I was talking with my wife over coffee this morning about how investing right now feels a bit like driving through fog. You can see the road ahead—kind of—but it’s not clear enough to hit the gas. That’s where we are in the markets today: still moving forward, but slowly and carefully.
As investors look toward the second half of the year, markets are being pulled in opposing directions. On one side, long-term growth catalysts—including potential tax cuts in 2026 and new policy incentives—offer a reason for optimism. On the other, today’s environment remains fraught with trade policy uncertainty, geopolitical tensions, and macroeconomic headwinds.
A Market Priced for Perfection?
Despite ongoing challenges, equity markets have marched higher, driven in part by enthusiasm around AI, resilient economic data, and hopes for a Fed pivot. But valuations are already elevated by historical standards, leaving little room for disappointment. Inflation remains sticky, and interest rates—while potentially peaking—are still high and could edge higher if price pressures persist.
A soft pivot from the Federal Reserve that unleashes a new wave of risk taking seems unlikely in the near term. The Fed has made it clear it needs to see more sustained progress on inflation before easing. With core inflation above target and the labor market still relatively tight, patience—not pivot—is the Fed’s current posture.
Trade Policy & Geopolitical Risk: Reasons for Caution
Trade tensions remain a key concern. Uncertainty around tariffs and upcoming trade negotiations—particularly with key deadlines approaching—create a difficult environment for businesses and investors to make forward-looking decisions. We estimate tariffs alone could pose a 2–3 percentage point drag on corporate earnings.
Geopolitical risks also loom large. The ongoing conflict between Israel and Iran is not only a humanitarian tragedy but a potential economic headwind. Energy markets remain on edge, with the possibility of a sustained spike in oil prices if tensions escalate further. While a more stable Middle East could, in time, support global economic activity and yield a “peace dividend,” that scenario remains speculative.
Opportunity—But Not Urgency
Longer-term, the outlook becomes more encouraging. We see real upside potential to economic growth and corporate earnings in 2026 and beyond as tax reform, pro-growth policy incentives, and productivity gains from technology begin to take hold. But the timing and scale of those benefits remain uncertain, and we don’t believe they justify a shift to a more aggressive market posture today. Instead, we believe investors should “stay the course” with a balanced approach.
Key Watchpoints Ahead
July could be a turning point, with several potential catalysts on the horizon. Earnings season will offer insight into how well corporate profits are holding up under margin pressures and shifting consumer behavior. Trade negotiations may provide more clarity—or more confusion—around global supply chains and policy direction. Both could drive markets meaningfully in either direction.
We believe the prudent course is to remain neutral on equities and fixed income while maintaining a modest allocation to alternative investments to help dampen portfolio volatility. A disciplined, diversified approach that focuses on resilience and patience will serve investors best as we navigate through today’s uncertainty and prepare for tomorrow’s opportunities.
Just like driving through fog, the key in a market like this is to stay steady behind the wheel—keep your hands on the controls, your eyes on the road, and don’t make sudden moves. We may not be able to speed up yet, but we don’t need to stop, either.
Have a blessed week!
Joe Shearrer
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.