Stocks Shrug Off Economic Concerns

Despite on-again off-again tariffs, bombings in the Mideast, budget impasses in Congress and the Fed facing increasing political pressure to lower rates, the S&P 500 rebounded strongly in the second quarter and is trading at all-time high levels. Bonds are also up this year with the ICE BofA 1-5 Year US Corporate and Government bond index showing a total return of over 3%. 

In spite of all the handwringing about inflation and tariffs, consumers around the world have continued to spend throughout the first half of this year, driving global GDP growth.  In the U.S., it’s the top 10% of earners who continue to propel the economy.  While the housing market remains weak, cruise ship operators recently reported strong booking growth despite record pricing dynamics. However, in-store and online purchases for 18- to 24-year-olds fell 13% year-over-year between January and April while spending by older groups was still on the rise. 

Consumer confidence indicators have started to decline, which can be a warning sign regarding future spending trends. Consumer confidence weakened in June, and the decline was broad-based, with consumers’ assessments of their present situation and expectations for the future both contributing. If unemployment ticks up, then confidence will worsen further and could portend a slowing economy. 

Federal Reserve Chair Powell told lawmakers last week that recent economic data would have likely justified continuing to lower interest rates if not for concerns that higher tariffs might derail the central bank’s years long fight to defeat inflation. While rising unemployment would impact several thousands of people, higher inflation would impact everyone negatively. 

In the meantime, we are at the cusp of second quarter earnings reports and passage of the Big Beautiful Bill (it’s definitely big; beauty is in the eyes of the beholder). Whereas investors were very gloomy when first quarter earnings were reported just as peak tariffs were announced, today the mood is quite different, almost euphoric. 

As LVM begins its 38th year, we would note that we’ve endured several recessions and bear markets. While it’s impossible for anyone to accurately predict when the next of either may occur, the key is to ensure that your asset allocation is designed to meet your specific goals and objectives and risk tolerance, enabling you to stay the course during periods of market declines. As Warren Buffett has noted, the most important skill for an investor is temperament, not IQ.  Owning outstanding businesses, with outstanding management teams who can innovate and adapt to changes in the world around them, will ultimately be rewarding.  Time in the market rather than timing the market is the key to long-term investment success. 

We sincerely appreciate your continued confidence in our team.