The rate of consumer inflation in the US increased in June. The consumer price index (CPI) saw a rise of 2.7% compared to the same period last year, up from 2.4% in May, as reported by the Bureau of Labor Statistics. This marks the largest increase since February. Mark Zandi, chief economist at Moody’s, noted that tariffs are influencing this trend, stating, “Inflation is likely to escalate in the coming months.” He added, “We are at the forefront of this trend, but it will become distinctly clear in the months to come.” According to Omair Sharif, founder and president of Inflation Insights, the latest data indicates that “tariffs are beginning to have an impact.”
Despite alarming headlines, the performance of major asset classes in 2025 suggests that market sentiment hasn’t dampened significantly. Investors have enjoyed gains across the board year-to-date, with favorable results from a range of ETFs up until Monday’s close (Jan. 14).
Nvidia has received the green light from the Trump administration to export its advanced H20 computer chips for artificial intelligence development to China. CEO Jensen Huang announced via social media, “The US government has assured us that the necessary licenses will be granted, and we aim to commence deliveries shortly.”
This year, a pivotal decision for global equity strategies has been determining the proportions of foreign versus US stocks. Higher allocations in international shares have corresponded with stronger performance thus far in 2025. However, with President Trump continuing to propose increased tariffs, questions arise about the sustainability of this trend in foreign stocks amidst assertive US trade policies.
As companies gear up to report their Q2 earnings this week, investors are on high alert for signs that tariffs may be squeezing profit margins. Morningstar points out, “So far, the tariffs’ impact on economic indicators like inflation, consumer spending, and business activity has been relatively slight.” Factset anticipates a 4.8% increase in S&P 500 earnings for Q2, marking the lowest reported growth since the 4.0% rise in Q4:2023.
● Should the World Fear China?
Zhou Bo
Summary via publisher (Hurst)
For the United States, China is viewed as a strategic challenger, the sole nation with the intent to reshape global order and the means to do so. Conversely, Europe sees the People’s Republic of China (PRC) as a “partner for cooperation, an economic rival, and a systemic opponent.” NATO positions China as a key factor in Russia’s conflict with Ukraine. In contrast, China maintains a more favorable reputation among countries in the Global South, which it considers itself a part of. Zhou Bo’s essays delve into China’s perspective on its current role. The author is a senior fellow at Tsinghua University’s Center for International Security and Strategy and a former senior colonel in the People’s Liberation Army. China finds itself in a world where Western influence is dwindling, and its focus extends beyond Europe and the US to regions like Africa, the Middle East, and the Indo-Pacific. How closely aligned are Moscow and Beijing? What does the future hold for Sino-Indian relations? Is China a new adversary for the West, or will economic ties foster a closer relationship?
Factoring in the Low-Volatility Factor
Amar Soebhag (Erasmus University Rotterdam), et al.
June 2025
Low-volatility stocks have been historically linked to better risk-adjusted returns compared to their high-volatility counterparts. Despite the abundance of evidence and its widespread acceptance in the investing community, the low-volatility factor is notably absent from traditional asset pricing models. This anomaly is mainly due to asymmetries in factor legs and the frictions faced in real-world investing. Incorporating a low-volatility factor can considerably enhance the performance of factor models when accounting for these aspects in various in-sample and out-of-sample evaluations, cutting across different low-risk measures and methodologies. We recommend integrating the low-volatility factor into asset pricing models to address asymmetry and frictions.
Initial jobless claims in the US have decreased for the third consecutive week, settling into a moderate range compared to recent history. This downward trend indicates that the labor market remains resilient, which may lead the Federal Reserve to postpone interest rate cuts.
In a year marked by fluctuating economic indicators and volatile financial markets, the momentum factor for equities has emerged as a consistent performer. Based on ETF data for trading up until July 9, this risk factor continues to outshine its peers and the broader US stock market.
Global financial markets appear to be becoming “desensitized” to the tariff policies implemented by President Donald Trump, according to Carol Fong, CEO of CGS International Securities Group. She remarked, “Recent observations show that the market didn’t respond negatively when the tariff deadlines passed, indicating a level of desensitization.” Following the announcement, US stocks rose, and the S&P 500 Index closed just shy of a record high reached earlier that week.
