The Institute’s perspective – detailed in the report from Doug Beath, global equity strategist, and Paul Christopher, CFA, head of global investment strategy – is that the US and China are likely “testing their leverage for coming negotiations,” and the most significant takeaway is the “reflexive equity market reaction.”
This sensitivity is expected to persist through the third-quarter earnings season, where investors will be closely monitoring earnings growth forecasts and forward guidance on tech spending and tariff adjustments. Any announcements regarding hiring or layoffs, while the government shutdown persists, could also influence currency, interest rate, and equity markets.
The Institute’s analysis suggests that tariff price increases will be gradually and selectively passed through to retail consumers, but the pass-through will be more extensive at the business-to-business level. While they foresee a wider passthrough to consumer goods as businesses adapt to the levies, they expect only a limited overall impact on economic and earnings growth, as well as inflation.
WFII emphasizes that the current “heightened market sensitivity” could lead to sudden pullbacks, presenting opportunities for advisors and their clients.
It believes substantial cash is “on the sidelines” and that investors are “waiting for pullbacks to put liquidity to work”. The Institute recommends utilizing market pullbacks to rebalance portfolios towards favored asset classes and sectors, aiming to mitigate near-term risk and uncover new prospects.