Here's a puzzling question: Why are stocks at record highs despite looming tariffs?
From businesses to Americans across the country, everybody seems worried that the economy will be hit badly if the massive tariffs threatened by President Trump go into effect this week on Aug. 1.
Yet anybody who has looked recently at their 401(k) statements or retirement accounts will have noticed something surprising: Stocks are surging. Both the S&P 500 — which represents the biggest companies in the U.S. — and the tech-heavy Nasdaq have hit a recent string of record highs.
So what gives?
Here are 4 things to keep in mind, including why some investors are still worried that things could end badly.
It's the economy, stupid
It's a cliché that has endured since Bill Clinton campaigned for president in 1992, but it still aptly explains why investors are sending stocks to record highs.
Despite the concerns about the impact of tariffs, the economy has held up much better than many expected.
Although inflation ticked up to 2.7% in June from a year earlier, the economy has yet to see the spike in consumer prices that some economists had initially feared.
Moreover, the labor market has held up well. Employers overall continue to hire at a solid clip, and businesses aren't firing people, which helps explain why the unemployment rate is still at a historically low rate of 4.1%.
Investors have noticed.
"The economy has proven to be more resilient than many feared in the face of tariff threats," says Brad Peterson, who's the national portfolio adviser at Northern Trust, a financial firm in Chicago.
That said, most economists still expect the U.S. economy to grow at a slower pace in the second half of the year than in 2024, with the chance of a recession seen at 33% in the next 12 months, according to the latest quarterly survey from The Wall Street Journal.
Companies are still reporting decent profits
Here's the other thing investors on Wall Street like: Corporate earnings are proving sturdier than what many in the markets had initially feared. And even though they aren't blockbuster results, investors seem relieved.
Companies such as Alphabet (the parent company of Google), Netflix, AT&T and Hasbro beat Wall Street expectations. And they are also sounding more optimistic about their outlook. For instance, Delta Air Lines said travelers are feeling more confident despite the tariff uncertainty.
The earnings reflect a strange disconnect the U.S. is experiencing: Americans may still feel concerned about their future, yet they continue to spend — and that's helping the corporate bottom lines.
"We may feel bad. We may feel concerned, but the hard data would suggest our behavior is something else entirely," says Amanda Agati, the chief investment officer for PNC Asset Management Group in Philadelphia.
But there are sectors that are struggling more than others. General Motors announced a $1.1 billion hit to its profit because of higher tariffs — it's still worth noting that the company was profitable.
Read More Here: NPR
Posts
