Capital Markets Outlook Q3 2025: Red Light, Green Light

Despite heightened policy uncertainty, US equities rebounded in the second quarter, reflecting the continued resilience of the US economy. This strength was notably underpinned by the minimal impact of new tariffs on consumer inflation, suggesting the fundamental economic picture remains largely unchanged, though potential future strains warrant observation.

Analysis

Despite a backdrop of heightened policy uncertainty, US equities demonstrated a significant rebound in the second quarter, driven by a largely unchanged fundamental economic picture. The US economy has maintained its resilience, a key factor being the minimal pass-through of new tariffs to consumer inflation thus far. This has supported the view that corporate and consumer health can withstand current trade policy pressures, though the headline's caution to 'watch for signs of strain' suggests this stability may be conditional and warrants ongoing scrutiny.

Key Decisions for Investors

• The current economic resilience and muted inflation from tariffs support a constructive stance on US equities, but positions should be managed with an awareness of policy-related headline risk.
• Investors should closely monitor upcoming inflation reports and corporate margin data for any signs that the impact of tariffs is intensifying, as this could rapidly shift market sentiment.
• Given the noted policy uncertainty, it is prudent to assess portfolio sensitivity to trade and consider strategies that could hedge against a potential increase in macroeconomic strain.