Market Thoughts: Hope for the best, whistle past the rest

Comfortably numb seems the anthem adopted by investors as markets continue to bounce from headline to headline. Geopolitical tail risk is, most often, quickly looked through. Current tension in the Middle East a good example. That’s not surprising.

Safe haven assets, including the dollar and government bonds, served their purpose buffering recent market volatility. Again, unsurprising. If I had to point to something that has surprised me, it’s not the equity market bounce back. It’s that we’re setting new market highs. Greed is good until it isn’t.

I’d prefer a calming of risk appetite to let valuation levels be digested. Adrenaline doesn’t work that way. The hard data is wobbly but continues to justify where markets are trading. We’ve held onto risk throughout the turmoil. We’re not chasing the current market run-up. 

I don’t think investors have entirely turned a blind eye to the risks swirling. I believe they don’t quite know how to process the constant barrage of policy pivots and geopolitical turbulence. Fear of missing out is creeping back into the market narrative. Expect the worst, hope for the best reimagined. Hope for the best, whistle past the rest.

Jay Powell did his best to project calm and consistency at his semi-annual testimony to Congress. He did so in the face of rising calls for a rate cut as early as the July FOMC meeting. I continue to believe September is the earliest point the Fed will have enough data to begin a fact-based debate on easing. 

The Conference Board’s June read on consumer confidence suffered a marked decline. Expectations and present situation readings moved lower as did consumer perception of the jobs market. Nonalarming but moving in the wrong direction.

One of the better quips I saw about the June consumer data characterized the current economic outlook as one driven by an “abundance” of caution. For major purchases, I expect consumers remain guarded on spending. Needs not wants driven. 

We certainly saw that in May new home sales, which were down 13.7% month-over-month. May saw a decrease in new home construction as well. Also, we saw revisions lower in first quarter GDP. Consumer spending during that period grew at the slowest rate in five years. Services were particularly hard hit.

Second-quarter earnings are a few weeks away. That will be a point of focus for investors looking to validate what have already been strong earnings forecasts priced into valuation levels. I expect companies will reflect modest concern about tariffs and consumer demand. Few alarmists.

Big tech will again drive S&P 500 earnings. Analysts are penciling in low double digit growth for tech, mid-to-high single digit growth for the index. I expect we’ll see an above trend GDP bounce in the second quarter thanks to the front loading of imports ahead of tariffs. Those headlines may further encourage animal spirits, until the next sentiment derailing headline. 

It’s been a whirlwind of a ride. Where we go depends on the next mood swing from Washington. Chaos and misdirection make for electrifying theater. The strategy behind those tactics? Consolidation of power. Acquiescence by NATO to increase defense spending another example.

The next test of power? Passage of the One Big Beautiful Bill in Congress. As of this writing, it’s still being wrestled to a vote. The House will need to address Senate amendments for final passage. With the Senate parliamentarian having nixed several Medicaid provisions as ineligible, it’s coming down to the wire on whether the July 4th target can be met.

Once we see a tax bill passed, fiscal profligacy, a growing deficit and expanding debt burden will crawl back into focus. Animal spirits being what they are, investors will shift rekindled optimism to deregulation and stimulus. Whistling past the rest, for now.

Barring a major market move, my next note will be the week of July 7th.

* Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 6/26/25.