At school the end of a semester is a time to reflect on performance—and the same is true for markets as the end of the first half approaches and traders look at the report card.
It was an excellent start to the year, with stocks hitting record highs in February. Then we got shocks from trade wars, rapid changes to government, and a flare-up of conflict in the Middle East. The S&P 500 didn’t quite make it down to bear-market territory, but the Nasdaq did. And with the last day of the calendar semester arriving on Monday, stocks are tantalizingly close to those highs again.
We’ve learned a lot over the past six months. For one, the artificial intelligence trade that powered stocks such as Nvidia is resilient, notwithstanding the challenge from China’s DeepSeek, which claims to be able to deliver AI capacity at a fraction of the cost of what Big Tech is spending.
And the impact of tariffs isn’t straightforward. These are still very early days, but predictions of runaway inflation and
collapsing sales have yet to be borne out, as the improving outlook from Nike showed yesterday.
In the coming six months, it seems likely that President Donald Trump will settle on final tariff rates—whether or
not deals are reached by the July 9 deadline—and they will be considerably higher than before he took office. If the trade deal with the U.K. is the baseline, all imported goods will probably have at least a 10% tax. Eventually that will affect company profits, though it remains to be seen whether the impact will be large or small.
There could also be a showdown between Trump and the Federal Reserve. Chair Jerome Powell’s term ends next year and the president is considering appointing his successor early. That may help Trump get lower interest rates sooner, but it could also backfire if the market concludes that inflation rates will be permanently higher.
The market has had a solid performance in a
tough period, so it gets an A for effort on the recovery. But tougher tests lie ahead.
—Brian Swint
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CONTENT FROM: Columbia Threadneedle Investments
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Bonds reclaim role as a volatility buffer
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With markets in flux, fixed income is providing important diversification. We explore the key market drivers and how investors can navigate the evolving landscape.
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‘Shadow Fed Chair’ Threat Hangs Over Economy
The White House is pushing back on suggestions it is accelerating plans to name a new Federal Reserve chair as investors worry President Donald Trump may take unorthodox steps to rein in the central bank’s most prominent decision maker.
- “No Federal Reserve chairman decisions are imminent, although the president has the right to change his mind,” a White House official told Barron’s Thursday. Trump has “many good options,” the official said.
- Fed Chair Jerome Powell’s term is scheduled to end in May.
Picking his successor early would likely be seen in the market as an attempt to install a so-called shadow Fed chair, an idea Treasury Secretary Scott Bessent proposed in an interview with Barron’s during the presidential campaign.
- That person could attempt to influence monetary policy from the sidelines but and having someone in such a position would risk weakening the Fed’s credibility as an independent body.
- The dollar slid and bond yields fell Thursday as investors weighed the risk of political interference at the Fed and the potential for a policy pivot.
What’s Next: TPowell maintains the economy is strong enough to keep interest rates steady. Policymakers are waiting to see if Trump’s tariffs send inflation higher. But contrasting messages from other Fed presidents reflect the uncertainty hanging over the economic outlook.
—Matt Peterson, Nicole Goodkind and Elsa Ohlen
The July 9 Tariff Deadline is ‘Not Critical,’ White House Says
The White House is playing down the importance of a looming, self-imposed trade deadline on July 9, saying that particular date is “not critical” because President Donald Trump has other options, including setting
tariff rates at a level he believes is advantageous to the U.S. in the absence of a trade deal.
- Trump announced a broad set of tariffs on products from around the world on April 2, and then suspended most of them for 90 days so trade negotiations could get under way. That clock runs out in less than two weeks.
- The U.S. has focused on negotiating with 17 trading partners, including the European Union, Japan, South Korea, India, and others, but has reached just one deal, with the U.K. If negotiations don’t advance by July 9, Trump “simply provide these countries with a deal,” White House press secretary Karoline Leavitt said.
- The European Union might lower its tariffs on some U.S. imports to help secure a trade deal with the administration, The Wall Street Journal reported. European leaders were going to discuss it at a meeting in Brussels on Thursday evening, the report said.
- The
administration put 25% tariffs on imported cars and car parts. For General Motors, tariffs could boost costs by $25 billion and erase profits, Barron’s estimates, based on potential penalties applied to import costs. GM estimates current tariff costs of roughly $1.5 billion a quarter, net of cost reductions.
What’s Next: Trump administration officials have said goods imported from U.S. trading partners will be subject to a 10% “baseline” tariff regardless of deals they have struck. The administration has said it is also planning additional tariffs on sectors such as semiconductors and pharmaceuticals.
—Matt Peterson and Al Root
President’s Megabill Hits Some Bumps in the Senate
Senate lawmakers have to choose between rewriting major portions of their tax and spending
megabill or living with legislation that could cost hundreds of billions of dollars more than they expected after a Senate official nixed a big part of their Medicaid cuts, saying the bill can’t move forward as is.
- The Senate parliamentarian said $250 billion of cuts can’t proceed through the filibuster-proof process that Republicans are using to pass the megabill without Democratic votes. The cuts would have eliminated Medicaid coverage for some immigrants and capped a tax states use to finance Medicaid.
- Now the Senate has to find new savings, which could delay a vote, says Strategas Securities’ Dan Clifton. President Donald Trump wanted a bill by July 4, but the House needs to reconcile it with their version. The bill also raises the federal debt ceiling, which could be hit in August.
- Republicans will probably try to rewrite the portions of the bill that deal with Medicaid cuts in a way that the parliamentarian finds acceptable. That’s what they did with a provision putting a moratorium on state artificial intelligence regulation that passed the House but couldn’t meet the Senate’s rules.
- Treasury Secretary Scott Bessent said Thursday he asked Senate and House leadership to scrap the so-called “revenge tax” included in the House bill that would have allowed the Treasury to penalize countries it believed were treating U.S. firms unfairly.
