportive Congressional vote expected by the markets. While those against the bill pointed to runaway government spending and the $37 trillion in Federal debt, supporters of the legislation were finding hope in net government tariff revenue which eclipsed $60 billion during the first five months of the year. Economists will measure the spending bill’s ability to drive American economic prosperity, with the fiscal health of the U.S. somewhat hanging in the balance. Additionally, central bankers around the world will be monitoring recent weakness in the U.S. dollar – down 10% year-to-date, and its largest decline since 1973.
While a myriad of fiscal and trade policies was enacted during the second quarter, the S&P 500 still achieved a new all-time high at the end of June. Once again, leading corporations around the world showed their resilience as they delivered solid business results. Company CEOs were also able to communicate optimistic sales and profit growth targets for the balance of the year and into 2026. Not surprisingly, the largest global technology companies continued to lead the way as they plan for further hiring in their Artificial Intelligence (AI) businesses, double digit sales growth in their cloud segments, and success developing their Large Language Model (LLM) initiatives.
In the months ahead, central banks and investors alike are eager to digest fresh data to find more clarity amid an uncertain macroeconomic environment. The Federal Reserve’s handling of interest rates will play an important role in a shifting economic landscape. Fed Chairman Jay Powell will be primarily focused on his inflation target of 2%, a goal that may be achieved soon. Finally, U.S. companies will be delivering their second quarter business results in the weeks ahead, with analysts expecting a mere 5% profit growth (which would be the slowest growth rate in two years).
