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The US Outlook - Navigating Tariffs
In the US, economic growth is expected to slow significantly in 2025. After a dynamic 2024, early signs of contraction appeared in Q1, with forecasts now pointing to just +1.7% average annual growth for the year. Such weakness stems from uncertainty and tariff shocks weighing on demand.

Tariffs are also a major factor impacting inflation. While US consumer prices have yet to see a substantial pass-through, we anticipate a rise in inflation, potentially peaking at 3.0%-3.5% in Q3, as companies pass on higher costs. This could significantly squeeze household purchasing power.

Federal Reserve's Tightrope Walk

For the Fed, this presents a dilemma. Despite some signs of cooling in the labor market and slowing growth, persistent inflation concerns mean the Fed is likely to maintain a cautious stance. We expect rates to remain stable throughout 2025, a tricky tightrope walk for policymakers.

Booming Earnings

The Q2 earnings season is off to a strong start with 86% of S&P 500 companies beating estimates. However, this impressive beat rate masks a deeper trend: overall aggregate earnings growth is expected to be the slowest since Q4 2023. We attribute this slowdown primarily to the accumulating impact of tariffs.

Sectors most exposed to tariffs, such as Consumer Discretionary and Materials, are experiencing the weakest earnings growth and steepest downward revisions. Several major automakers, for instance, have highlighted multi-billion-dollar tariff costs that are expected to weigh more heavily on their results in the second half of 2025. Trade policy is beginning to deeply influence corporate profitability.

Tech's Resilience and Future Headwinds

Technology, particularly mega-cap tech, continues to lead in earnings per share growth, driven by robust AI  demand and a weaker dollar. However, upcoming sectoral tariffs on semiconductors and electronics could pose headwinds for the tech sector in the second half. Even the market's strongest performers are not immune to the broader trade environment.

Volatility and Opportunity

The interplay of tariffs, inflation, and central bank responses creates a challenging environment. Financial markets remain vulnerable to sudden adjustments if underlying policy uncertainty isn't resolved. 

Investors should remain opportunistic, but with a focus on quality and diversification. While strong earnings from mega-cap tech have supported markets, overall corporate profit margins are under pressure from higher tariff rates, underscoring the need for careful selection.

We recommend avoiding the temptation to chase speculative investments. Instead, prioritize diversification across asset classes and sectors. Tactical pullbacks, in our view, should be seen as buying opportunities, especially with potential fiscal support coming next year.