The new month brought two major market-moving stories to digest. First was the advance in so-called artificial intelligence (“AI”) by Chinese startup DeepSeek. The new technology caused some investors to question America’s lead in the AI race, but we see competition and advancement as good signs for long-term economic health. We believe the U.S. retains its advantages in research and development spending, capital markets depth, and the dollar’s privilege as the global reserve currency, and we are excited to see future innovation in that space. AI technology won’t solve all the world’s problems, but we’re hopeful for its potential benefits.
Also newsworthy were impending tariffs on Canada, Mexico, and China, our three biggest trading partners. As we all digest and markets react, let’s keep several things in mind. First, we’ve said before that we believe the Trump administration will likely use tariffs as a negotiation tactic with Canada and Mexico, creating leverage for the administration’s other goals. Our base case is that tariffs implemented in these countries will likely not persist, especially since President Trump does not want higher inflation or sharp stock market declines. Unsurprisingly, tariffs were quickly delayed after responses from our neighbors to the north and south.
While the size, scope, and duration of tariffs remain uncertain, we also expect that negative feedback from inflation data and market fluctuations would help mitigate potential negative impact, especially in the long term. While inflation readings may tick higher in the short term and companies would experience some margin pressures, the economy would likely cool enough to keep Federal Reserve (Fed) rate increases off the table and bond yields in check. We will continue to pay attention and update our expectations as new data comes in.
More importantly, we recognize that tariffs and potential rising prices are more than economic data points – they affect households and families. We’re here to encourage you as clients, and encourage you to keep an eye out for your neighbor who might be in need.
As the AI and tariff headlines swirl, we generally feel that stock market fundamentals remain healthy, albeit highly valued. Accordingly, lately our focus has generally been on the bird in the hand vs the two in the bush. Even still, steady economic growth, expected increases in corporate profits, contained inflation, and likely additional rate cuts by the Fed later this year are all good signs for the market. As always, we encourage you to have peace in the uncertainty of the “unknown unknowns,” and expect market bumps along the way.
As always, please feel free to reach out with questions.
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