This Week in Review | Fed Meeting, US GDP, Eurozone GDP

Transcript

Hello and welcome to This Week in Review.

This is our weekly segment that's designed to highlight a few important developments that you might have missed this week. And we'll talk about what they mean for markets and most importantly, the potential impact for investors. To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com. Now, let's review what happened this week.

First, the Fed meeting.

On Wednesday, the Federal Open Market Committee, or FOMC, voted to hold the interest rate steady at 3.5 to 3.75%. This was the fifth straight meeting without an interest rate change. It was also a split decision, and three members voted to hike rates by 25 basis points. Headlines quickly seized on the story of a divided Fed, but we wouldn't really read too much into that. Differing opinions among Fed officials tell us very little about what the committee will do next, and dissenting votes don't make a rate hike more or less likely in the meetings ahead. Some investors may also worry that Chairman Kevin Warsh's decision to step back from so-called forward guidance may make monetary policy harder to predict or less transparent. We see that differently. Central banks can, and often do, change their minds without notice based on changing economic data or fundamentals. So, rather than trying to guess their next move, we think investors are better served by keeping their focus on the broader fundamentals driving markets. Central bank decisions are just one of many forces shaping the global economy and capital markets. And, while we believe a rate hike would be a mistake, the talk today is of small hikes. And, really importantly, even a hike or two from here would leave policy rates within a range that this bull market has already successfully navigated. Additionally, when we look around the developed world, yield curves remain steep and healthy. For long-term investors, that's perspective worth holding on to.

Next, US GDP.

On Thursday, the U.S. Bureau of Economic Analysis released its official first estimate for US second quarter 2026 GDP. It came in at 1.5% annualized growth, which is a slowdown from what we saw in Q1, where we saw 2.1% annualized rate. But the report still shows moderate expansion that was driven largely by very resilient consumer spending. When data tends to fall in a moderate range, there may be plenty of opinions about whether it's truly positive or just good on paper. So, with that in mind, we believe it's really critical for investors to remember this: Stocks are forward-looking, GDP is backward-looking. Stocks don't wait for economic data or what happened in the preceding quarter. Instead, they preprice all widely-known information and move in advance of the economy. So, as the Iran war continues and some inflation remains elevated, slower economic growth may actually worry those who assume that you need robust GDP for strong stock market returns. However, history shows this isn't the case. The US stock market has often had very nice positive returns, even during periods of modest economic growth. In fact, fears about a slowing economy can actually be a positive for stocks because they set a lower bar for reality to surprise to the upside.

Finally, eurozone GDP.

This Thursday, we got the first estimate of second quarter GDP for the eurozone. It grew at 1.8% annualized. That's a notable increase from the flat reading we saw in the first quarter, and it landed well above market expectations. Growth factors included strong AI investment and recovering industrial output. On a year-over-year, country-by-country basis, Spain led the region with annual GDP growth of 2.7%, Spain was followed by the Netherlands at 1.3%, Italy at 1% and Germany at 0.9% After the first quarter, which featured some pressures from the ongoing war in Iran and a 13.2% drop in Ireland's GDP, expectations for GDP growth were low. That set the stage for eurozone stocks to climb a wall of worry. We feel that that wall is still higher than the US' today and, just as in the US, stocks don't need a perfect economy. They just need reality to be better than feared. Some also worried that the European Central Bank, or ECB's, recent 25 basis point hike —which was in response to some rising inflation— could hinder growth and maybe apply some pressure to stocks. However, we believe what really matters here is the yield curve. So, despite the ECB's rate hike and expectations for additional hikes later this year, the eurozone yield curve remains nicely positive, which has supported healthy loan growth. We think this should be a tailwind for eurozone stocks going forward. So, while GDP growth across the pond might be a little slower, markets appear to be pricing in the region's adaptability to challenges. Renewed Iran war-related volatility or tariff concerns are certainly potential headwinds for Q3, but there's also good reason to believe the eurozone is actually primed to do better than feared, and to continue supporting this global bull market.

That's it for this week.

Thanks for tuning in to This Week in Review. If you're looking for more insights, don't miss our other series. It's called Three Things You Need to Know This Week. We release it every Monday. You can also visit FisherInvestments.com any time for our latest thoughts on markets. Thanks again for joining, and don't forget to hit Like and Subscribe.