Strong Earnings, Weak Signals: Markets Juggle Growth, Tariffs, and Geopolitics
Invested In Us | Issue 6
In last week’s issue, we highlighted the risks of institutional independence being eroded at the Federal Reserve. This week, markets are caught between strong corporate earnings, policy uncertainty, and a shifting global order. Investors face a paradox: fundamentals remain solid, yet politics and geopolitics cast a long shadow.
Strong Earnings, But Concentration Risk Persists
Second-quarter earnings season delivered upside surprises across the board. Roughly 80% of S&P 500 companies reported positive EPS surprises and a similar proportion beat revenue expectations.¹ For Q2 2025, the blended year-over-year earnings growth rate for the S&P 500 is 11.9%. If this growth holds, it will mark the third consecutive quarter of double-digit earnings growth for the index.¹
While these results affirm economic resilience, the concentration risk among mega-cap technology companies—the “Magnificent 7”—remains a concern. Their profitability continues to drive index-level performance, but their sheer weight in market capitalization raises systemic vulnerability. If volatility spikes or one mega-cap faces disruption, the outsized impact on both market returns and investor sentiment could be severe.²
Tariffs, Courts, and the New Industrial Policy
On Friday, a federal appeals court restricted President Trump’s ability to impose new tariffs, though existing tariffs remain in place until at least October.³ The Trump administration argued that the ruling undermines its ability to negotiate trade, raise revenue to offset the recent tax cut bill, and reshore manufacturing.
Economically, however, labor in the U.S. remains significantly more expensive than abroad, limiting the return of traditional manufacturing. Where reshoring does occur, it is likely to be highly automated. We believe the real investment opportunity lies in sectors aligned with the AI-driven industrial boom:
Data centers – Critical for artificial intelligence workloads, with soaring power demand and potential for asset appreciation.⁴
Utilities & the U.S. power grid – After decades of flat demand, the surge in AI-related electricity consumption makes grid modernization an investable theme.⁵
Gold and the Fed: Signals of Shifting Confidence
Gold prices continue to rally as central banks diversify away from the U.S. dollar.⁶ Investors remain alert to U.S. policy volatility, which reinforces the appeal of gold as a hedge.
Meanwhile, markets are pricing in a Fed rate cut this month amid slowing job growth.⁷ While we agree a modest cut is likely, we do not see the start of an aggressive easing cycle. Earnings remain strong, consumer spending is resilient, and deregulatory momentum supports corporate activity. A cut may stimulate equities, but combined with tariffs, it could also prove inflationary, raising the risk of stagflation—slowing growth alongside rising prices.
Geopolitics: China Steps Into the Void
A recent summit in China with BRICS nations underscored Beijing’s ambitions to position itself as an alternative to U.S. leadership.⁸ Notably, India participated despite historically strained relations, reflecting shifting alliances. This comes after the Trump administration imposed tariffs on India for continuing to buy Russian oil—even though the Biden administration had previously offered tacit acceptance.⁹ Meanwhile, China itself faces retaliatory tariffs for its oil purchases, deepening global fragmentation.
Investor Perspective: Where to Allocate Amid Uncertainty
Given earnings strength but rising geopolitical and policy risks, we continue to see opportunity in real assets and innovation:
Real estate housing supply – With a shortage of 3–6 million units depending on methodology, residential development remains a long-term theme.¹⁰
Energy & infrastructure – The U.S. remains an energy powerhouse, supported by deregulation and capital flows into infrastructure.¹¹
Gold and commodities – Central bank purchases of gold are likely to persist, while tariffs drive commodity prices higher.⁶
Technology – AI and related innovation continue to shape productivity and long-term growth, though concentrated exposures warrant caution.
This Week’s Takeaway
Strong fundamentals are colliding with fragile policy and geopolitical backdrops. For investors, the challenge is to stay positioned for long-term growth while protecting against the volatility of concentrated markets and shifting global alliances.
Community Spotlight: Back to School, Back to Impact
As a new school year begins, we want to pause and honor the educators who shape our communities every single day. Teachers don’t just deliver lessons — they inspire curiosity, build confidence, and open doors to opportunities that last a lifetime. Their work is the foundation of stronger families, resilient communities, and a more vibrant economy.
To every educator heading back into the classroom: thank you for your dedication, patience, and vision. The ripple effects of your work go far beyond the school walls — and we’re grateful for all you do.