On Tuesday, we will release our third quarter 2025 Guide to the Markets. On Wednesday, we will host conference calls with financial professionals to discuss the outlook.Â
It’s an outlook dominated by the impact of dramatic policy changes on a relatively slow-growing U.S. economy. The result, in the short run, may resemble a wave, as the economy cools down in the second half of this year, heats up in early 2026 and then cool down again. However, in the long run, the net effect of these policy changes could result in an economy with slightly slower growth and higher interest rates than seemed likely at the start of the year. This being the case, it is hard to justify this spring’s rebound in U.S. stocks to new record highs less than three months after teetering on the brink of a bear market. Consequently, investors would still be well-advised to seek broader diversification in areas such as international equities, value equities and alternative assets.
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9:29
Tariffs and Inflation
Investors this week will be focused on the implications of the U.S. attack on Iranian nuclear facilities. While this is clearly a very significant event from a geopolitical perspective, it may be less important for financial markets.
The key issue is how Iran responds. One often-mentioned scenario is that they could try to close the Strait of Hormuz. Such a move would have a dramatic impact on world energy markets as roughly 20% of the world’s oil production moves through the Strait. However, this strategy would be highly counterproductive for Iran, first, because it would eliminate its own ability to export oil and second because it would trigger a U.S. effort to reopen the Strait that could further damage Iran’s depleted military capabilities.
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12:19
Economic Sogginess and the Market Party
When we bought our first home, the builder neglected to mention that it was built upon a river. Of course a river at the bottom of a garden is a charming sight. Something that seeps up through the cellar is less attractive, and so, in due course, the builder was called back to install a sump pump. Our young sons were fascinated by the hole in the basement floor and the coppery water that flowed at the bottom and wondered whether, with the help of makeshift fishing poles, it could yield some fish.
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10:30
The Macro Jigsaw
When I was growing up, school holidays weren’t packed with organized activities. Sometimes, to relieve the boredom of a rainy day, I would tackle a jigsaw – I remember one particularly challenging 1000-piece puzzle which, when completed, promised to reveal a charming picture of Dutch skaters on a frozen lake.
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12:49
Policy and the Investment Landscape: An Update
This week, after a very busy few months, I am putting down my pen, picking up my metaphorical spade and bucket and taking some vacation time. 2025, so far, has been a challenging year for analysts and it is tempting, as I’m trying to clear my desk, to assert that not much has changed over the past few weeks and so I don’t need to update any analysis of federal government policy, the economy and markets. However, the reality is that events in Washington and on Wall Street over just the last two weeks do require a reassessment.
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