ECONOMIC GLOBALIZATION
During the 2nd quarter, economic globalism either seemed to have died or veered wildly off course. If actions speak louder than words, domestic investors didn’t really seem to mind too terribly much.
TARIFF THREAT EFFECT
The threat of tariffs wreaked havoc on the consumer psyche during the quarter. At first blush, it would seem the average U.S consumer cares more about the immediate prospects for higher prices than the long-term benefit of bringing long-outsourced manufacturing back to the U.S.
THE FED HOLDS STEADY
Will the Federal Reserve cut the target overnight lending rate or not? That seems to be all investors and analysts wanted to know. It didn’t happen in the 2nd quarter — and oddly enough, the markets didn’t seem to mind. I suppose it was enough for the Fed to reiterate that the next move would most definitely be a cut.(1)
A MATTER OF DUAL MANDATE
Unless it was about inflation or the labor market, analysts didn’t appear to care too much about it. If an economic release didn’t directly relate to the Fed’s dual mandate — price stability and full employment — no one seemed to care.
DOLLAR DROPS, FOREIGN GAINS
Continued U.S. fiscal imbalances and the administration’s domestically focused agenda appeared to discourage international investors. As a result, the U.S. dollar fell sharply during the quarter relative to other major reserve currencies, providing a boost to foreign stock market returns.(2)
THE GOLD RUSH CONTINUES
As of June 25, 2025, gold continued its climb during 2nd quarter. Although it doesn’t generate a profit or pay a dividend, investors seem to like the stuff when geopolitical events are strained, and the world is awash in debt and fiat currencies. To me, it makes sense when you think about it.
TRADE TURBULENCE
On April 2, President Trump announced a broad package of tariffs and import duties on the remainder of the world. This was an attempt to address what the administration viewed as unfair trading practices. Initially, investors reacted negatively. So much so, the President seemed to renege on much of it, leaving many people very confused.
FLAT INFLATION, RISING FEAR
Despite all the wringing of hands and gnashing of teeth, the administration’s tariff schemes have yet to show up in the official inflation data. Unfortunately, the fear of tariff-driven price hikes has likely caused the Federal Reserve to postpone its next rate cut. (3) Without this fear, it is highly possible the Fed may well have already cut the overnight rate at least once in 2025.
MARKET DEFIANCE
If you had told me in March that Israel and the United States would bomb Iran’s nuclear facilities — and that crude oil prices would drop by the end of June — I wouldn’t have believed you. Add in a surge in U.S. stock prices and a U.S. bond market sell off? I would have had you committed. However, that is exactly what happened.
THE GROWING DIVIDE
If there were any doubts about the growing divide between the United States and Western Europe, the events of the 2nd quarter likely put them to bed. The two seem to be moving in opposite directions — and at different speeds — and not in a good way that bodes well for the Europeans over the long term.
A BEAUTIFUL BILL BUT BIG BUDGET
Despite public outrage over the federal deficit, the strong reactions to DOGE and the President’s so-called “One Big, Beautiful Bill,” suggest that people may not actually want to reduce federal spending.
TECH MAKES A TURNAROUND
No matter how dysfunctional things seem, how uncertain the world feels or what the Fed is doing, one thing remains clear: many domestic investors love their tech stocks. After a difficult 1st quarter, the sector came roaring back with a vengeance in Q2. As loosely defined by the NASDAQ Composite, tech was up 15.31% through 6/24/2025.
SOURCES:
- Investor’s Business Daily – Federal Reserve Keeps Two Rate-Cut Outlook.
- Harvard Gazette – Era of U.S. Dollar May be Winding Down.
- Forbes – The Fed Opts Not to Cut Rates Again- Even as Trump Ups Attacks on Fed Boss Powell.
This content is part of our quarterly outlook and overview. For more of our view on this quarter’s economic overview, inflation, bonds, equities and allocations, read the latest issue of Macro & Market Perspectives.
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