Q2 2025 Market Perspective

We've had an action-packed start to the year, with the first quarter being quite eventful. As soon as the president took office, he began to take action and make his plans a reality. He had previously stated his goals for his second term. We did not know how things would unfold. At the forefront is the discussion of tariffs. We had already anticipated they would impose higher tariffs on our largest trading partners, but the final verdict showed this would become a global policy. On April 5, President Trump announced a 10% global tariff on all U.S. imports (excluding Canada and Mexico), which led the markets to spiral. The market had already been in a downtrend, but the tariff announcement triggered a correction. Volatility and uncertainty have made investors feel less optimistic about the market. The market may look dark and grim, but the economy continues to be resilient with slowing inflation and a strong labor market. Our outlook for the market shows that volatility may continue until these policies materialize, but we remain alert for any possible changes in the market.

Inflation

The Federal Reserve's preferred inflation indicator has remained under 3% for over a year, but they remain cautious as tariffs may trigger other economic challenges. Fortunately, the April CPI (Consumer Price Index) report shows inflation grew at an annual pace of 2.4% YoY (Year-over-year), the lowest level seen since March 2021. In the meantime, the unemployment rate increased to 4.2% in March, still within reasonable levels, signaling a strong labor market. With these two recent reports, the Fed has concluded that the economy continues to be strong, although we may see slow economic growth for the remainder of the year. Despite the positive numbers, the Fed has forecasted a lower GDP growth rate for 2025, now at 1.7% compared to 2.1% for their December projection.

Granted that the Fed cannot comment on policy changes, it does consider how some of these changes may impact the future of the U.S. economy. Therefore, they will continue assessing what other monetary policy changes may be necessary.

Interest Rates

Many investors hoped for lower rates this year; we fear interest rate cuts are off the table as tariffs may push inflation higher. Although another 25-basis point cut is still likely, it will all depend on the Fed's dual mandate and overall pace of economic growth. The recent tariff announcements have added more complexity, putting the Federal Reserve in a more challenging position as they assess both domestic and global economic conditions impacted by trade policy. In the most recent meetings, the Fed has signaled growing concerns about the possibility of stagflation, experiencing both slow economic growth, with increased inflation and a higher unemployment rate, making it more challenging to decide whether to increase or cut rates and the timing of these changes. In the meantime, the Fed will continue to review incoming data and make projections based on the current economic conditions and how the new tariffs will affect both businesses and consumers.

Tariffs

Many are questioning the president's approach to deglobalization. A 10% tariff on all U.S. imports and tariffs as high as 154% on Chinese imports. Additionally, "…much higher tariffs were introduced against 60 other countries on April 9". ("What are Trump Tariffs and why is Trump using them?", BBC.com). These demands are dividing the countries as they impose reciprocal tariffs on exports to the U.S. as a way to retaliate. This policy could significantly impact trade dynamics with major partners such as China, Canada and Mexico, raising important considerations about the long-term sustainability of reducing reliance on internationally manufactured goods.

President Trump has long advocated for higher tariffs, even during his first presidential term, with the idea of boosting the U.S. economy and reducing the trade deficit. Logically speaking, this sounds reasonable as companies would need to manufacture in the U.S., and consumers would buy those American-made products, therefore maintaining those dollars within our country, but realistically speaking, this situation is a lot more complex than it seems. Small businesses, which comprise about 90% of all U.S. companies, may bear the brunt of these changes. Many cannot scale production domestically, making adapting to these new trade conditions difficult. As tariff negotiations continue, the long-term impact on businesses and consumers remains uncertain.

CWM Portfolios

With the recent market volatility and uncertainty increase, we have adopted a more defensive approach by prioritizing capital preservation and risk mitigation. Our goal is to remain flexible and adaptable as market shifts continue, but as always, our long-term perspective remains the same, as history shows that markets tend to recover over time. Guided by our investment philosophy, our portfolios are positioned to tolerate the current market volatility while still meeting our client's goals.

This chart illustrates how the market has performed after a bear market from 1926 until 2024. Those with a longer time horizon are often rewarded as the market recovers shortly after a bear market, usually following a longer period with higher returns.

Corinthian is your partner when it comes to your finances. We are a resource when you have questions. If you want to know how something will impact your financial situation, please contact your main advisor at (408) 995-0915.

Advisory services offered through Corinthian Wealth Management, Inc. a Registered Investment Advisor.

Sources

https://www.wsj.com/finance/investing/trump-tariffs-investing-stocks-a12ce6e5?mod=WSJ_home_supertopperbottom_pos_5 https://www.bbc.com/news/articles/cn93e12rypgo

https://www.bea.gov/news/2025/gross-domestic-product-4th-quarter-and-year-2024-third-estimate-gdp-industry-and

"Market Brief: Taking Stock of the Tariff Shock". Goldman Sachs Asset Management. April 3, 2025. https://am.gs.com/en-us/advisors/insights/article/2025/market-brief-taking-stock-of-the-tariff-shock

https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20250319.pdf

https://www.statista.com/chart/34081/estimated-effect-tariff-action-us-economy/

"Investment Principles for Navigating Volatility". Dimensional Presentation. Accessed 04/07/2025.