Uncertainty around U.S. tariffs continues, but fears of the most disruptive outcomes have eased as negotiations progress on new trade deals. For investors, this means increased market volatility and some temporary economic challenges, but not a severe economic downturn.

Economic Growth and Inflation

• Slower Growth: Broadly, economic growth in the U.S. and other developed markets is expected to slow in 2025, with most forecasters predicting growth rates below 2%. The drag from tariffs, coupled with consumer spending adjustments, is expected to lead to modest economic expansion rather than a recession.
• Mild Recovery Ahead: As tariff adjustments conclude and tax policies provide support, 2026 is anticipated to bring a slight improvement in growth.
• Inflation: U.S. inflation is expected to be somewhat higher, averaging around 3.0% for both 2025 and 2026, with a potential temporary peak at 3.5% later in the year. This is largely due to higher prices on imported goods following tariff increases.

Fixed Income (Bonds)

• Interest Rates: Central banks, including the Federal Reserve, are moving cautiously given ongoing U.S. policy uncertainty and conflicting signals from the economy (growth slowing vs. inflation rising).
• Bond Yields: The yield on the U.S. 10-year Treasury is around 4.4% as of mid-July 2025 and is expected to dip slightly in the coming year. The 30-year yield remains just below 5%. These levels are attractive compared to historical averages and may provide bonds with solid mid-single-digit return prospects for patient investors.
• Risk Considerations: Most of the adjustment from rising rates and tariffs has been absorbed, leaving less risk of unexpected losses ahead

Equity Markets (Stocks)

• Short-term Volatility: The introduction of new tariffs triggered a sharp sell-off in equity markets earlier this year as investors adjusted to higher costs and uncertain corporate profits. However, recent progress on trade has helped stabilize markets.
• U.S. Stocks: Recovery in the S&P 500 brought valuations back to familiar territory. Future gains now depend more heavily on corporate earnings growth and renewed investor optimism. Analysts expect S&P 500 profits to grow about 8% in 2025 and 13% in 2026, lower than forecasts at the start of the year but still supportive of positive returns.
• Global Opportunities: Non-U.S. markets, which suffered collateral damage during the sell-off, appear attractively valued and represent good return potential for diversified portfolios

As always, I welcome the opportunity to review your financial plan or answer any questions you may have. Please don’t hesitate to reach out if you’d like to schedule a portfolio review or discuss any aspect of your financial situation.

Have a great weekend,

Tracey & Paige

Source: https://www.rbcgam.com/en/ca/article/one-minute-market-update-summer-2025/detail?utm_medium=email&utm_source=salesforce&utm_campaign=the-monthly-brief&utm_id=fa1a9d8162eec9b95e1407e618a5b906

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