Author: dss_AJD

US equities gained in August, supported by robust corporate earnings, while sector leadership rotated away from Technology toward Materials and Healthcare.  AI-linked stocks lost momentum as earnings misses, an underwhelming ChatGPT-5 release, and an MIT study citing limited return on investment from enterprise AI pilots to date temporarily tempered enthusiasm.  Political risk also rose as President Trump dismissed senior economic officials, raising concerns about institutional independence and adding uncertainty to an already fragile backdrop.

A solid start to earnings season, relatively resilient economic data, and a slew of trade deals at the end of the month created enough positive rhetoric for US equities to achieve positive returns in July. However, trade policy risks remain a significant overhang for markets, and recent data signals towards a slowdown in the economy, which leads us to maintain a cautious outlook for US stocks in the back half of the year.

In our 2025 Mid-Year Market Review and Outlook video, we discuss critical themes affecting investment strategies and market developments for the second half of the year. We delve into Trump’s tariff policies and their unexpected impacts, inflation trends and Federal Reserve policy, the continued outperformance of U.S. markets, the growing influence of artificial intelligence, and notable geopolitical developments in the Middle East and Ukraine. Our conversation highlights the ongoing challenges and opportunities in these areas and provides our insights for investors navigating today’s complex landscape. (Recorded on June 30, 2025.)

June’s equity rally put US large-caps back at record highs, with the Nasdaq up 6.6% and the S&P 500 nearly 5%. Yet with valuation metrics elevated, long-term tariff impacts unclear, and cracks developing in what has been a resilient labor market, we believe investors should prepare for further volatility and stay diversified.

Market action has been dictated by developments in trade negotiations, making May a volatile, yet positive, month for US equities. Although hard economic data and US corporate profits remain broadly positive, stretched valuation multiples and the looming threat of tariffs make us cautious towards equity market returns going forward. In this uncertain macroeconomic environment, investors may benefit from taking a defensive posture by diversifying into high-quality assets to mitigate downside risk.

President Trump’s “Liberation Day” tariff announcement upended markets in April, briefly sending the S&P 500 into bear market territory, before a temporary pause on the most punitive tariffs sparked a relief rally. While equities recovered by month-end, investors now face a higher baseline of policy-driven risk, with soft data deteriorating and hard data showing early signs of strain.