Economists have warned that U.S. President Donald Trump’s aggressive tariffs could raise inflation and slow economic growth. Yet, recent data suggests the American economy remains resilient. Retail sales outperformed expectations on Thursday, weekly jobless claims were lower than forecasted, and inflation in June stayed broadly on target—although tariffs have pushed prices higher for some goods.
With an important August 1 deadline looming for Trump’s elevated “reciprocal” tariffs, the White House hinted at possible new trade deals before then. Preliminary agreements have been reached with the U.K., China, Vietnam, and Indonesia, but key partners like the European Union have yet to strike a pact to avoid the higher levies.
The Federal Reserve has taken a cautious “wait-and-see” stance on future interest rate moves, citing uncertainty over tariffs’ broader economic impact. This approach has drawn criticism from Trump, who has urged Fed Chair Jerome Powell to cut rates swiftly. Concerns over the Fed’s independence have unsettled markets and weakened the U.S. dollar recently.
Against this backdrop, Bank of America analysts outlined four main themes companies should watch during the early second-quarter earnings season:
- U.S. Policy Risk Premium Is Well Priced: The extra return investors demand amid uncertainty is expected to remain elevated, but short-term market moves will likely be shaped by U.S. economic data leading up to the Federal Open Market Committee (FOMC) meeting in September.
- Trade Uncertainty Is Rising Again: As the August 1 tariff deadline nears, trade tensions are increasing. While the impact of trade news has lessened since April—suggesting some complacency—ongoing tariff headlines and deadline shifts provide little clarity on the final outcome.
- China’s Outlook Improves on Trade Truce: Recent agreements with the U.S. have helped lift China’s economic outlook, prompting BofA to slightly raise its global growth estimates.
- Japan Bond Yields Could Rise After Elections: In Japan, government bond yields risk increasing if the ruling coalition loses its majority in the upcoming Upper House election.
The analysts recommend investors favor fixed-rate investments, hedge short-term emerging market currency exposure, and protect against yen risk.
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