Trade Deals Surge as Tariff Deadline Looms; Inflation Holds Steady in June

Matthew Rubin Chief Investment Officer

 

1. The United States announced trade agreements with Japan, the Philippines, and Indonesia ahead of the August 1st tariff deadline.
2. June inflation data showed prices continuing to rise at a moderate pace. While tariff rates have increased, inflation stayed within a narrow range, although some upward pressure may be ahead.
3. The second-quarter earnings season began with strong results from major banks. Overall growth remains below early-year forecasts, but expectations for 2025 and 2026 remain positive.

 

1. Trade Deal Momentum Builds Ahead of Tariff Deadline

A series of trade deals announced last week added momentum to the Trump Administration’s efforts to secure bilateral agreements ahead of the August 1st deadline, when steeper tariffs are set to take effect. A new agreement with Japan marked the sixth deal since the so-called “Liberation Day.” Under the terms of the agreement, Japan will accept a 15% tariff on goods shipped to the U.S. — a rate below the previously threatened maximum of 50%.¹ In return, Japan has committed to increasing investment in the U.S., particularly in the manufacturing and energy sectors. Similar arrangements are reportedly in the works with South Korea and the European Union, signaling broader efforts to stabilize global trade flows.¹

While these deals have helped reduce near-term uncertainty, the negotiated tariff levels still mark a notable increase in trade costs. The 15% baseline tariff, though lower than previously threatened rates, represents a significant shift from pre-policy norms.¹ Officials have suggested that a 15% baseline tariff could become the standard, with higher rates reserved for goods that are heavily transshipped or originate in countries without bilateral agreements.

2. June Inflation Remained Under Control

The Consumer Price Index (CPI) for June was released last Tuesday, coming in largely as expected. Headline inflation rose 2.7% year-over-year, just above forecasts of 2.6%, and higher than May’s 2.4%.³ Core CPI, which excludes food and energy, increased 2.9%, matching estimates and slightly above the prior month’s 2.8% rate.³

On a month-over-month basis, headline inflation rose 0.3%, in line with expectations.³ Core CPI rose 0.2%, coming in slightly lower than the 0.3% forecast.³ Several price categories saw declines, including meats, dairy products, vehicles, and airline fares.

Despite higher tariffs since the beginning of the year, inflation has remained within the 2.5% to 3.0% range.³ Some companies may have built up inventories or shifted supply chains to absorb increased costs.

3. Earnings Season Off to a Strong Start

Second-quarter earnings reporting began in earnest last Tuesday, led by large U.S. banks. JPMorgan Chase, Citigroup, and Wells Fargo all reported earnings that beat analysts’ expectations. JPMorgan, specifically, saw a boost from stronger trading and investment banking revenue.²

Overall, S&P 500 earnings growth for the second quarter is expected to be around 5%, three percentage points below the 8% forecast made earlier this year. Still, full-year earnings growth for 2025 is projected to be in the high-single-digit range, potentially reaching double digits in 2026.

Several factors could support corporate earnings in the second half of 2025, including potential interest rate cuts by the Federal Reserve, limited fiscal stimulus from the expected 2025 tax bill, and a continued push for regulatory reform.² Together, these trends may support economic and profit growth into next year.

For the period ending 7/25/25.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ CBS
² The Wall Street Journal
² FactSet

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