Weekly market commentary

Tariffs here to stay

US effective tariff rate, 1900-2025

Policymaking has been adding to market volatility – and several major policy developments have taken place in recent days. Consider the ceasefire in the Middle East, a NATO commitment to up defense spending and a G7 tax agreement. The US now looks to be taking a more flexible approach to tariffs. While the current effective tariff rate of 15% is still the highest since the 1930s – see the chart – we’ve repeatedly seen that immutable laws prevent fast deviation from the status quo. One law – supply chains can’t be rewired quickly without grave consequences – likely led to carveouts for some industries and a resumption of US-China trade talks. Another – US debt sustainability relies on foreign investors – was likely a factor in the 90-day pause on tariffs that had spiked yields. We don’t see a return to April’s maximal tariffs and trade uncertainty is now well below April’s highs.

The administration is also advancing major pro-growth tax and regulatory reforms. On the tax front, the budget bill under review extends and expands the cuts in the 2017 Tax Cuts and Jobs Act, which could boost investor sentiment. Another boost: the exemption of US multinational companies from a set of taxes imposed by G7 nations, granted in exchange for the removal of Section 899 from the budget bill – a provision that would have allowed taxes on foreign investors in US assets.

Tracking regulatory changes

The Federal Reserve has proposed revisions to the supplementary leverage ratio (SLR), which would free up capital for banks to hold more Treasuries, potentially offsetting weaker foreign demand. They could also support bank lending to the economy – though perhaps less than in the past, given the growth of private credit alternatives.

We’re also tracking regulatory changes that could benefit the artificial intelligence (AI) and future of finance mega forces. The US administration is set to release an action plan to promote competitiveness in the global AI race. State-level deregulation is also advancing. In West Virginia, a new law allows data centers to bypass zoning ordinances and leverage their own power sources rather than local utilities. If reform passes at the federal level – and if tax cuts unleash more capital for companies to invest in the AI buildout – it could fuel economic growth. It could also create opportunities in energy infrastructure, especially in private markets. Lastly, the GENIUS Act could advance the future of finance mega force by giving stablecoins – digital currencies backed by liquid assets like cash and short-term Treasuries – a clear regulatory framework that fosters wider use.

We think these market-friendly policies could fuel animal spirits, supporting our US equity overweight. We still prefer credit over government bonds, and within Treasuries still prefer short- and medium- over long-term. We recognize long-term yields could temporarily fall as markets price in rate cuts amid shifting narratives and as near-term momentum continues. But we think sticky inflation will prevent the Fed from cutting far, and high deficits will mean investors will want more compensation, or term premium, for the risk of holding long-term government debt.

Our bottom line

We think immutable laws will prevent tariffs from going back to April 2 highs – and trade uncertainty has come down. As major tax and regulatory reform unfolds, we stay risk on and overweight US equities.

Market backdrop

Last week, US stocks hit all-time highs, partly on progress in US-China trade talks. The S&P 500 gained more than 3% and was up nearly 24% from its April lows, with tech shares outperforming. Crude oil futures dipped to about $65 a barrel, erasing all their gains after Israel’s attack on Iran. US 10-year Treasury yields dipped near 4.28%, still about 40 basis points above their intraday April lows. Core PCE inflation ticked up to 2.7% in May as signs of tariffs pushing up goods prices emerged.

This week, we’re watching the US June jobs report for signs of where the labor market stands. The data have yet to show tariff-related impacts – but that doesn’t mean the labor market will avoid a hit. Companies may be awaiting more policy clarity before making staffing decisions. Slower immigration post-pandemic and an aging population will also drag on labor supply and push wages up – which could in turn keep inflation above the Fed’s 2% target.

Read our past weekly commentaries here.

Big calls

Our highest conviction views on six- to 12-month (tactical) and over five-year (strategic) horizons, June 2025

Tactical granular views

Six- to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, June 2025

We have lengthened our tactical investment horizon back to six to 12 months. The table below reflects this and, importantly, leaves aside the opportunity for alpha, or the potential to generate above-benchmark returns – especially at a time of heightened volatility.

Euro-denominated tactical granular views

Six to 12-month tactical views on selected assets vs. broad global asset classes by level of conviction, June 2025