Record Highs Amid Rising Risks: Markets Eye Earnings and Tariff Tensions

July 14, 2025

Financial Markets

U.S. equities flirted with new highs before retreating late in the week as fresh tariff threats surfaced. Investor attention now shifts to the upcoming corporate earnings season, which could serve as a catalyst—or a caution signal—for broader market sentiment. Despite numerous macroeconomic and political crosswinds, earnings performance and related management commentary about current and expected conditions will likely dominate investor focus in the near term.

AI-related capital expenditures have been a dominant market driver throughout 2025, and that momentum appears intact. However, this bullish trend exists against a backdrop of growing concerns that may begin to temper enthusiasm. Elevated valuations and increasing political noise—especially around tariffs—pose potential headwinds for the second half of the year.

Economics

A key development last week was the reemergence of tariffs as both an economic tool and a political weapon. President Trump circulated letters outlining potential tariff increases, with threats of a 35% tariff on Canadian imports and a 50% tariff on Brazilian goods. Over the weekend, the president released additional letters to the E.U. and Mexico, threatening 30% tariff rates. These proposals appear more politically motivated than economically justified, signaling a shift toward tariffs as instruments of political leverage.

This tariff resurgence is particularly striking given the current health of the U.S. economy. By most metrics, the U.S. remains the envy of the global economic landscape, showing steady employment, moderate growth, and generally contained inflation. Nonetheless, the proposed tariffs introduce uncertainty that would complicate trade dynamics and potentially undermine business and consumer confidence.

On the fiscal front, the “One Big Beautiful Bill” was signed into law by President Trump on July 4^th. Contrary to its stated objectives, most independent analyses suggest the bill will expand the deficit and place additional pressure on lower-income Americans. However, supporters of the bill contend that increased tariff revenue will help offset the spending impact. While the long-term implications remain unclear, the immediate signal is one of fiscal expansion rather than discipline.

Amid these uncertainties, the Federal Reserve continues to be a pillar of stability. While not perfect, an impossible goal given the complexity of the global economy, the Powell-led Fed has maintained a consistent and measured monetary policy stance. In an otherwise unpredictable policy environment, the Fed remains a key source of investor confidence.

Conclusion

The economic and political landscape remains difficult to navigate. While inflation is largely under control, employment remains stable, and growth continues at a moderate pace, significant risks lie ahead. Chief among them is the uncertain trajectory of tariff policy, which has the potential to disrupt global trade, lift inflation in the short term, and rattle investor sentiment. Geopolitical instability also adds to the uncertainty. Developments in Israel and Ukraine remain unresolved, further complicating the global outlook.

Despite these concerns, the equity and fixed-income markets’ resilience suggests a continued willingness among investors to bet on U.S. economic strength. However, we remain alert and focused on long-term considerations of growth, profitability, innovation, and valuation. Volatility could increase swiftly if earnings disappoint or if political developments—including tariff implementation—accelerate.

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