Concentrate on Financial Results, Rather Than News Headlines, Advise Investors
The American economy, while showing signs of slowing down from a fast pace, remains on a steady tempo, thanks in part to the $5.4 trillion stimulus from the Covid-19 fiscal response. This steady growth is evident in the strong corporate earnings, with 81% of companies beating their earnings estimates in Q2 2025.
Despite the ongoing trade tensions and volatility, U.S. export competitiveness remains relatively unharmed. Tariffs, while creating pricing uncertainty and volatility, can also present opportunities. The swelling government coffers from tariff revenues, amounting to an annualized $330 billion in incremental revenues, is a testament to this.
However, there's a discrepancy between the soft data like consumer surveys and hard data from job reports and retail sales. Consumer confidence numbers have tumbled to a 12-year low in March and plunged again in April, but this discrepancy suggests a more resilient economy than the numbers might suggest.
The rush by America's business sector to build record-level inventory and President Donald Trump's trade policies have contributed to a volatile economic environment. Yet, the cost of President Trump's $3.4 trillion tax bill could potentially be covered by tariff revenues over 10 years, providing a silver lining.
The enhanced senior deduction and the return of the 100% bonus depreciation provision are boosting the economy, offering further support. The 2025 trade environment, often referred to as a "Trade War That Wasn't," has shown less impact on the overall economy than initially feared.
Activist responses like Tesla boycotts are extreme examples and historically short-lived, serving as a catalyst for repricing. People always vote with their pocketbooks, meaning the impact on companies over DEI policies will likely be short-lived as well.
It is worth noting that mentions of the term "recession" on earnings calls were down 87% compared to Q1, indicating a generally positive outlook. Moreover, 60% of non-USMCA goods imports are covered by a trade agreement, providing some protection against potential trade disruptions.
Eldon Dryden Pence III, the Chief Investment Officer of Pence Capital Management, offers insight into the current economic climate. He states that while there are challenges, the wheels are not falling off the freight train in terms of the economy. He also emphasises that the Smoot-Hawley tariffs of the 1930s are not likely to be repeated in the current economic climate.
In conclusion, while the U.S. economy is showing signs of slowing down from a fast pace, it remains on a steady tempo. The resilience of the economy, as evidenced by strong corporate earnings and the discrepancy between soft and hard data, suggests a more robust economy than the numbers might suggest. The ongoing trade tensions and volatility present challenges, but opportunities also exist.
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