by Bryan Perry
June 24, 2025
The complexity of the market backdrop is growing more challenging by the day. The attack on Iran’s nuclear enrichment sites is only the latest major story for investors to contend with. The recent tariff deal with China has the Fed squirming to the point that Fed Chairman Jerome Powell warned of rising inflation in the second half of 2025. Despite that, the Fed sees the likelihood of two rate cuts. Go figure.
Russia has escalated its attacks on Ukraine, particularly with intensified missile and drone bombardments. This increase in aerial assaults coincides with a Russian summer offensive on eastern and northeastern sections of the front line there. And uncertainty surrounding the federal budget bill leaves the government in a state of semi-limbo, with a high probability of the bill being passed by Congress sometime soon.
With these many fluid factors dominating what is a headline-driven market at present, the second-quarter earnings season can’t get here fast enough for most Wall Streeters. With all that has occurred in the first six-months of the year, the next quarterly reporting season will be like going to a great double-feature movie with Top Gun: Maverick expectations. That movie lived up to its billing and, based on the pace of capital spending for AI, the tech-led rally led by the doubling down of the hyper-scalers in AI Capex spending, sets the table for what could easily be the most intriguing forward guidance in recent memory.
Regarding the inflation alarm bells the media puts out, per the upcoming implementation of the tariffs, in the Q1 2025 reporting period, FactSet searched for the term “inflation” in the conference call transcripts of all of the S&P 500 companies that conducted earnings conference calls from March 15 through June 13. They found that, of these companies, 228 cited the term “inflation” during their earnings calls for the first quarter. This number is consistent with the average number of S&P 500 companies citing “inflation” on their earnings calls during the four quarters of 2024 – 231. This number is below the 5-year average of 254 and marks the 5th straight quarter in which fewer than half of the S&P 500 companies cited the term “inflation” on their quarterly earnings calls. However, it should also be noted that the number of S&P 500 companies citing inflation on their earnings calls for Q1 2025 is above the 10-year average of 189.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The three most recent inflation reports – the CPI, PPI and PCE – were all tame, or below forecast, but the bears are saying, “Wait!” It’s coming: A spike in inflation is not a matter of if, but when.” Still, I ask, what if the when doesn’t come? One argument for why the “when” won’t come is slowing global growth.
Economists call slower growth “weakening aggregate demand.” If overall consumer and business demand for goods and services is softening due to other factors (like higher interest rates, reduced consumer confidence or slowing global growth), this can exert downward pressure on prices that outweigh the upward pressure from tariffs. Less money chasing more goods generally leads to lower prices.
Foreign exporters might choose to absorb some or all of the tariff costs to remain competitive in the market, rather than passing them entirely on to consumers. This would reduce their profit margins but keep consumer prices lower. While tariffs reduce competition from imports, strong domestic competition or the emergence of new domestic producers also could help keep prices in check.
The biggest determinant for most analysts, chief market strategists and economists about why inflation might trend lower is due to technological advancements and productivity gains, most of which can be attributed to AI. Ongoing technological improvements and increased productivity can lead to lower production costs over the long run, offsetting some of the price increases from tariffs.
Investors have much to be excited about for the next six weeks, heading into August, as the earnings parade begins in earnest this week, with several prominent names. It will be most interesting to see what the CEOs say about their AI investments to enhance productivity and efficiency within their businesses.
The latest saying within corporate circles is, “If you are hiring people, you’re doing something wrong.” That’s because productivity is the big payoff for Wall Street and investors looking to the monetization of AI as a major contributor to sales, profit margins and earnings. That trends seems a bit alarming on the surface, even if it is a broad-brush statement, but there is disruptive change hitting the labor market and it is only going to be more pronounced with each passing month and how the employment data is impacted by the implementation of AI across virtually all industries and sectors of the economy and government.
In his 1966 “Ripple of Hope” speech in Cape Town, South Africa, Robert F. Kennedy famously said, “There is a Chinese curse which says, “May we live in interesting times,” adding that, “Like it or not, we live in interesting times – times of danger and uncertainty; but they are also more open to the creative energy of men than any other time in history.” Sounds fitting for how the first half of 2025 has transpired.
All content above represents the opinion of Bryan Perry of Navellier & Associates, Inc.
Also In This Issue
A Look Ahead by Louis Navellier
The Fed Continues to Ignore Low Inflation – and a Weakening U.S. Economy
Income Mail by Bryan Perry
The Market Landscape Now Includes “Bunker Buster Bombs”
Growth Mail by Gary Alexander
How Do Markets React to the Outbreak of Major Wars?
Global Mail by Ivan Martchev
Should We Beware the Coming “Golden Cross”?
Sector Spotlight by Jason Bodner
Inside Our “Core Capsule,” the Market Weather is Beautiful
View Full Archive
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Bryan Perry
SENIOR DIRECTOR
Bryan Perry is a Senior Director with Navellier Private Client Group, advising and facilitating high net worth investors in the pursuit of their financial goals.
Bryan’s financial services career spanning the past three decades includes over 20 years of wealth management experience with Wall Street firms that include Bear Stearns, Lehman Brothers and Paine Webber, working with both retail and institutional clients. Bryan earned a B.A. in Political Science from Virginia Polytechnic Institute & State University and currently holds a Series 65 license. All content of “Income Mail” represents the opinion of Bryan Perry
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