Welcome to Thoughts on the Market.
I'm Michael Zesus, global head of fixed income research and public policy strategy.
Today, while there's no summer slowdown yet for US policy catalysts for the financial markets, it's Friday, July 18th at 8 a .m. and New York.
The past week and a half has seen many major policy events and headlines relevant to the for financial markets.
This includes more speculation by the US administration over leadership of the Fed, more information about the deficit impact of the new fiscal bill, and, perhaps most tangibly, announcements of new tariffs that, if they take effect, would be a meaningful step up from already elevated levels.
It would also just a weaker growth outlook and less The S &P and the US dollar up about 1 percent over that time and Treasury yields are modestly higher.
So what's going on?
Two possibilities to consider and an implies investor should pay more attention than they may be inclined to this summer.
First, when it comes to the impact of tariffs on the economy it's possible we're dealing with a delayed impact.
The effective average U .S. tariff rates shut up from the 3 % to the 4 % earlier this year to 13 % and the reason announcements go through that could exceed 20%.
It's a major escalation in costs for U .S. companies and consumers and something our economists argue takes growth down to 1 % and elevates the possibility of recession.
But, our economists also point out that we may not be experiencing these costs increases quite yet.
History suggests several months of lag between implementation and economic impact as companies leverage existing lower cost inventory before making tough decisions on pricing and managing their own costs.
It's hard economic data likely does not yet tell us about the impact or lack thereof of tariffs, but that may change in the coming months.
Second, it's also possible that the recent announcements of tariff increases don't tell us the whole story.
As my colleagues in our Equity strategy team point out, corporate America's cost base is most sensitive to the US's largest trading partners—China, Mexico, Canada, and Europe.
As we've discussed in prior episodes, we see tariff rate increases as likely on all these trading partners as tough negotiations continue.
However, the details won't matter greatly if rates are increased, but with a healthy dose of exceptions or quotas, even if they diminish over time—then the real impact could be significantly blanket.
In that case, markets will resume taking cues from other factors such as earnings revisions and forward -looking expectations around AI -driven productivity.
So bottom line, market movements suggest investors are assuming benign U .S. policy outcomes.
But there's plenty of developments to track in the coming weeks and months to test if those assumptions will hold.
Trade policy details and hard economic data are key among them.
Thanks for listening.
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