By Kyle Tetting
Even as other uncertainties emerged, July brought one bit of closure with the passage of the 900-plus-page One Big Beautiful Bill Act. Investors seemed encouraged that the act’s passage will provide some tax code clarity and near-term increases in deductions. Markets continued to push near all-time highs. The details are important, but the sense of clarity tells all interested parties where to go next and offers businesses and households more confidence to plan for the future.
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Unfortunately, ongoing uncertainties on tariffs have weighed in the other direction. Yet to be seen in formal trade policy is the effectiveness of tariff announcements as a negotiating tactic. On the other hand, one thing is certain: It remains unclear to business leaders what direction trade policy will take, which makes planning for the future next to impossible.
Muddled process, signs of weakness
As just one example, automakers appear eager to point to tariffs for flailing profits. So far, the impact seems mild, but the muddled tariff process has left many executives less than eager to rush decisions on major questions in their businesses.
Adding to the challenge, late July economic data showed the labor market softening at a quicker pace, with fewer job gains than expected, large downward revisions to prior months’ payrolls and a rising unemployment rate. Those points are worth watching given their direction, but a few months of data don’t give a complete picture of what has otherwise been a steady but slowing economy.
The Fed’s inaction
In the interim, the Federal Reserve left interest rate cuts on pause as the central bank continued to digest the impact of all this uncertainty on employment and inflation – the Fed’s two key directives. With the labor market mostly strong enough and inflation running hotter than target, it’s been easy to justify inaction. If weakness persists on the labor front, the silver lining might be an easier path to rate cuts for the Fed.
Despite a seasonally slower period for investors, we’ve been given plenty to keep our eyes on. Fortunately, even the occasional bad stretch for U.S. stocks has been buoyed by the stability of bonds and the diversification of stocks outside our borders.
Balance perseveres
To that end, through more than half of the year, traditional balance (declared dead in the popular press in recent years) is more than holding its own. That, despite a stock market that’s seen sharp and consistent rises and only occasionally a big drop. More than anything, amidst ongoing questions about the markets and economy, I’m encouraged that an appropriately conservative balance works.