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What this Video’s About:

In this episode of The Market Share, Chief Investment Officer Paul Gifford and Director of Research Rob Romano explore the pressing themes driving market sentiment: uncertainty, tariffs, and volatility. They unpack economic signals, shifting investor behavior, and sector-level performance across the S&P 500—all to help investors better navigate the second half of the year.

Uncertainty, Tariffs, and Government Spending

“Markets don’t like uncertainty,” Rob notes. And at the center of that unease are tariffs and federal spending. Tariffs alone are estimated to reduce economic growth by 2% and increase inflation by 1%, though those figures hinge on how long the policies remain in effect and their final scope.

Are the Trump administration’s tariffs simply negotiating leverage, or do they signal a deeper strategy to incentivize domestic production?  How would that reshape the American economy?  That ambiguity is fueling investor hesitation.

Federal spending adds another layer of concern. With annual deficits hitting $2 trillion, the Treasury calls the situation “unsustainable.” If spending is reined in, we could see a drag on economic growth and corporate earnings—but also potentially lower interest rates.

Mixed Signals: Hard Data vs. Soft Data

Paul and Rob also discuss the contrasting signals between hard and soft economic data. Soft data—survey-based insights like consumer confidence—has been trending downward. The University of Michigan’s latest research shows broad-based declines in confidence, particularly regarding big-ticket purchases like homes and cars. There’s also been a sharp rise in job market anxiety, affecting both job seekers and current employees.

In contrast, hard data like retail sales and initial unemployment claims have remained relatively steady. Retail sales are down compared to last year but still holding up. Unemployment claims, released weekly, show no dramatic increase.

The tension between these two sets of data creates a fog of ambiguity for markets. As Rob summarized, “The big question is going to be, does that hard data confirm what we’re seeing in the soft data? And we think it likely will.”

Sector Rotation: From Growth to Value

Investors are already responding to the uncertainty by adjusting their portfolios. There’s been a noticeable rotation from growth sectors—like tech and consumer discretionary—to value sectors such as consumer staples, healthcare, and utilities. These are seen as more defensive, “a flight to safety, a flight to quality.”

This shift became particularly visible in late January to early February, when the performance lines for consumer discretionary and consumer staples crossed. Unless there’s significant progress on tariffs or clearer signs of economic stability, this conservative tilt may persist.

Wrapping Up

From policy ambiguity to diverging data points, the economic landscape is complex and evolving. Investors are wise to stay nimble and informed as the market continues to respond to these dynamics.

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