Markets continued to trend higher through July, even as headlines were dominated by trade tensions and tariff uncertainty. Many clients have asked how stocks have managed to climb given these challenges. In our view, the resilience comes down to two main factors:
Strong consumer spending and rebounding confidence: U.S. consumers continue to spend at healthy levels, supported by low unemployment, steady wage growth, and robust household balance sheets. This demand has likely helped to offset concerns about higher costs tied to new tariffs, keeping revenue expectations for many companies intact despite global trade worries.
Corporate inventory strategies delaying tariff impacts: Many large importers anticipated the potential tariff hikes earlier this year, particularly after April’s “Liberation Day” announcement, and brought in extra inventory ahead of higher tariff periods. This strategy has allowed them to maintain pricing and margins for now, effectively softening the immediate impact of trade policy changes on their financial statements. The true effects of these tariffs may take months to filter through earnings reports as current inventory levels normalize and future imports face the new tariff structure.
Looking ahead: While tariffs are effectively taxes on trade and are not positive for long-term global growth, markets appear to be pricing in a 15% baseline tariff rate for most countries (excluding China) as a likely landing point. This outcome is far less disruptive than what was initially feared earlier in the year, helping bolster investor confidence and allowing equities to push higher despite the geopolitical noise.