As we head into summer, the markets feel a bit like a recipe that’s mostly coming together but still missing a few key ingredients. There’s been clear progress in some areas, like corporate earnings, while others, like trade policy and the bond market, are still simmering on the back burner.
Here’s a look at what’s on the stove right now:
Trade Policy: Still a Bit Undercooked
A late-May court ruling blocked most of the current tariff plans, adding yet another layer to an already complex dish. Tensions with China over mineral exports and Taiwan are turning up the heat, keeping markets on edge. Trade policy has been slow-roasting for years now, and it doesn’t look like we’ll be pulling it out of the oven anytime soon.
Earnings: A Strong Starter, but Not the Whole Meal
First-quarter earnings came in hot, nearly 80% of companies beat expectations, with large-cap tech stocks carrying much of the weight. It was a great appetizer, but whether the main course delivers is still up in the air. Markets may need more than just good past results to stay satisfied through the second half of the year.
Valuations: A Bit Heavily Seasoned?
Right now, markets appear to be priced for perfection, assuming trade tensions ease and inflation doesn’t overstay its welcome. That may be a bit optimistic. We could still see new highs, but it might take some unexpected, good news, and less kitchen noise from the global trade front, to get there. On the plus side, if tariff revenues stick, they could help fund an extension of the 2017 tax cuts, which Congress is once again tossing around.
Bond Market: Feeling the Heat
Higher yields continue to test bond investors’ palates. With strong economic data, sticky inflation, reduced global demand, and rising international rates, bonds are definitely in a hot pan. Until things cool down, expect a bit more sizzle than stability in this corner of the kitchen.
What to Watch
As we cook through summer, key ingredients to keep an eye on include inflation data, trade developments, central bank commentary, and the latest on tax legislation. Long term, artificial intelligence is shaping up to be a pantry essential, one that could improve margins and help corporate America serve up sustainable growth.
Short-term volatility may stick around like a dinner guest who doesn’t know when to leave, but for long-term investors, the best meals take time. If markets pull back, it can be a chance to add high-quality investments to the pot at more favorable prices.
As always, thank you for your continued trust.
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