Escaping Monotony: A Journey Away from the Dull Routine
In the summer of 2025, the US economy faced significant challenges due to the implementation of tariffs that had a profound impact on corporate earnings, inflation, and employment. The overall effective tariff rate reached historically high levels, pushing consumer prices up and reducing household purchasing power by approximately $4,700 per household in 2024 dollars.
This surge in tariffs contributed to slower economic growth. US real GDP growth was lowered by about 1.1% in the short term, with the longer-term economy expected to remain around 0.6% smaller than it would be without the tariffs. Unemployment also rose by approximately 0.6 percentage points by the end of 2025.
The Federal Reserve’s favoured inflation measure showed an acceleration above its 2% target during May and June, indicating rising inflation pressures partly driven by tariffs. Corporate earnings and credit quality were notably unsettled by tariff uncertainty and elevated input costs. Many companies faced tighter profit margins as higher tariffs increased their costs, which they struggled to fully pass to inflation-weary consumers.
Economists described the situation as a kind of "stagflation-lite," where tariffs acted as a shock that increased inflation and subdued growth and employment simultaneously. The tariff effects worked through stages involving inventory build-ups before tariffs, then inventory depletion, followed by renewed import costs with tariffs and eventual compression of corporate margins, layoffs, and weakened consumption demand.
Despite these challenges, the market landscape offered some promising opportunities. An overweight to small- and midcaps was maintained, anticipating improved gains against a backdrop of lower policy rates, deregulation, and pro-business elements from the U.S. tax and spending law. Investment-grade fixed income was also considered more constructive as yields were close to fair value, with shorter-dated bonds presenting little downside risk.
Neuberger Berman's deep relationships and unique position within the private equity ecosystem have translated into record levels of deal flow across their platform. A cautious approach was advised on core private real estate, but opportunities in the value-add and opportunistic sectors, and real estate secondaries, were abundant.
In the fixed income market, opportunities to deploy cash tactically, adding and/or shortening duration based on the movement of rates, were seen as particularly valuable. This was due in part to rumours of President Donald Trump aiming to fire Fed Chair Powell, causing a strong market reaction. The probability of a rate cut during the Fed’s September meeting jumped to upwards of 80% and back to 100% for October.
In positive news, the outlook on global equities and developed non-U.S. equities remained positive due to continued monetary policy easing, pro-growth fiscal policies, and solid corporate earnings prospects in major economies. The S&P 500 is up +8.6% year-to-date through July 2025, with the index reaching a new all-time high in July. Domestic growth stocks were higher in July, and corporate earnings for Q2 have shown a positive EPS surprise, with a blended earnings growth rate of +10.3% for the S&P 500.
AI-related investments have boosted returns, with the market-weighted index outperforming the equal-weighted index by +2.8% year-to-date. The U.S. Dollar saw a 3.2% increase in July. The S&P 500 reached a new all-time high in July 2025, and the 50/50 Portfolio had a return of 1.0% for the month of July.
However, the job market showed signs of weakness, with only 73k jobs added in July compared to a 104k consensus, and the three-month average job gain reduced to +35k, the lowest since 2020. Federal Reserve Governor Adriana Kugler resigned, giving the U.S. President a nominee on the Committee.
In the automobile industry, negative earnings growth was reported for both S&P 500 and MSCI EAFE companies in Q2. Despite these challenges, the overall market landscape remained dynamic and full of opportunities for investors to navigate and capitalise on.
Read also:
- President von der Leyen's address at the Fourth Renewable Hydrogen Summit, delivered remotely
- Unveiling Innovation in Propulsion: A Deep Dive into the Advantages and Obstacles of Magnetic Engines
- Intensified farm machinery emissions posing challenges to China's net-zero targets
- EU Fuel Ban Alerts Mercedes Boss of Potential Crisis
