This Week in Review | Tariffs Update, Q1 Earnings Recap, Defense Stocks (May 30, 2025)

Transcript

Paige Tyson:

Hello, and welcome to This Week in Review. This weekly segment is designed to highlight a few important developments you may have missed this week, what they mean for markets, and most importantly, the potential impact for investors.

Now, let's review what happened this week.

First, an update on tariffs.

It's been a noteworthy week in tariff news. On Wednesday, the US Court of International Trade ruled President Trump overstepped his legal authority in issuing many of his administration's tariffs over the past few months. Now, the Trump administration has justified implementing 10% universal, reciprocal and other tariffs this year by calling the trade deficits a "national emergency" and invoking the International Emergency Economic Powers Act, also known as IEEPA.

And while tariff uncertainty continues, this ruling illustrates the pushback from courts we've been discussing for months. And, when combined with other factors, point towards the economic reality likely turning out better than feared this year.

But for now, more legal proceedings will unfold. On Thursday, a federal appeals court allowed the Trump administration's tariffs to stay in effect while it evaluates the case, and the Supreme Court may ultimately decide the outcome. And the administration claims it has a variety of other legal avenues available to pursue tariffs. Now, for now, given most of this year's tariffs are already on pause while the administration negotiates trade deals, the immediate effects of this ruling are unclear.

As legal challenges keep working their way through courts, we think the remainder of this year likely brings more positive surprise. Trade deal negotiations, challenges in tariff enforcement and collection and companies utilizing workarounds all point to the actual impact of this year's tariffs being less than feared, which should be a nice tailwind for stocks.

Next, Q1 Earnings Season Recap.

The earnings season is coming to a close. With nearly all S&P 500 companies reporting as of May 23rd, Q1 blended earnings are up 12.9% year over year, with revenues up 4.9%. But how does that compare to expectations? Actually, better than many would expect. In fact, 78% of earnings have beat their estimates so far, which is above the five- and ten-year averages. Additionally, despite tariff fears, analysts expect full year earnings to grow 9.1% year over year in 2025.

And looking under the hood, eight of the 11 sectors that make up the stock market have reported earnings growth in Q1, with Health Care, Communication Services, Utilities and Technology leading the way. Companies have benefited from strong global economic growth in recent years, and we expect them to maintain that momentum despite tariff uncertainty and recession worries.

Now, some companies have called out potential risks to their earnings forecast, not surprising at all considering all the uncertainty out there. But remember—stocks are forward looking and move ahead of earnings results. That's why we're not just focused on earnings reports and guidance. We are also keeping a close eye on how companies are navigating tariffs, what we're seeing in consumer trends and the overall health of the global economy. All of that helps shape where the market might go from here.

Finally, defense stocks and President Trump's "Golden Dome".

This week, President Trump announced his support for a new missile defense system dubbed the "Golden Dome," which is similar to Israel's well-known "Iron Dome". The idea is to protect the entire US from potential missile threats.

So, at the president's request, House Republicans proposed $150 billion in additional defense spending, which includes funding for the Golden Dome as part of their Big Beautiful Bill (Act). Of course, whether this actually moves forward depends on ongoing negotiations with the Senate. But this conversation about increased defense spending has led some investors to wonder: is now the right time to invest in defense stocks?

So, here's what you should keep in mind. Defense stocks are part of the Industrials sector, and many of these companies are classic value stocks. They can be sensitive to the economic cycle and things like trends in bank lending, and so we think that things like the re-steepening of the yield curve and stronger-than-expected economic growth could certainly give these companies a boost. Plus, most defense firms also manufacture commercial products— things like electronics, engines, planes— and that helps them diversify their cash flow and benefit from trends beyond just government defense spending.

But that said, defense stocks are just one small part of the Industrials sector, which itself only makes up about 11% of global markets. So, we wouldn't advise putting too much weight on just a single segment of the market.

And one more thing to consider: defense spending positions typically unfold slowly and publicly, so any surprises tend to be less impactful. And keep in mind, government spending doesn't always go according to plan. Overweighting defense stocks, based on today's headlines could be a mistake, because you're investing based on information that's already widely known and therefore already baked into those stock prices. Always remember that markets are efficient, and what's making the headlines today is already old news for stocks.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, then don't miss our other series, Three Things You Need to Know This Week, released every Monday. You can also visit fisherinvestments.com anytime for our latest thoughts on markets. Thanks again for joining us and don't forget to hit like and subscribe!