This Week in Review | Regional Conflicts, Tariffs, US Inflation, Beyond Breakeven (June 13, 2025)

Transcript

Meg Leiken:

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 may mean for markets, and most importantly, the potential impact for investors. Now, let's review what happened this week.

Before we begin, we'd like to first acknowledge the latest developments between Israel and Iran. The human cost of war is tragic, and sudden escalation like this can be jarring. For investors, though, it's important to remember that we've already seen significant tension and conflict in the Middle East over the last year and a half, and it hasn't derailed the bull market so far. For example, last year, Israel and Iran targeted one another directly in military airstrikes, first in April and again in October. Each time we saw some temporary stock market and oil price volatility, but the bull market eventually resumed its upward momentum. We don't know exactly how this conflict will unfold, and we will certainly continue to monitor the situation closely. But to us, it's unlikely to reach a large enough scale to cause a global recession or a bear market.

First, tariffs, trade talks and the global economy.

There's a lot to unpack this week regarding all of these topics. To start, a US federal appeals court confirmed on Tuesday that the Trump administration's tariffs can stick around— at least for now. You'll remember, back in May, a US trade court said President Trump overstepped his authority with many of these tariffs this year. The administration quickly appealed, allowing the tariffs to stay in place as the legal process continued. As it stands, the case challenging their legality is moving through the courts, with arguments set for late July. What this means for long-term investors, especially in the near term? Not a lot. Most of this year's tariffs were already paused. So right now, it's unclear whether the case will have any major impact on ongoing trade talks.

In another attention-grabbing headline, the World Bank updated its 2025 Global Economic Outlook on Tuesday, shaving its growth estimate from 2.7% in January down to 2.3%. But the good news? That's still growth. It's true the cuts land harder on the US, with the World Bank's outlook slipping from 2.3% to 1.4%. The culprits here likely being tariffs and all of the uncertainty around them, which could drag on the US more than other economies. But still, markets seem unfazed as they've likely already priced in these tariff impacts.

And on Wednesday, President Trump announced the US and China have a new framework to restore their May trade truce. What does this mean? For starters, China will supply rare earth materials and magnets to the US, while the US will continue to allow Chinese students to study here. But it may still be too early for investors to celebrate. A full trade deal is still out of reach, with legal battles and trade negotiation hurdles ahead. That said, we think the second half of the year could surprise on the upside, giving markets and especially non-US stocks a potential boost.

Next, the latest in US inflation.

On Wednesday, we got some fresh data on consumer inflation. Overall, it came in cooler than many were bracing for. Headline CPI inflation for May ticked up slightly to 2.4% year-over-year. Not quite as high as expected. Meanwhile, core CPI, which leaves out the more volatile food and energy components, stayed steady at 2.8%. And on a monthly basis, both headline and core inflation slowed to just 0.1%.

Now, some are still warning that tariffs could spark price jumps down the line. And while tariffs could nudge up costs for certain goods, we don't see them, leading to runaway inflation. Growth in the money supply has been pretty modest. And that's the fuel inflation needs to ramp up across the economy. And if we step back, it's important to remember the average annual US inflation rate since 1914 is 3.2%. And today's numbers are well below that. And remember, a bit of inflation will always be normal as it reflects a growing economy. When you cut through the noise, the current inflation fundamentals seem a lot calmer than most people imagine, which could be a benefit to markets.

Finally, looking beyond breakeven.

Last week, global stocks finally reached breakeven after this year's big correction, factoring in dividends. And now, US stocks represented by the S&P 500 index, are following suit, getting closer to breakeven territory. When portfolios recover to pre-downturn levels, a common urge among investors is to sell their stocks or switch to a safer approach once they're back to square one. You want to prevent a future loss. We call this impulse "breakevenitis." But we'd encourage investors to fight this temptation.

When you look at what typically happens after stocks hit breakeven, history shows that they continue to climb—and not just a little bit. Since 1933, after declines between 15% and 25%, stocks have seen average annualized returns of around 20%— healthy, normal bull market returns. Selling around break even might feel safe at the moment and bring some relief but could come with a hefty opportunity cost when you factor in long-term gains and compounding growth. Looking ahead, we're feeling bullish about the rest of the year. And stocks don't need everything to be perfect to do well. They just need reality to turn out a little better than feared. With concerns about tariffs, inflation and other worries clouding the outlook, there's lots of room for reality to positively surprise. So, don't let breakevenitis hold you back. The path forward looks promising for disciplined, long-term investors.

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, 3 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, and don't forget to hit like and subscribe!