It Won't Matter Until It Matters
The S&P 500 finished the week down 0.25% as investors continue to evaluate the potential impact of escalating US trade policy. This week the Trump administration announced sweeping tariff measures affecting over a dozen countries, including a 35% tariff on Canadian goods and 50% tariffs on Brazilian imports and copper. With the August 1 implementation deadline now firm and no extensions granted, markets are grappling with the breadth of these unilateral trade actions and their implications for global supply chains and corporate earnings.
Market participants have become desensitized to President Trump's escalate to negotiate strategy and are seemingly discounting the potential economic impact of the highest tariff rates in nearly a century. It won't matter until it matters which is to say that it's all speculation until it hits corporate earnings.
Economy Watch
BRICS Summit: What It Means for Your Portfolio - Last week, emerging economies gathered in Rio de Janeiro for the annual BRICS Summit—a meeting that could impact global markets and your investments in the months ahead.
What is BRICS? Originally formed by Brazil, Russia, India, China, and South Africa, BRICS represents major emerging economies seeking greater influence in global finance. The group has expanded significantly, now including Egypt, Ethiopia, Iran, and the UAE as full members, with Indonesia joining this year. Eleven additional countries became partners at this summit, bringing the bloc's representation to roughly 45% of the world's population and 35% of global GDP.
The Dollar's Special Privilege The U.S. dollar's role as the world's primary reserve currency gives America a unique advantage. When countries trade oil, commodities, or conduct international business, they typically use dollars. This creates constant global demand for dollars, which those countries then invest in U.S. Treasury bonds. This system has allowed the U.S. to run substantial budget deficits while maintaining relatively low borrowing costs—essentially, the world finances part of our debt.
BRICS members are developing alternative payment systems to reduce this dollar dependence. They launched "BRICS Pay" and are encouraging trade settlements in local currencies. If successful, this could reduce global dollar demand and, consequently, foreign appetite for U.S. Treasuries. The implications are significant: higher U.S. borrowing costs and potential constraints on deficit spending.
President Trump's Response: The administration has responded with threats of additional 10% tariffs on countries supporting these initiatives, with warnings of 100% tariffs if BRICS actively pursues "de-dollarization."
Investment Implications This tension creates portfolio considerations around currency exposure, Treasury holdings, and emerging market investments. While the dollar remains dominant today, these developments could gradually reshape global finance and affect everything from bond yields to international stock valuations.
The Federal Reserve's Consumer Credit Report for May shows a 3.2% decline in revolving credit, with consumers pulling back from credit card spending as rates remain above 21%. Total consumer credit grew just 1.2% annually, down sharply from 4.0% in April.
The data reflects continued consumer caution in a high-rate environment, with borrowers becoming more selective about taking on expensive debt. While nonrevolving credit (auto, student, and personal loans) grew 2.8%, the divergent trends suggest consumers are prioritizing installment debt over revolving credit. Elevated borrowing costs and economic uncertainty are beginning to influence consumer behavior.
Source: Federal Reserve, Consumer Credit - G.19, May 2025, released July 8, 2025
The NFIB Small Business Optimism Index declined 0.2 points to 98.6 in June, slightly below the forecast. Behind these numbers, small business owners face real challenges that paint a picture of cautious resilience. The primary concern is excess inventory sitting on shelves, suggesting sales aren't meeting expectations. Meanwhile, taxes have jumped to the top of their worry list, overtaking concerns about finding workers and managing inflation.
There's a silver lining - business owners feel less uncertain about what lies ahead, though they're not exactly confident. They can't find qualified people to hire, so they're paying current employees more. But major investments remain on pause. Overall sentiment reflects owners describing their business health as "good" rather than "excellent" - getting by but not thriving.
Source: National Federation of Independent Business, Small Business Economic Trends, June 2025, released July 9, 2025
The Federal Reserve released minutes from their June meeting this week, revealing that there was disagreement about the future path of Fed policy despite unanimous agreement to maintain rates at 4.25%-4.50%. Most officials believe rate cuts will likely be appropriate this year, but their views on the timing of cuts differ considerably.
Some expressed openness to reducing rates as early as July, while others favored no 2025 cuts, citing persistent inflation concerns. The disagreement revolves around tariff impacts and inflation dynamics. Core inflation remains elevated at 2.6%, with officials divided on whether price pressures from trade policies will prove temporary or lasting.
Labor market conditions show continued strength, with unemployment steady at 4.2% and sustained job growth, though officials anticipate gradual softening ahead. The economy demonstrates resilience, but elevated uncertainty requires careful consideration of competing risks.
The July 29-30 meeting will be particularly telling as these philosophical differences could influence the Committee's next moves.
Source: Federal Reserve, Minutes of the Federal Open Market Committee, June 17-18, 2025, released July 9, 2025
Initial Jobless Claims for the week ending July 5 fell 5,000 to 227,000, coming in below the consensus forecast of 235,000. The four-week moving average decreased to 235,500.
However, continuing claims rose to 1,965,000—an increase of 10,000 and the highest level since November 2021. The labor market narrative remains consistent. Declining initial claims suggest employers continue to avoid significant layoffs, while rising continuing claims indicate reduced hiring activity and longer unemployment duration. This combination reflects a labor market where job losses stay limited, but slower hiring makes it increasingly difficult for unemployed workers to secure new positions.
Source: U.S. Department of Labor, Initial Claims Report, July 10, 2025
By The Numbers
Employment Indicators
Employment data helps gauge whether consumers have jobs and money to spend. Consumer spending accounts for more than 70% of GDP.
| Indicator | Current Value | Status |
|---|---|---|
| Initial Claims for Unemployment | 227,000 | Stable |
| 4-Week Average of Initial Claims | 235,500 | Stable |
| Continuing Claims | 1.965M | Rising |
| Unemployment Rate | 4.1% | Stable |
Note: Values above 250K for the 4-Week Average, combined with rising unemployment, could signal a weakening economy.
Next unemployment report: August 1, 2025. Source: Department of Labor
Economic Growth (Real GDP)
| Period | Growth Rate | Status |
|---|---|---|
| Q3 2024 | 2.8% | Positive |
| Q4 2024 | 2.4% | Slowing |
| Q1 2025 | -0.5% | Contraction - Consider the average of Q1 & Q2 due to tariff distortions = 1.05% |
| Q2 2025 (est.) | 2.6% | Recovery - Consider the average of Q1 & Q2 due to tariff distortions = 1.05% |
GDP growth provides a broad measure of overall economic activity and signals whether the economy is expanding or contracting.
Source: Bureau of Economic Analysis; Estimate from Federal Reserve Bank of Atlanta
Inflation Measures (CPI Year-over-Year)
| Month | Rate | Trend |
|---|---|---|
| August | 2.53% | Improving |
| September | 2.44% | Improving |
| October | 2.60% | Deteriorating |
| November | 2.75% | Deteriorating |
| December | 2.89% | Deteriorating |
| January 2025 | 3.00% | Deteriorating |
| February | 2.82% | Improving |
| March | 2.39% | Improving |
| April | 2.31% | Improving |
| May | 2.35% | Deteriorating |
| June (est.) | 2.64% | Deteriorating |
| July (est.) | 2.70% | Deteriorating |
Source: Bureau of Labor Statistics; May estimate from Federal Reserve Bank of Cleveland
Note: While inflation has moderated, new tariffs may cause temporary spikes in monthly data. Once tariffs have been in place for a full year, inflation should revert closer to the underlying trend.
Interest Rate Outlook
Current Fed Funds Rate: 4.25-4.50%
| Expected Cut Date | Amount | Projected Rate After Cut |
|---|---|---|
| September 17, 2025 | 0.25% | 4.00-4.25% |
| December 10, ,2025 | 0.25% | 3.75-4.00% |
| March 18, 2026 | 0.25% | 3.50-3.75% |
| June 17, 2026 | 0.25% | 3.25-3.50% |
| December 9, 2026 | 0.25% | 3.00-3.25% |
Note: Changes in monetary policy expectations reflect market participants' views on how the Fed will likely respond to shifts in inflation or employment.
Source: CME FedWatch Tool
Corporate Earnings Outlook (S&P 500 Estimates for 2025)
|
Date
|
2025 Earnings Estimate |
2026 Earnings Estimate
|
Trend
|
|---|---|---|---|
|
June 28, 2024
|
$276.29
|
|
|
|
Sept 30, 2024
|
$274.73
|
|
Deteriorating
|
|
Dec 31, 2024
|
$271.25
|
|
Deteriorating
|
|
Mar 31, 2025
|
$266.39
|
$304.89 |
Deteriorating
|
|
Current
|
$255.29
|
$295.32 |
Deteriorating
|
Source: S&P Dow Jones Indices
Market Valuation
|
Metric
|
Value
|
Assessment
|
|---|---|---|
|
S&P 500 P/E ratio on 2025 / 2026 estimated earnings
|
24.5 Times Earnings / 21.2 Times Earnings
|
Expensive
|
|
Historical P/E (pre-1980)
|
14.0
|
|
|
Historical P/E (post-1980)
|
19.0
|
|
Note: Equity valuations remain expensive by historical standards
Disclosure:
This material is provided by Todd Van Der Meid, MBA, CFP®, through Rhino Wealth Management, Inc., a Registered Investment Adviser, solely for informational purposes. It is not intended as investment, tax, legal, or accounting advice. Investors should consult qualified professionals before making financial decisions.
Opinions expressed herein are general in nature and not tailored to individual circumstances. Investment strategies discussed may not be suitable for every investor. All investments carry risk, including possible loss of principal, and past performance does not guarantee future results. No investment strategy or risk management technique ensures profit or eliminates risk in all market conditions.
Investments in foreign or emerging markets involve additional risks, such as currency fluctuations, geopolitical instability, and varying accounting standards. Sector-specific investments can be more volatile due to their concentrated nature. References to indexes are for illustrative purposes; indexes are unmanaged, cannot be invested into directly, and their performance does not reflect fees, expenses, or sales charges. Index performance is not indicative of specific investment performance.
Economic forecasts and forward-looking statements reflect current views and assumptions and are subject to change. Actual results may vary materially due to market or other conditions. There is no obligation to update forward-looking information.
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