Dear Valued Clients,
Investors have had no shortage of risks to monitor this year. From rising tensions in the Middle East to renewed trade disputes, budget showdowns, and untamed inflation, the list of potential disruptors is long. Yet so far, we’ve seen plenty of proverbial smoke, but very little fire. Markets—and the U.S. economy to a large extent—have proven surprisingly resilient. In this commentary, we’ll explain why the data points to a cooling U.S. economy—not a breakdown—even as the likelihood of a mild recession rise. Even so, we still see opportunities amid uncertainty for disciplined investors who maintain a long-term financial vision.
Geopolitical Noise, Limited Economic Impact
While tensions involving Israel and Iran and the war in Ukraine present real geopolitical risks, their economic impact on the U.S. has been muted. Tariffs, once feared as a catalyst for recession, have failed to derail U.S. growth.
Even with some tariff provisions still in place (notably the 10% rates on selected imports), much of the policy has been paused or delayed, easing investor concerns. We continue to believe the fears of a tariff-induced recession or market collapse are overstated. The U.S. economy is fundamentally domestic in orientation. Exports account for just 11.5% of U.S. Gross Domestic Product (GDP), which provides a degree of insulation. While certain trade-exposed industries have experienced modest pressure, these effects appear limited. The broader signs of strain in the economy instead reflect a typical late-cycle slowdown—driven by cooling consumer demand, elevated interest rates, and a gradual softening in the labor market.
Slowing, Not Sinking
This month brought a slew of negative economic data. Retail declined in May, with year-over-year growth slowing to 3.3%—down from 5% in April. Initial jobless claims reached 246,000 in mid-June, while continuing claims rose to 1.97 million—the highest level since November 2021. The Conference Board’s Consumer Confidence Index fell to 93.0 in June, its sixth decline in seven months. Consumer sentiment data, in particular, suggest Americans are increasingly uneasy, which could weigh on discretionary spending…
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