Welcome to the monthly market update from Midland Wealth Management. I’m Chris Zabel, Portfolio Manager. Today, I wanted to take a few moments to share the Investment Team’s views regarding the economy and financial markets.

Tariff Update

Tariffs returned to the spotlight in July as the U.S. reached new trade agreements with Japan and the European Union. Both deals established a 15% baseline tariff on imports, setting a likely precedent for future agreements.

In exchange, Japan committed to $550 billion in U.S. investments and expanded agricultural and defense purchases. The EU pledged $600 billion in new U.S. investments and $750 billion in energy imports, while 50% tariffs on steel and aluminum remained.

Despite recent agreements, tariff policy remains fluid and uncertain. Terms continue to shift, and negotiations are still underway. One clear outcome has been that duties collected on imports tripled in the second quarter, topping $60 billion. 

This sharp increase highlights the growing financial impact of the evolving trade regime.

GDP

The shift in trade dynamics had a material impact on GDP. After contracting 0.5% in Q1, largely due to companies front-loading imports ahead of tariff hikes, the economy rebounded in Q2, with GDP growing at a 3.0% annualized rate. The turnaround was fueled by a sharp drop in imports, along with a modest boost in consumer spending.

Final sales to private domestic purchasers, a key measure of underlying demand, rose just 1.2%, marking one of the slowest quarterly paces since 2022.

As we look ahead, we’ll be closely watching trends in consumer behavior and demand, both being critical indicators of the U.S. economy’s health in the second half of the year.

Fed Update / Inflation

Inflation remains a key variable in the Fed’s path forward. Despite concerns that new tariffs would drive prices higher, inflation has stayed largely contained. Core PCE, the Fed’s preferred inflation gauge, ticked up slightly in June from 2.7 to 2.8% year-over-year, while monthly readings were in line with expectations.

Goods prices rose 0.3% for the month, led by increases in auto parts, appliances, furnishings, and recreational goods.

The FOMC elected to hold rates steady for the fifth consecutive meeting. There was a division within the committee, with two members dissenting and instead voting for a cut. For now, investors are pricing in one to two cuts later this year, though the Fed is on pause until its next meeting in September, which will allow the committee to evaluate incoming data.

Market Overview

Markets remained resilient in July, with major large-cap indices making new all-time highs. Roughly two-thirds of S&P 500 companies have reported earnings, showing average growth of 8.7%, above earlier expectations, though still very concentrated in mega-cap names.

Revenue growth improved to 6%, but many companies remain cautious about the lasting impact of tariffs. While earnings forecasts have been revised lower, tangible effects haven’t shown up broadly.

In fixed income, longer-dated yields have been volatile. The U.S. dollar weakened early in the month, then rebounded, helping push 30-year Treasury yields above 5% intra-month.

As the dollar continues to fluctuate, we expect further movement in long-duration yields, which could ripple through broader fixed income markets.

Outlook

Tariff developments will likely continue to fuel market volatility as economic data, Fed policy, and trade negotiations evolve.

Despite the uncertainty, we remain focused on long-term fundamentals and disciplined risk management, positioning portfolios to navigate short-term disruptions while staying prepared to capitalize on opportunities as they emerge.

Thank you for joining me for this month’s market update!