Stock market under the Trump administration

Investors are evaluating the stock market’s next move amid the consequential first six months of President Donald Trump’s second term. In early July, following a strong second quarter, the S&P 500 and the NASDAQ Composite Index reached new highs. ¹ Markets then wavered as new tariff developments emerged. Equity markets may reflect a degree of fragility, given investors’ uncertainty about what to expect from the rapidly changing news coming from Washington.

“Investors are navigating through abundant policy changes including tariffs, tax reform, deficit spending, the debt ceiling, border policy, and geopolitical tensions,” says Terry Sandven, chief equity strategist at U.S. Bank Asset Management Group. “Periods of significant change are often associated with investor uncertainty, angst and volatility.” Yet Sandven says investors have proven resilient despite the frequent news flow generated by President Donald Trump and his administration.

The benchmark S&P 500 began the year reaching new highs, then reversed course and nearly tipped into a bear market (a decline of 20% or more), before topping its previous highs. ¹

President Trump’s major legislative initiative passes

In his new administration’s first six months, President Trump mostly relied on executive orders to implement his policy initiatives. However, just prior to the July 4th holiday, Congress narrowly passed a comprehensive measure referred to as the One Big Beautiful Bill Act. Most notably, the bill included a permanent extension of the tax cuts initiated in 2017’s Tax Cuts and Jobs Act legislation. It also added other modest tax breaks and incentives.

The measure included spending cuts, specifically for the Medicaid program, and spending increases for defense and border security. It also avoided a potential government default by extending the nation’s debt ceiling by $5 trillion. This allows the U.S. Treasury to continue to issue debt to fund government operations. Its capacity to do so would have potentially expired in August.

The focus returns to tariffs

With the major legislative package signed, the Trump administration began updating its tariff plans. The spring 2025 market recovery partly reflected a positive market reaction to the administration’s pullback on proposed new tariffs. On April 9, President Trump announced a 90-day pause on most new tariffs, a week after first laying them out. The administration applied an across-the-board 10% tariff rate on most countries along with other select tariffs on countries or industries. Just before the 90-day pause period ended, the administration indicated that new tariffs for most countries would take effect on August 1. It also outlined tariffs ranging from 25% to 40% on a number of trading partners.

“The market was tacking toward a base case of 10% to 15% tariffs, and that’s not where we’re ending up, at least for now,” says Rob Haworth, senior investment strategy director with U.S. Bank Asset Management Group. “The hope at this point is that the most recent tariff announcements are a look-through to final negotiations, rather than the prevailing scenario.”

While tariff plans are not fully fleshed out, Tom Hainlin, national investment strategist with U.S. Bank Asset Management Group, says the issue clouds the picture for companies. “A 25% tariff burden is significantly more difficult for firms to navigate than spreading out a 10% tariff burden between suppliers and customers.” Adds Hainlin, “Moving the deadline from July 9 to August 1 gave companies three more weeks of uncertainty, after just getting through tax bill uncertainty and debt uncertainty.”

The final tariff impact remains unclear but is likely to continue attracting investors’ attention. “The markets have acted rationally in trying to price tariffs’ impact on corporate earnings growth,” says Haworth. The effective tariff rate is expected to exceed 10% in the coming months.

U.S. Effective Tariff Rate

“What makes this more challenging for markets is that they are reacting to a single decision point, President Trump, in determining the potential tariff impact on corporate earnings,” says Haworth. “It makes the environment less certain when you have a single person controlling tariff policy.”

Awaiting more economic signals

The U.S. economy maintained relatively stable growth from mid-2022 through 2024. First-quarter 2025 Gross Domestic Product declined 0.5%, ² though signs point to a resumption of positive growth as 2025 continues. However, most analysts project slow GDP growth over the course of the year. For example, in its latest Summary of Economic Projections, the Federal Reserve’s Open Market Committee estimated 2025 GDP growth of just 1.4%, compared to 2024’s 2.4% growth rate. ³

In the meantime, inflation as measured by the Consumer Price Index (CPI) and the employment rate rate have both remained stable in recent months. CPI stands at 2.4% and the unemployment rate at 4.1%. ⁴ “To be determined is the future direction of inflation,” says Sandven. “That will help determine the forward path for interest rates and frame capital market outcomes.”

According to Haworth, “One of the biggest concerns associated with tariffs is their potential inflationary impacts. To date, tariff costs are not yet fully incorporated into inflation data.” Haworth anticipates that corporations will employ a variety of responses to pay escalated tariff rates on imported goods. “Some companies plan to pass costs on to consumers, some will try to recover the difference from exporters, and some will allow tariffs to reduce profits.” Haworth states that on balance, inflationary consequences are probable.

President Trump pushes for interest rate cuts

The Federal Reserve (Fed) has kept the short-term federal funds target rate at 4.25% to 4.50% throughout the year. While President Trump has urged the Fed to cut rates, Fed Chair Jerome Powell has been firm that the Fed remains cautious and worried about potential inflation threats from the administration’s possible tariff increases. ⁵

Longer-term interest rates have stabilized in recent months. After reaching nearly 4.8% in January 2025, 10-year Treasury yields have mostly ranged between 4% and 4.6%. ⁶

Constructive economic fundamentals buoy investor sentiment

Investors still have reason to maintain a “glass half-full” outlook, although the outcomes of policy considerations, such as tariffs and tax policies, remain unresolved. The stable labor market, slowing inflation and constructive corporate earnings growth are key supports to this view. Diverse income sources, a global perspective on asset classes, and an investment strategy tied to risk and liquidity constraints sourced through a financial plan can help you meet the financial goals that matter most to you.

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