3 Things You Need to Know This Week | Market Volatility, Global Economy, Q3 Earnings

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Tim Schluter:

Hello and welcome to 3 Things You Need to Know this Week—our regular series designed to help you sift through the noise across financial media and understand what really matters for markets.

To stay up to date with our latest market insights, subscribe to our YouTube channel or visit FisherInvestments.com.

And with that, here are three things you need to know this week.

First, market volatility and tariff developments.

On Friday, the S&P 500 dropped 2.7% amid renewed trade war fears, with China announcing rare earth metals export restrictions and the US responding with tough tariff talk, sparking renewed fears of negative market impacts. While it's natural to feel uneasy when markets react to scary headlines, we'd encourage long-term investors to remember that acting on emotion isn't a sound investment strategy. As we shared in a recent MarketMinder article, by the time you act on fear, markets have likely already priced it in. What really drives returns is the gap between expectations and reality—what people don't know yet. Unless you have a strong data-backed idea of what's coming next, making sweeping portfolio decisions could do more harm than good.

For example, just earlier this year, similar tariff tensions caused sharp market drops, but stocks rebounded strongly through Q3 as reality turned out better than feared.

As a refresher on how these developments played out, recall that President Trump announced sweeping tariffs on April 2nd, known as Liberation Day, including a 34% blanket tariff on Chinese imports. Stocks fell sharply, but the panic didn't last long. By April 8th, President Trump hit pause on tariffs for 90 days, and the market began recovering almost immediately. The very next day, stocks started climbing, eventually reaching new highs through the summer as investors realized that trade reality wasn't as bad as the initial worst-case fears.

But even as markets rallied, tensions with China kept escalating. After China matched the US tariff rate and imposed a rare earth metals controls, President Trump raised tariffs to over 100%. China responded in kind, and the US pushed its rate to 145% on April 11th. And yet, by that point, believe it or not, stocks were already rebounding. A day later, Trump hinted at easing tariffs, but the reductions didn't kick in until an agreement in principle was reached on May 12th in Geneva—moving tariffs down to 30% for the US and 10% for China. By then, the S&P 500 had climbed 17.4% from its April low.

Even as that deal hit roadblocks, with rare earth disputes and the constant threat of triple-digit tariffs returning, stocks kept pushing higher. By the time an official agreement to pause tariffs was finalized, a full two and a half months later on July 29th, the S&P 500 was up 28.7% from its April lows. Still, this only amounted to a 90-day pause, leaving the door wide open for more tough talk and tariff threats as October approached.

The big takeaway? Triple-digit tariffs and a rocky dealmaking process didn't stop the market's recovery earlier this year. And as stocks rose through August and September, the potential for renewed tensions this month was already well known to markets. While it's impossible to predict exactly what happens next, it's worth considering that much of this may already be reflected in prices. While we will closely monitor ongoing developments and how they may impact markets, for long-term investors, we'd encourage you to stay cool and focus on your long-term goals. Volatility is part of the journey, not the destination. Markets have weathered tariff tremors before, and they can do so again.

Next, the IMF's updated economic outlook.

This week, the World Bank and the International Monetary Fund, or the IMF, kick off their annual meeting, with the IMF set to release its updated World Economic Outlook on Tuesday.

In April, the IMF revised its global GDP forecasts for 2025 and 2026 down a bit and highlighted intensifying downside risks. However, by July, the IMF's GDP growth forecast ticked up slightly, with the world economy expected to grow 3% year-over-year in 2025 and 3.1% in 2026. These types of economic forecasts are always subject to change, but we agree the global economy remains on track for growth this year despite well-known challenges.

Notably, much of the IMF's commentary often reiterates familiar concerns—things like tariff uncertainty and financial market volatility—that stocks are already well aware of. In our view, what's more important for stocks looking ahead is whether reality exceeds the expectations reflected in the market.

This is why strong GDP growth isn't a prerequisite for positive stock returns. Even slow, steady economic growth can positively surprise, supporting stocks. Outcomes that are less bad than feared, or better than expected, are bullish. And while investor moods brighten considerably over the summer, we believe there's still plenty of false fears keeping sentiment in check and providing room for positive surprise ahead.

Finally, Q3 Earnings Season.

Q3 earnings season begins in earnest this week, with major US financial firms set to report results starting on Wednesday. Analysts project 6.3% year-over-year revenue growth and 8% earnings growth for S&P 500 companies in Q3, which is an increase from expectations at the start of the quarter.

By comparison, in Q2, S&P 500 companies delivered 4% revenue growth and 5% earnings growth year-over-year, despite downward revisions earlier in Q2.

Earnings and forward guidance remain important, but other factors such as politics and investor sentiment, also play a key role in shaping market direction. For example, while US political uncertainty persists, the impact of prolonged trade negotiations has diminished.

Initially, many investors feared that new US tariffs would create significant challenges for businesses and markets. While tariffs have been disruptive for certain industries or companies, their broader economy-wide effects have largely turned out to be overstated thus far. In fact, many companies have adapted to the tariffs more effectively than anticipated.

Businesses have found innovative ways to offset the impact of tariffs—whether through trade rerouting, lobbying for tariff exemptions, negotiating price discounts with suppliers, or even redesigning products and sourcing alternatives to reduce overall duty costs.

Another factor limiting tariffs impact? Tariffs are not always applied to their full extent—political and legal barriers, negotiated trade deals, lowering tariff rates and logistical enforcement challenges can limit their application.

While we believe new tariffs remain a net negative for markets, companies' abilities to navigate these obstacles has helped mitigate their impact, allowing many to maintain or even improve profitability this year. This adaptability and resilience is one key reason we like stocks, and the earnings growth potential they represent for investors.

And that's it for this episode of 3 Things you Need to Know this Week.

For more of our thoughts on markets, check out This Week in Review, released every Friday. You can also visit FisherInvestments.com. Thanks for tuning in and don't forget to hit like and subscribe!