The One Word That Defines 2025
Portfolio Manager
“Tem·po·rar·y”
: lasting for a limited time
In a year filled with shifting policies, market volatility, and geopolitical uncertainty, one word seems to capture the essence of the moment: Temporary.
From tariffs to peace talks, oil spikes to market dips, the second quarter of 2025 has been a reminder that while change is constant, not all disruptions are permanent.
Temporary Tariffs, Lasting Uncertainty
The second quarter of 2025 was marked by a dramatic shift in U.S. trade policy with the introduction of the “Liberation Day” tariffs on April 2. Announced under the International Emergency Economic Powers Act (IEEPA), these tariffs imposed a baseline 10% duty on all imports, with additional surcharges for countries running large trade surpluses with the U.S., most notably China, where the effective rate on many goods rose to 55%.
While the move was framed as a temporary measure to rebalance trade and address national security concerns, it sent ripples through global supply chains and raised costs for U.S. importers. The business sector scrambled to adjust sourcing strategies, and markets responded with short-term volatility.
Then, in May, the U.S. and China agreed to a temporary pause on reciprocal tariffs, reducing the effective rate on Chinese goods from 125% to 10%. This offered short-term relief to importers and consumers, and helped stabilize equity markets. However, the broader trade policy is far from resolved. While the average U.S. tariff rate has dropped from 25% to 14%, the threat of reinstatement looms large.
Markets and businesses are treating this temporary relief as just that, a pause, not a pivot. The uncertainty has already begun to weigh on corporate investment and long-term planning as companies remain wary of future disruptions.
Chief Investment Officer
Temporary Drawdowns, Persistent Strength
Despite a rocky start to the year, Q2 brought a rebound in equity markets:
· S&P 500: +10.9%
· NASDAQ +17.9%
This recovery was fueled by strong corporate earnings, a resilient jobs market, and continued strength in consumer spending. While inflation remains above the Federal Reserve’s 2% threshold, wage growth and job stability have helped maintain purchasing power.
Fixed income markets remained cautious, with the Barclays Aggregate Bond Index posting a modest +1.27% gain for the quarter. The Federal Reserve has signaled two potential rate cuts this year, pushing expectations for broader easing into 2026.
These market movements serve as a powerful reminder of the importance of staying invested during times of uncertainty. Investors who reacted emotionally to early year volatility may have missed the rebound. History has shown that the best market days often follow the worst, and attempting to time the market can lead to missed opportunities and long-term underperformance.
Temporary Peace Talk, Enduring Risks
Geopolitical tensions remain high. While there have been temporary ceasefires and diplomatic overtures in Eastern Europe and the Middle East, none have resulted in lasting resolutions.
These conflicts have rattled global markets and pushed oil prices sharply higher. West Texas Intermediate crude rose more than 6% in the immediate aftermath of the strikes. While the U.S. does not rely heavily on Iranian oil, the tightly linked structure of global energy markets means that supply fears and risk premiums are quickly priced in, especially amid concerns that Iran could retaliate by attempting to shut down the Strait of Hormuz, a critical chokepoint for global oil shipments.
Temporary Tax Cuts, Continued Spending
Domestically, attention has shifted to the Trump administration’s sweeping budget reconciliation bill, known as the “One Big, Beautiful Bill.” The much anticipated piece of legislation looks to permanently extend the 2017 Tax Cuts and Jobs Act (TCJA) and introduce a range of new tax relief measures, with many lasting only temporarily through 2028, such as an increase to the child tax credit, a boost to standard deductions, and the popular campaign promise to end taxation on tips and overtime.
While the bill is designed to stimulate growth and support for working Americans, it also comes with a projected $4 trillion reduction in federal tax revenue over the next decade. The administration argues that dynamic growth will offset some of the losses, but the long-term fiscal impact remains a point of debate.
With the bill now signed into law, markets are watching closely. The outcome could reshape the tax landscape for years to come and influence corporate investment, consumer behavior, and federal debt levels.
Anything But Temporary: The Consumer
Amid all this, the American consumer remains the most consistent force in the economy. Spending is steady, job growth is stable, and household balance sheets, while stretched, are holding up. Even as businesses and policymakers navigate temporary disruptions, the consumer continues to drive much needed growth.
Looking Ahead
As we enter the second half of 2025, we remain focused on distinguishing the temporary from the structural. While headlines may shift daily, our investment approach remains grounded in long-term fundamental and diversified strategies.
We wish you a safe and enjoyable summer. As always, please reach out to your WealthSouth advisor with any questions.