Trust Investment Management
The second quarter began with a steep sell-off after the President announced a series of tariffs that were substantially higher than expected. However, the markets ended an exceedingly volatile quarter on a positive note in anticipation of additional trade deals, lower rates, and easing geopolitical tensions. Both equities and fixed income delivered positive returns for June as well as the second quarter, while the S&P 500 managed to reach a new all-time high. The brisk rebound was impressive and rewarding for investors who did not abandon their long-term goals due to the turbulence.
The Core Personal Consumption Expenditures Price Index (PCE), which is the Fed’s preferred inflation gauge, increased 2.7% from one year ago. This was higher than expected and an increase from the 2.6% reading in the previous month. While the impact that tariffs may have on inflation is uncertain, it is likely that inflation will rise temporarily before resuming its downward trend.
The Federal Reserve left rates unchanged during the quarter and highlighted that “economic activity has continued to expand at a solid pace. The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated.” Fed Chair Jerome Powell later stated that he was concerned about the potential negative impact that tariffs could have on inflation. Nonetheless, investors expect at least two quarter point cuts by the end of this year, according to CMEGroup’s FedWatch Tool.
The latest Atlanta Fed GDPNow model estimate for real GDP growth is 2.5% for the second quarter. Additionally, the International Monetary Fund projects that the U.S. economy will grow by 1.8% in 2025, and 1.7% in 2026. While the U.S. economy is expected to slow, it would seem that a recession can be avoided.
We expect that volatility will be an ongoing theme for the remainder of this year as tariff negotiations continue, and the 90-day pause is set to expire. Periodically confirming that your investment objective is still appropriate is important. This will help you to focus on your long-term goals and stay the course. As we saw with the market whipsawing earlier this year, timing the market and/or panic are not effective investment strategies.
