3 Things You Need to Know This Week | Investor Sentiment, Trade Balances, UK Economy (Aug. 4, 2025)

Transcript

Scott O’Leary:

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 on 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 up, a pulse check on investor sentiment.

The S&P 500—and indeed, many other country markets, from the UK to Canada to Singapore and more—have recently traded to record highs. This has prompted some to wonder if investor sentiment, or how investors feel about the market, has reached euphoric levels, a condition often seen near the end of a bull market. Well, we don't think we're there yet, and here's why: Yes, sentiment may be warming in certain regards. For example, we've seen the return of some speculative behavior in areas like meme stocks and special purpose acquisition companies, and enthusiasm around growth sectors, like technology— that remains elevated in the US. But broader indicators still suggest moderation, particularly when factoring in continuing tariff developments, recent job market data and more. And you don't have to go back too far to April, when markets were down in a large correction and investor sentiment was quite dour. While markets have recovered, fund flows into equities remain steady rather than excessive, Global equity supply hasn't surged and major investor sentiment surveys, while improved, remain well below the extreme euphoria typically associated with market tops. It's natural for all-time highs to stir concerns about overexuberance, but record highs are normal and natural part of bull markets and do not alone predict poor returns. Eventually, this bull market will peak, but we don't believe today's political environment, economic data or sentiment levels point to that moment right now.

Next, global trade and tariffs.

On July 31st, the US government announced new tariff plans, with most imports facing a 10% rate. While a few key trading partners like Canada, Brazil and India will see higher rates starting August 7th. Notably, Canada faces a 35% tariff on non-compliant goods under the US-Canada-Mexico trade agreement, though 90% of Canada's exports are unaffected. Other notable rates include 20% for Taiwan, 25% for India and 40% for trans-shipped goods targeting Chinese products. Japan and South Korea secure lower 15% rates. Now, the tariffs face legal challenges, with a federal appeals court ruling expected in late August. As we continue to monitor the latest developments this week, several major economies, including the US, China and Canada, released trade balance data for June and July. Investors have increasingly looked to these releases for clues about the impact of tariffs. Many worry that tariff uncertainty has made a decline in global trade activity inevitable, but we're a little less pessimistic. Yes, trade balances have seen major swings in recent months— businesses stockpiled inventory ahead of tariffs or paused orders waiting for clarity. And still others simply continued business as usual. Shifting trade policy and elevated uncertainty facing businesses can certainly influence wild data swings, but we believe trade deals and ongoing negotiations are reducing uncertainty. Furthermore, when it comes to trade, we think it's total trade that matters most for the global economy and stocks. On a global scale, trade surpluses and deficits generally offset each other. What matters more is the total volume of trade. About 75% of global trade doesn't involve the US, and tariffs appear to be prompting more countries to strike deals amongst themselves. Just last week, India and the UK announced a new trade agreement, and in fact, non-US bilateral trade deals are rising, with nearly 20% of global trade now tied to recent or ongoing negotiations. So, while the latest announcements have caused some market volatility, it's important to remember—tariffs seem to redirect the flow of global trade rather than significantly reduce it, which is a bullish, underappreciated positive.

Finally, a check in on the UK economy and market.

All eyes are on the UK this week, as the Bank of England prepares to announce its latest policy decision on Thursday. Some expect a surprise rate cut even after inflation ticked up in recent months. While UK inflation remains higher than in the US or eurozone, it's still well below its 2022 peak. Beyond inflation, the UK faces its share of economic headwinds. But there are also signs of resilience. Purchasing Manager Indices show most businesses are still expanding and optimistic about the year ahead. Redundancy or layoff rates remain elevated but stable, and wage growth continues to hold up. Overall the data is a bit mixed, but we think the UK economy is doing better than many realize, and that's a reason for optimism. Indeed, UK stocks seem to agree, outperforming global equities so far this year. So, to us, it's another reminder that markets often move most on the gap between expectations and reality. 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!