Markets Resilient Despite Inflation Jitters, Tariff Uncertainty

This week brought a mixed bag of economic data, yet markets continue to demonstrate impressive resilience. The CPI report came in hotter than expected, sending bond yields higher, but softer-than-expected PPI components eased concerns and helped stabilize rates. Meanwhile, the first disappointing retail sales report in months led to downward revisions in GDP expectations for Q1, yet the S&P 500 remained on Friday within 1% of its all-time high.

The Fed’s rate path remains a focus, and despite the inflation data, I continue to see zero or just one rate cut in 2025. While some discuss the possibility of hikes, I don’t see enough evidence to justify that. I see the longer-term forces bringing inflation down.

One overlooked but critical issue is money supply growth. Fed Chair Powell finally acknowledged in his testimony last week that a surge in money supply could have contributed to inflation—a realization that comes about three years too late. However, recent money supply data has been sluggish, falling short of the healthy 5% growth rate I would like to see. The question remains whether private credit can step in to sustain economic expansion. For now, the economy remains on solid footing, but I’ll be watching liquidity trends closely.

One of the most important developments for risk markets is the ongoing tariff negotiations. While the immediate threat of sweeping tariffs looks to be averted, “reciprocal tariffs” remain on the table. Markets took this as a relief, suggesting Trump is using this a negotiating tactic rather than an imminent disruption to trade. The potential for some countries, such as India, to lower their own tariffs in response could create a more level playing field, though the implementation remains complex. It is possible we see lower global tariffs as countries contemplate the reciprocal rhetoric.

As noted, despite these uncertainties, the stock market continues to perform well, particularly in the tech sector, even as leadership has broadened beyond last year’s AI-driven rally. Tesla took a hit on competition from China’s BYD, now the world’s largest EV maker. Nvidia was hit after the DeepSeek news, but overall, the tech leaders have remained resilient.

Meanwhile, Europe has seen a notable rally, partly on hopes for a resolution in the Ukraine war. This could mark a turning point for international markets, which have lagged the U.S. for years but are now beginning to show better performance and growth prospects. This is one important element of the market broadening trade that many of us global investors have been waiting for.