WEBVTT 00:00:00.000 --> 00:00:02.799 OK, let's unpack this. The US economy and stock 00:00:02.799 --> 00:00:06.740 market are facing a really dynamic mix of challenges 00:00:06.740 --> 00:00:09.740 as we head into the second half of 2025. Today, 00:00:10.099 --> 00:00:12.380 we're diving deep into this landscape. We're 00:00:12.380 --> 00:00:14.859 drawing from a meteor outlook by Charles Schwab, 00:00:15.119 --> 00:00:18.140 plus some expert analyses of fiscal policy and 00:00:18.140 --> 00:00:20.440 crucial market dynamics. Our mission, really, 00:00:20.719 --> 00:00:22.920 is to cut through the noise, pull up the most 00:00:22.920 --> 00:00:25.600 important insights from these sources, and, well, 00:00:25.760 --> 00:00:27.559 help you get quickly and thoroughly informed. 00:00:27.789 --> 00:00:29.829 Yeah, and what's fascinating here, I think, is 00:00:29.829 --> 00:00:33.369 how these seemingly distinct pieces of information, 00:00:33.369 --> 00:00:36.890 they really connect. They form a pretty comprehensive 00:00:36.890 --> 00:00:39.090 picture of what might lie ahead for the economy 00:00:39.090 --> 00:00:41.789 and the markets. Our goal is to give you that 00:00:41.789 --> 00:00:44.090 clear lens, you know, help you understand not 00:00:44.090 --> 00:00:45.829 just what's happening, but maybe more importantly, 00:00:45.909 --> 00:00:48.390 why it matters. Right. Let's jump right in then. 00:00:48.689 --> 00:00:50.689 Some significant policy decisions are impacting 00:00:50.689 --> 00:00:52.630 the economy. And this is a big one. We're currently 00:00:52.630 --> 00:00:54.789 seeing the highest effective tariff rates since, 00:00:54.850 --> 00:00:57.960 well, since the late 1930s Great Depression era. 00:00:58.060 --> 00:01:00.399 Wow. Yeah. The Trump administration implemented 00:01:00.399 --> 00:01:03.380 significant tariff increases back in early April. 00:01:03.920 --> 00:01:06.280 Then there were subsequent escalation, some delays. 00:01:06.579 --> 00:01:09.620 But right now, the average effective tariff rate, 00:01:09.620 --> 00:01:13.579 it stands at more than 15 percent. That's that's 00:01:13.579 --> 00:01:16.379 a profound shift. It really is. And these tariff 00:01:16.379 --> 00:01:18.540 measures, they're a major contributor to what 00:01:18.540 --> 00:01:21.359 economists are now calling stagflation. Stagflation. 00:01:21.519 --> 00:01:23.900 OK. Can you break that down quickly? Sure. So. 00:01:24.239 --> 00:01:26.420 For those of you less familiar, stagflation is 00:01:26.420 --> 00:01:28.780 basically a slowdown in economic growth happening 00:01:28.780 --> 00:01:31.159 at the same time as a pickup and acceleration 00:01:31.159 --> 00:01:33.659 in inflation. Right. Growth down, prices up, 00:01:33.799 --> 00:01:35.959 not a good combo. Exactly. And the Organization 00:01:35.959 --> 00:01:38.000 for Economic Cooperation and Development, the 00:01:38.000 --> 00:01:41.099 OECD, they project U .S. Gross Domestic Product, 00:01:41.260 --> 00:01:45.859 GDP, to slow pretty sharply from 2 .8 % in 2024 00:01:45.859 --> 00:01:49.700 down to just 1 .6 % in 2025. That's quite a drop. 00:01:49.859 --> 00:01:52.480 It is. And on the inflation side, they see it 00:01:52.480 --> 00:01:53.950 nearly hitting 4 % by the end of the year. end 00:01:53.950 --> 00:01:56.010 of the year, mostly because of these higher import 00:01:56.010 --> 00:01:59.090 costs from the tariffs. And looking globally, 00:01:59.329 --> 00:02:02.069 the OECD expects overall economic growth to dip 00:02:02.069 --> 00:02:07.430 too, from 3 .1 % in 2024 to 2 .9 % in 2025. They 00:02:07.430 --> 00:02:10.129 point directly at these increased trade barriers 00:02:10.129 --> 00:02:13.639 and Well, policy uncertainties. What's particularly 00:02:13.639 --> 00:02:15.900 striking, though, is that the U .S. is expected 00:02:15.900 --> 00:02:18.120 to suffer the second largest hits to both growth 00:02:18.120 --> 00:02:20.439 and inflation among the major economies. Okay, 00:02:20.500 --> 00:02:23.240 so with all this in mind, what does it mean for 00:02:23.240 --> 00:02:25.780 the odds of a recession? I know we saw economists' 00:02:25.879 --> 00:02:28.379 odds ease up a bit after that April 9th announcement, 00:02:28.719 --> 00:02:32.199 the 90 -day delay in reciprocal tariffs. Despite 00:02:32.199 --> 00:02:34.120 that, it feels like a recession is still a very 00:02:34.120 --> 00:02:36.099 real risk, right? Oh, indeed. It's definitely 00:02:36.099 --> 00:02:37.719 still on the table. And when we look at recent 00:02:37.719 --> 00:02:40.139 economic indicators, the Institute for Supply 00:02:40.139 --> 00:02:42.699 and Management, the ISM Services Index, that 00:02:42.699 --> 00:02:44.900 covers about 80 % of the U .S. economy, remember? 00:02:44.960 --> 00:02:47.180 Right. It unexpectedly fell into contraction 00:02:47.180 --> 00:02:49.500 territory, first time in nearly a year. And maybe 00:02:49.500 --> 00:02:51.939 even more concerning, its price index jumped, 00:02:52.479 --> 00:02:55.560 highest level since November 2022. If we keep 00:02:55.560 --> 00:02:59.280 seeing readings like this, persistently, it could 00:02:59.280 --> 00:03:02.300 certainly keep stagflation front and center for 00:03:02.300 --> 00:03:04.360 economists and investors through the second half. 00:03:06.729 --> 00:03:08.909 Big disconnect, haven't we, between the soft 00:03:08.909 --> 00:03:11.389 data surveys, confidence, and the hard data, 00:03:11.530 --> 00:03:13.550 like labor market numbers, retail sales. Yeah, 00:03:13.710 --> 00:03:16.669 that yawning chasm, as some call it. We saw something 00:03:16.669 --> 00:03:19.810 similar back in 2022, remember, where the soft 00:03:19.810 --> 00:03:23.030 data, the pessimism eventually caught up to the 00:03:23.030 --> 00:03:25.909 more resilient hard data. Right. Now, the best 00:03:25.909 --> 00:03:28.349 case scenario would be a smooth convergence between 00:03:28.349 --> 00:03:31.110 the two. But honestly, given the current kind 00:03:31.110 --> 00:03:33.830 of chaotic and unstable policy backdrop, that 00:03:33.830 --> 00:03:36.069 might be, well, maybe too benign an assumption. 00:03:36.550 --> 00:03:38.930 The labor market specifically really holds the 00:03:38.930 --> 00:03:42.210 key for both the economy and what the Federal 00:03:42.210 --> 00:03:43.870 Reserve might do next. What's the story there? 00:03:44.129 --> 00:03:47.180 Well, the current environment is sort of. Companies 00:03:47.180 --> 00:03:49.259 have definitely cut back on hiring plans. We 00:03:49.259 --> 00:03:52.099 see that, but they aren't yet teeing up mass 00:03:52.099 --> 00:03:54.340 firings, not to any significant degree anyway. 00:03:54.740 --> 00:03:57.319 You can see this in the Joltz data, the job openings 00:03:57.319 --> 00:04:00.699 and labor turnover survey. Job openings trending 00:04:00.699 --> 00:04:03.860 lower, but layoff announcements haven't really 00:04:03.860 --> 00:04:07.199 picked up much to match. And unemployment claims. 00:04:08.139 --> 00:04:10.460 Initial claims are trending a bit higher, but 00:04:10.460 --> 00:04:14.240 still relatively tame historically. Continuing 00:04:14.240 --> 00:04:16.040 claims, though, that's different. They're at 00:04:16.040 --> 00:04:18.620 a new cycle high, which tells us that laid -off 00:04:18.620 --> 00:04:20.560 workers are finding it increasingly difficult 00:04:20.560 --> 00:04:22.879 to find new jobs. Hmm. That's a worrying sign. 00:04:23.120 --> 00:04:25.399 It is. And then the May jobs report, it was pretty 00:04:25.399 --> 00:04:27.560 mixed. Payrolls slightly better than expected, 00:04:27.740 --> 00:04:30.060 OK, but big downward revisions to the previous 00:04:30.060 --> 00:04:33.120 months, plus a large drop in household employment, 00:04:33.560 --> 00:04:36.269 alongside a drop in the labor force itself. That's 00:04:36.269 --> 00:04:38.069 actually why the unemployment rate held steady, 00:04:38.509 --> 00:04:40.149 even though it's still creeping up slowly this 00:04:40.149 --> 00:04:42.649 year. So putting it all together? Broadly, yeah. 00:04:42.829 --> 00:04:45.290 These readings seem to support the Fed just staying 00:04:45.290 --> 00:04:47.709 put, remaining in pause mode on interest rates 00:04:47.709 --> 00:04:50.990 for now. OK. Beyond the big picture stuff like 00:04:50.990 --> 00:04:53.769 tariffs and recession risks, it's also really 00:04:53.769 --> 00:04:55.889 crucial to understand how consumers and businesses 00:04:55.889 --> 00:04:59.100 are feeling, isn't it? Their confidence is absolutely 00:04:59.100 --> 00:05:01.819 key. I mean, two -thirds of US GDP, that's consumer 00:05:01.819 --> 00:05:04.980 spending. And while confidence has bounced back 00:05:04.980 --> 00:05:07.040 a little bit recently, it's still relatively 00:05:07.040 --> 00:05:10.360 weak overall. It is. And there's a critical issue 00:05:10.360 --> 00:05:12.519 impacting consumers that maybe isn't getting 00:05:12.519 --> 00:05:15.800 enough attention. It's this recent spike in serious 00:05:15.800 --> 00:05:19.060 student loan delinquencies. Ah, right. Since 00:05:19.060 --> 00:05:21.819 the payment pause ended. Exactly. These started 00:05:21.819 --> 00:05:23.639 showing up on credit reports in the first quarter 00:05:23.639 --> 00:05:26.240 of this year. After that, on ramp, the period 00:05:26.240 --> 00:05:28.379 preventing reporting to credit bureaus expired 00:05:28.379 --> 00:05:31.839 last October. And that, obviously, feeds directly 00:05:31.839 --> 00:05:34.319 into credit scores, affects access to other loans, 00:05:34.620 --> 00:05:36.889 car loans, mortgages, you name it. Yeah. That 00:05:36.889 --> 00:05:38.629 could ripple through. What about businesses? 00:05:39.250 --> 00:05:41.509 CEO confidence? That's also taken a hit this 00:05:41.509 --> 00:05:44.089 year, which raises a really important question. 00:05:44.810 --> 00:05:47.629 What's the impact of all this trade policy instability 00:05:47.629 --> 00:05:50.529 on capital expenditure? CapEx. Right, business 00:05:50.529 --> 00:05:52.850 investment. Yeah, there's a strong historical 00:05:52.850 --> 00:05:56.569 link between CEO confidence and CapEx. And it 00:05:56.569 --> 00:05:58.949 really suggests that a lot of CapEx plans are 00:05:58.949 --> 00:06:01.160 likely just staying on hold for now. especially 00:06:01.160 --> 00:06:03.920 perhaps for smaller companies. Their investment 00:06:03.920 --> 00:06:06.819 intentions, if you look at the NFIB survey, have 00:06:06.819 --> 00:06:08.779 taken a really steep fall. They're matching levels 00:06:08.779 --> 00:06:12.720 we saw back in April 2020. Wow, okay. So ultimately, 00:06:13.600 --> 00:06:16.100 significant uncertainty about future trade barriers. 00:06:16.639 --> 00:06:19.959 That's likely to stick around even if the absolute 00:06:19.959 --> 00:06:23.240 worst -case scenario proposed back on April 2nd 00:06:23.240 --> 00:06:25.290 doesn't fully happen. Okay, let's shift gears 00:06:25.290 --> 00:06:27.129 a bit. Let's turn our attention to the U .S. 00:06:27.389 --> 00:06:29.670 budget deficit and the federal debt. It certainly 00:06:29.670 --> 00:06:31.930 feels like the spotlight on this issue has been 00:06:31.930 --> 00:06:34.370 turned up noticeably higher recently. Yeah, the 00:06:34.370 --> 00:06:36.930 wattage is definitely up. You have Treasury Secretary 00:06:36.930 --> 00:06:39.189 Scott Vestent setting a goal of reducing annual 00:06:39.189 --> 00:06:42.290 deficits to 3 % of GDP. Which sounds ambitious. 00:06:42.589 --> 00:06:44.750 It does, especially when you look at estimates 00:06:44.750 --> 00:06:47.149 from the Committee for a Responsible Federal 00:06:47.149 --> 00:06:49.790 Budget. They say that the House Reconciliation 00:06:49.790 --> 00:06:52.149 Bill, the one big, beautiful bill act, would 00:06:52.149 --> 00:06:56.209 actually boost deficits to about 7 % of GDP and 00:06:56.209 --> 00:06:58.490 keep them near that level all the way through 00:06:58.490 --> 00:07:02.250 2034. So, you know, far exceeding that 3 % target. 00:07:03.430 --> 00:07:06.000 What about the CBO? the Congressional Budget 00:07:06.000 --> 00:07:08.980 Office. Well, the CBO, the nonpartisan scorekeeper, 00:07:09.180 --> 00:07:11.980 they estimated about $2 .8 trillion in tariff 00:07:11.980 --> 00:07:14.480 revenue through 2034 from the bill. But, and 00:07:14.480 --> 00:07:16.720 this is a big but, estimating tariff rates and 00:07:16.720 --> 00:07:19.019 revenues over that long a period is incredibly 00:07:19.019 --> 00:07:21.560 difficult. And frankly, the CBO's deficit forecasts 00:07:21.560 --> 00:07:24.480 have historically been, let's say, overly optimistic. 00:07:24.800 --> 00:07:26.759 Right. And this is all happening against a backdrop 00:07:26.759 --> 00:07:29.360 of recent U .S. debt downgrades, isn't it? Exactly. 00:07:29.720 --> 00:07:32.399 Moody's recently, S &P back in 2011, Fitch in 00:07:32.399 --> 00:07:35.069 2023. Plus, we're seeing weakness in the U .S. 00:07:35.189 --> 00:07:37.509 dollar and definite concerns about whether global 00:07:37.509 --> 00:07:39.670 demand for U .S. treasuries might be waning. 00:07:40.170 --> 00:07:45.709 So these heated discussions around this big beautiful 00:07:45.709 --> 00:07:48.689 bill, they really highlight how contentious fiscal 00:07:48.689 --> 00:07:51.449 policy can be. Even with a sense of urgency, 00:07:51.889 --> 00:07:54.110 there seems to be significant pushback. Senate 00:07:54.110 --> 00:07:56.490 Republican leaders facing early challenges over 00:07:56.490 --> 00:07:59.879 the Senate Finance Committee's tax plan. That's 00:07:59.879 --> 00:08:01.560 central to President Trump's domestic agenda, 00:08:01.779 --> 00:08:04.199 right? Absolutely central. The House passed its 00:08:04.199 --> 00:08:07.160 version last month and the Senate is apparently 00:08:07.160 --> 00:08:11.170 aiming for a July 4th deadline, but Yeah, there's 00:08:11.170 --> 00:08:13.250 Bush back from within the Republican caucus itself. 00:08:13.350 --> 00:08:15.689 Yes, quite a bit. You have disagreements on several 00:08:15.689 --> 00:08:18.149 fronts. Medicaid, for instance. Senators Ron 00:08:18.149 --> 00:08:20.009 Johnson and Rick Scott think the proposal doesn't 00:08:20.009 --> 00:08:22.509 cut the deficit enough. They're critical of the 00:08:22.509 --> 00:08:25.250 Medicaid changes. Scott even suggested rethinking 00:08:25.250 --> 00:08:27.430 the federal match on Medicaid expansion to find 00:08:27.430 --> 00:08:30.209 savings. Then you have Senator Josh Hawley, who's 00:08:30.209 --> 00:08:32.269 alarmed that the Medicaid changes go further 00:08:32.269 --> 00:08:34.570 than the House bill and could mean people lose 00:08:34.570 --> 00:08:37.230 benefits. He noted President Trump reportedly 00:08:37.230 --> 00:08:39.509 told him the bill shouldn't cut Medicaid. Senator 00:08:39.509 --> 00:08:42.409 Susan Collins also has concerns specifically 00:08:42.409 --> 00:08:45.129 about a provider tax and its impact on rural 00:08:45.129 --> 00:08:48.250 hospitals. So Medicaid is definitely a sticking 00:08:48.250 --> 00:08:52.250 point. Clean energy tax credits. The Senate panel's 00:08:52.250 --> 00:08:54.629 language would apparently soften the House version's 00:08:54.629 --> 00:08:57.230 phase out of the Biden era credits. But Senator 00:08:57.230 --> 00:09:01.070 Mike Lee pushed back publicly on X saying basically 00:09:01.070 --> 00:09:03.210 extending these subsidies makes them permanent. 00:09:03.350 --> 00:09:06.309 OK. And the salty deduction. State and local 00:09:06.309 --> 00:09:09.740 taxes. Always controversial. Always. The Senate 00:09:09.740 --> 00:09:12.320 finance plan initially put the cap back at $10 00:09:12.320 --> 00:09:15.000 ,000. That's a non -starter for House Republicans 00:09:15.000 --> 00:09:17.659 who fought hard to get it raised to $40 ,000 00:09:17.659 --> 00:09:19.940 in their bill, though the Senate acknowledges 00:09:19.940 --> 00:09:22.500 their initial offer was just a placeholder, but 00:09:22.500 --> 00:09:24.570 still. another hurdle. It sounds like a tough 00:09:24.570 --> 00:09:26.809 negotiation. Yeah. And this debate also brought 00:09:26.809 --> 00:09:28.929 the CBO itself into the spotlight, didn't it? 00:09:28.950 --> 00:09:30.929 It really did. You had Representative Tim Scott 00:09:30.929 --> 00:09:33.669 releasing a video attacking the CBO over its 00:09:33.669 --> 00:09:36.350 forecast that the big, beautiful bill would add 00:09:36.350 --> 00:09:39.490 over $2 trillion to the deficit. Right. And there 00:09:39.490 --> 00:09:41.830 was a fact check on that. Yes. The Washington 00:09:41.830 --> 00:09:43.929 Post fact checker Glenn Kessler went through 00:09:43.929 --> 00:09:48.889 it. He found nine errors in 60 seconds. in Scott's 00:09:48.889 --> 00:09:51.710 video. Nine errors, like what? Well, for example, 00:09:51.929 --> 00:09:54.250 Scott claimed the CBO was wrong about the 2017 00:09:54.250 --> 00:09:56.950 Tax Cuts and Jobs Act increasing the deficit. 00:09:57.590 --> 00:09:59.950 Kessler found the CBO was actually right. It 00:09:59.950 --> 00:10:02.649 did increase the deficit by about $1 .5 trillion 00:10:02.649 --> 00:10:05.570 over 10 years, and the bill didn't pay for itself. 00:10:05.990 --> 00:10:08.049 Scott claimed CBO was wrong on the Mellon tax 00:10:08.049 --> 00:10:10.690 cuts in the 1930s, actually the 1920s, and the 00:10:10.690 --> 00:10:12.909 Kennedy cuts in the 60s. Kessler pointed out 00:10:12.909 --> 00:10:14.929 the CBO didn't even exist for the melon cuts 00:10:14.929 --> 00:10:17.429 and didn't score either. OK. Scott claims CBO 00:10:17.429 --> 00:10:19.909 was wrong on the Reagan tax cuts. Kessler stated 00:10:19.909 --> 00:10:22.009 they actually ended up costing more than CBO 00:10:22.009 --> 00:10:24.590 estimated. He claims CBO failed to account for 00:10:24.590 --> 00:10:27.570 the 2017 tax cuts growing revenue 3 % year on 00:10:27.570 --> 00:10:31.090 year from 2018 -20. Kessler showed the CBO actually 00:10:31.090 --> 00:10:34.090 predicted just that. And Scott invoked the Laffer 00:10:34.090 --> 00:10:36.350 curve, claiming lower taxes mean more revenue. 00:10:36.769 --> 00:10:38.750 Kessler quoted Art Laffer himself, saying the 00:10:38.750 --> 00:10:40.929 curve doesn't actually say whether a tax cut 00:10:40.929 --> 00:10:43.610 will raise or lower revenues on its own. So basically, 00:10:43.730 --> 00:10:45.710 the fact check disputed all the examples. Yeah, 00:10:45.850 --> 00:10:48.210 pretty much. Kessler concluded that since every 00:10:48.210 --> 00:10:51.750 example failed, Scott's final line, CBO, wrong 00:10:51.750 --> 00:10:53.870 then, wrong now, counted as the ninth error, 00:10:54.309 --> 00:10:57.360 earned the whole thing, four Pinocchios. Now, 00:10:57.460 --> 00:10:59.679 we're just reporting the fact check here impartially, 00:11:00.139 --> 00:11:02.379 but it does underscore that the CBO's projections, 00:11:02.600 --> 00:11:04.919 while maybe conservative, are generally seen 00:11:04.919 --> 00:11:07.460 as robust. And the underlying fiscal challenges 00:11:07.460 --> 00:11:09.840 we talked about, they're very real, regardless 00:11:09.840 --> 00:11:12.740 of the political spin. Right. OK, let's move 00:11:12.740 --> 00:11:15.019 to the markets then. Saying the first half of 00:11:15.019 --> 00:11:17.759 the year was choppy for stocks. That feels like 00:11:17.759 --> 00:11:20.080 the ultimate understatement. We saw that huge 00:11:20.080 --> 00:11:23.340 drop, right? S &P 500 down 21 .4 % into bear 00:11:23.340 --> 00:11:26.360 market territory from mid February to early April 00:11:26.360 --> 00:11:29.179 and then an almost equally jarring rebound from 00:11:29.179 --> 00:11:32.029 those April 8th lows. It's been a real roller 00:11:32.029 --> 00:11:34.750 coaster, absolutely. And with these huge inconsistent 00:11:34.750 --> 00:11:37.370 shifts in sector leadership, I mean, no single 00:11:37.370 --> 00:11:39.350 sector has held the top spot for more than two 00:11:39.350 --> 00:11:41.669 weeks. Really? Yeah. Take energy. It was number 00:11:41.669 --> 00:11:43.870 one for three separate two -week periods, but 00:11:43.870 --> 00:11:45.490 overall, it's one of the worst performers year 00:11:45.490 --> 00:11:48.149 to date. Meanwhile, industrials only hit the 00:11:48.149 --> 00:11:50.129 top spot once, yet they're leading year to date. 00:11:50.970 --> 00:11:54.799 So unpredictable. Very. And we expect that sector 00:11:54.799 --> 00:11:57.980 turn to continue largely because of this, well, 00:11:58.360 --> 00:12:01.139 mercurial tariff policymaking. It makes giving 00:12:01.139 --> 00:12:03.539 broad sector recommendations pretty difficult 00:12:03.539 --> 00:12:06.460 right now. There's also a really significant 00:12:06.460 --> 00:12:08.259 shift underway, I think, in the relationship 00:12:08.259 --> 00:12:10.139 between the bond market and the stock market. 00:12:10.779 --> 00:12:13.789 OK. How so? Well, we seem to be moving out of 00:12:13.789 --> 00:12:16.570 that long period known as the Great Moderation. 00:12:17.190 --> 00:12:20.149 That's when generally bond yields and stock prices 00:12:20.149 --> 00:12:23.269 move together a positive correlation. Now we 00:12:23.269 --> 00:12:24.889 seem to be heading into something maybe closer 00:12:24.889 --> 00:12:27.389 to the temperamental era. That was a time when 00:12:27.389 --> 00:12:29.690 inflation was more volatile, more of a concern 00:12:29.690 --> 00:12:32.730 for stocks, and you often saw a negative correlation 00:12:32.730 --> 00:12:34.990 between bonds and stocks. OK, negative correlation. 00:12:35.070 --> 00:12:37.470 So if bond yields go up, stock prices tend to 00:12:37.470 --> 00:12:39.690 go down, especially if inflation starts to heat 00:12:39.690 --> 00:12:41.750 back up in the coming months, maybe driven by 00:12:41.610 --> 00:12:44.330 these tariffs causing supply shocks. Right. So 00:12:44.330 --> 00:12:46.669 if inflation is pushing yields higher, bonds 00:12:46.669 --> 00:12:48.990 might not be the safe haven they used to be when 00:12:48.990 --> 00:12:51.669 stocks fall. Exactly. That's the implication 00:12:51.669 --> 00:12:54.009 for you as an investor. It really reinforces 00:12:54.009 --> 00:12:57.370 the need for genuine diversification, maybe looking 00:12:57.370 --> 00:13:00.330 beyond just traditional stock bond pairings for 00:13:00.330 --> 00:13:03.389 managing risk. And the bond market, it really 00:13:03.389 --> 00:13:05.070 continues to be in the driver's seat, doesn't 00:13:05.070 --> 00:13:08.269 it? Largely due to these expectations of bigger 00:13:08.269 --> 00:13:11.330 deficits and that potential waning global demand 00:13:11.330 --> 00:13:14.190 for U .S. treasuries we mentioned. This all raises 00:13:14.190 --> 00:13:16.559 a really important question then. How does all 00:13:16.559 --> 00:13:19.600 this make the Fed's job keeping maximum employment 00:13:19.600 --> 00:13:22.159 and stable prices? How does it make it that much 00:13:22.159 --> 00:13:24.679 more difficult? You've got this potential upward 00:13:24.679 --> 00:13:27.120 pressure on inflation from tariffs, but also 00:13:27.120 --> 00:13:29.419 downward pressure on economic growth. It's a 00:13:29.419 --> 00:13:31.519 tough spot. It's incredibly difficult, a real 00:13:31.519 --> 00:13:33.940 policy bind. So it's no surprise, then, that 00:13:33.940 --> 00:13:36.659 investors have basically priced out several rate 00:13:36.659 --> 00:13:38.740 cuts for this year. Not surprising at all. The 00:13:38.740 --> 00:13:40.860 market's expectations have shifted dramatically. 00:13:41.200 --> 00:13:43.019 And when we look at valuations and earnings, 00:13:43.539 --> 00:13:47.129 well. Remember the S &P 500's forward PE ratio? 00:13:47.169 --> 00:13:50.750 It was back at those cycle highs near 2021 levels 00:13:50.750 --> 00:13:53.710 right before the market peaked in February. The 00:13:53.710 --> 00:13:56.190 core insight there, I think, is that there's 00:13:56.190 --> 00:14:00.250 probably less... juice to squeeze from the multiple 00:14:00.250 --> 00:14:02.529 expansion fruit, if you will. Meaning returns 00:14:02.529 --> 00:14:04.889 have to come from earnings growth. More and more, 00:14:05.070 --> 00:14:07.590 yes. More has to come from actual earnings growth. 00:14:07.850 --> 00:14:09.929 And that's precisely what's becoming harder to 00:14:09.929 --> 00:14:12.129 see clearly because of these tariff policies. 00:14:12.409 --> 00:14:14.389 It creates this fundamental tension in the market. 00:14:14.750 --> 00:14:18.220 But are there any encouraging signs? Well, maybe. 00:14:18.320 --> 00:14:20.500 We are seeing some signs of what could be a healthy 00:14:20.500 --> 00:14:23.360 convergence in earnings. The overwhelming dominance 00:14:23.360 --> 00:14:26.639 of the magnificent seven tech giants. It seems 00:14:26.639 --> 00:14:29.220 to be fading a bit. Retail purchases of those 00:14:29.220 --> 00:14:31.679 mega cap names are actually at a multi -year 00:14:31.679 --> 00:14:34.100 low. Interesting. Yeah, it suggests there could 00:14:34.100 --> 00:14:36.519 be a potential reassertion of broader market 00:14:36.519 --> 00:14:38.399 leadership in the second half if positioning 00:14:38.399 --> 00:14:40.620 continues to ease up there. So for you, that 00:14:40.620 --> 00:14:42.919 might mean paying closer attention to a wider 00:14:42.919 --> 00:14:45.200 range of companies and sectors, not just the 00:14:45.200 --> 00:14:47.679 big few. OK. And finally, investor sentiment. 00:14:48.620 --> 00:14:50.639 I remember reading about one signal. Here's where 00:14:50.639 --> 00:14:52.700 it gets really interesting. Yeah. One of the 00:14:52.700 --> 00:14:55.200 more memorable contrarian signals came nearly 00:14:55.200 --> 00:14:57.059 two months ago, didn't it? That's right. Near 00:14:57.059 --> 00:15:00.039 those early April lows for the market, the Ned 00:15:00.039 --> 00:15:02.740 Davis Research Crowd sentiment poll, the CSP, 00:15:02.860 --> 00:15:06.019 it fell deep into extreme pessimism territory. 00:15:06.700 --> 00:15:08.940 And historically, that kind of reading often 00:15:08.940 --> 00:15:12.039 sets the stage for a market reversal, a bottoming 00:15:12.039 --> 00:15:14.679 process. And where is it now? Well, it's rebounded 00:15:14.679 --> 00:15:17.019 significantly. It's now in a zone that historically 00:15:17.019 --> 00:15:18.899 has actually been the strongest for the S &P 00:15:18.899 --> 00:15:22.539 500. But importantly, it hasn't reached extreme 00:15:22.539 --> 00:15:25.580 optimism, which suggests that maybe this healthy 00:15:25.580 --> 00:15:27.600 dose of skepticism that's still out there has 00:15:27.600 --> 00:15:30.019 actually helped stocks climb that famous wall 00:15:30.019 --> 00:15:32.940 of worry. OK, so let's try and sum up this deep 00:15:32.940 --> 00:15:37.169 dive. It sounds like the US economy faces this 00:15:37.169 --> 00:15:39.409 confluence of challenges in the second half of 00:15:39.409 --> 00:15:42.629 2025. You've got tariff -induced inflation risks, 00:15:43.190 --> 00:15:45.830 significant fiscal imbalances, clear signs the 00:15:45.830 --> 00:15:48.450 labor market is cooling. It all creates an environment 00:15:48.450 --> 00:15:50.889 of heightened uncertainty and instability, doesn't 00:15:50.889 --> 00:15:53.610 it? It really does. And with stocks currently 00:15:53.610 --> 00:15:56.509 hovering near all -time highs, the bar is set 00:15:56.509 --> 00:15:58.250 relatively high for the market in the second 00:15:58.250 --> 00:16:01.500 half. A lot has to go right. You know, tariff 00:16:01.500 --> 00:16:03.879 rates probably need to edge lower, not higher. 00:16:04.419 --> 00:16:07.059 The labor market needs to stabilize, not weaken 00:16:07.059 --> 00:16:09.480 further. Inflation has to stay under control. 00:16:09.879 --> 00:16:12.539 So while, yes, investor sentiment isn't overly 00:16:12.539 --> 00:16:14.740 exuberant and earnings growth has been positive, 00:16:14.840 --> 00:16:17.649 those are supports. But stretched valuations 00:16:17.649 --> 00:16:19.850 and this growth negative tariff policy, those 00:16:19.850 --> 00:16:22.330 are definite hindrances. Ultimately, I think 00:16:22.330 --> 00:16:24.590 this deep dive shows us that while trying to 00:16:24.590 --> 00:16:26.669 predict exactly where the daily news flow will 00:16:26.669 --> 00:16:30.549 take us is, frankly, extremely challenging. Embracing 00:16:30.549 --> 00:16:33.330 diversification both across and within asset 00:16:33.330 --> 00:16:36.169 classes is especially important right now, particularly 00:16:36.169 --> 00:16:38.190 given the dominance we've seen this year from 00:16:38.190 --> 00:16:40.490 markets outside the United States. It really 00:16:40.490 --> 00:16:42.289 boils down to thoughtful navigation and what 00:16:42.289 --> 00:16:44.370 feels like a pretty unpredictable world. That's 00:16:44.370 --> 00:16:45.620 a great final thought. Thank you. Thanks for 00:16:45.620 --> 00:16:47.360 joining us for this deep dive today. We really 00:16:47.360 --> 00:16:48.919 hope this has helped you get well informed on 00:16:48.919 --> 00:16:51.659 what is clearly a critical topic. Keep exploring, 00:16:51.840 --> 00:16:53.440 keep learning, and we'll see you next time.