Latest / Paramount Wealth Perspectives / Tariffs, Tech & Tight Margins: What’s Really Driving Record Market Highs? - 7/28/25

Transcript

Tariffs, Tech & Tight Margins: What’s Really Driving Record Market Highs? - 7/28/25 · Paramount Wealth Perspectives

• 0:00
  Chris Coyle: Intro song
• 0:12
  Hello everyone.
• 0:12
  Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events.
• 0:20
  This is your host, Chris Coyle.
• 0:21
  I am the marketing director and a financial advisor here at Paramount Associates Wealth Management.
• 0:26
  And today I'm joined by Scott Tremlett, chief Investment Officer here at Paramount Associates Wealth Management.
• 0:32
  We've seen a series of record breaking market highs recently, even as trade policy tensions resurface.
• 0:39
  Scott, what's your take on why investors seem so unfazed?
• 0:44
  That hits the nail on the head, Chris.
• 0:46
  Despite the potential expirations of tariff pauses, investors remain remarkably calm.
• 0:52
  In fact, the s and p 500 has hit of new record highs several times this month alone.
• 0:57
  This reflects the market that's banking on economic endurance and downplaying.
• 1:02
  The risk of renewed tariffs, but I think that complacency is really risky.
• 1:07
  Only four trade deals have been secured.
• 1:10
  Vietnam, Japan, Indonesia, and the uk, and the effective tariff rate would rise above 20%, plus the 8% drop in the trade weighted US dollar hasn't even begun to show in inflation numbers.
• 1:25
  So you're saying inflation risks aren't off the table?
• 1:28
  Not at all.
• 1:29
  June's core goods inflation, excluding autos, jumped 0.5% the fastest in three years.
• 1:36
  Imports from China saw prices surging over 20% annualized, especially on consumer goods like toys and electronics.
• 1:44
  And while equities shrugged this off, bond markets have not.
• 1:48
  One year inflation swaps rose 50 basis points or 0.5% signaling of 3.5% inflation forecast.
• 1:58
  So no, the coast is not clear on inflation.
• 2:02
  Got it.
• 2:03
  Let's talk earnings.
• 2:04
  Where do we stand so far in quarter two?
• 2:07
  Well, so far we're about one third of the way through quarter two, uh, reporting season, and the results are really mixed.
• 2:13
  On the positive side, 80% of us.
• 2:17
  S and P 500 companies have beaten.
• 2:20
  Earnings estimates above the five year and the 10 year averages.
• 2:24
  But the size of those SUR prizes is smaller than usual, averaging just 6.1% above estimates, which is definitely below historical norms.
• 2:34
  However, for market purposes, there is a lower bar to beat.
• 2:40
  So companies are beating expectations but not by much.
• 2:44
  Exactly, and, and while earnings are coming in higher.
• 2:47
  Than they were a week ago, or even at the end of the second quarter.
• 2:51
  The blended earnings growth rate is just 6.4%.
• 2:55
  If that holds, it'll be the lowest year over year earnings growth since the first quarter of 2024.
• 3:01
  Still it would mark the eighth straight quarter of growth, so there is still momentum.
• 3:07
  Which sectors are driving that performance?
• 3:10
  Well, communication services, tech and financials are, are leading on earnings if you're looking at the broad market.
• 3:16
  But overall, it's a split field.
• 3:18
  So five sectors are showing growth while six, you know, really led by energy are in the decline.
• 3:25
  I see.
• 3:25
  And what about revenue trends on the revenue side?
• 3:30
  You know, also 80% of the companies have beat expectations with overall revenue up, you know, five, 5%, 5.1% year over year.
• 3:39
  That's the 19th consecutive quarter of revenue growth.
• 3:42
  Most sectors are growing with tech, healthcare, and communication services leading.
• 3:47
  Again, the only sector showing a drop in revenue right now is energy.
• 3:52
  Got it.
• 3:52
  So most sectors are growing.
• 3:54
  What about looking ahead?
• 3:56
  Analysts are expecting earnings growth to pick up, uh, the shooting at right now, 7.6% in third quarter, 7% in the fourth quarter, with the full year growth expected at 9.6%.
• 4:08
  However, in my mind, valuations are rich.
• 4:11
  The forward price to earnings multiple for the s and p 500 is now 22.4, and that's well above historical averages.
• 4:20
  Understood.
• 4:21
  And which sectors are you, would you say are shining or struggling?
• 4:25
  Financials and communication services have been the primary drivers of upside surprises in the general US stock market within our portfolios.
• 4:35
  International equities and select individual stocks, you know, particularly in aerospace, alternative energy, cybersecurity, and specific software companies have really led on performance.
• 4:46
  We're broadly outperforming the s and p 500 by over two to one year to date.
• 4:52
  On the flip side, uh, energy earnings have really dropped 24% drop, and the worst really among all sectors are at this point, and that's largely due to a 21% decline in oil prices year over year.
• 5:05
  Sub-sectors like integrated oil and gas and exploration and production have really got hit hard.
• 5:12
  So would you say there are any bright spots in energy or utilities?
• 5:16
  Yes, definitely.
• 5:18
  Uh, energy infrastructure is a strong investment right now due to the rising global demand for reliable power, driven by AI growth, electrification and reindustrialization.
• 5:29
  Uh, governments and companies are, are really committing significant capital, uh, to expand and modernize grids, pipelines and LNG facilities.
• 5:40
  These assets offer stable inflation, linked cash flows and long-term growth tied to the energy transition.
• 5:46
  We're also seeing encouraging performance from a group of more innovative utility companies.
• 5:52
  Those focused on grid resilience, energy technology, and supporting power demand from both AI and data infrastructure.
• 6:00
  Names in this category have held up well in our.
• 6:03
  Really viewed as a growth pocket within an otherwise defensive sector.
• 6:09
  Got it.
• 6:09
  And switching gears, how are global macro conditions influencing your positioning?
• 6:15
  Great question, Chris.
• 6:17
  Uh, I mean, while the global economy continues to expand, investors face a more, let's say, fragile, uh, backdrop heading into the third quarter.
• 6:25
  Policy uncertainty, especially around potential US and EU tariffs, uh, which we may see news this weekend and, and shift shifting.
• 6:32
  Fed dynamics is weighing on sentiment, uh, even as earnings beat expectations and, and major indices.
• 6:39
  You have hit new highs recently, with growth risks.
• 6:43
  You know, tilting downward and headline numbers masking underlying weakness.
• 6:48
  I'm interested really in, in non-US equities and real assets, uh, particularly in infrastructure plays as some more resilient allocations in this environment.
• 6:58
  You know, countries around the world right now are in an earlier economic cycle than the US and many central banks have begun, you know, accommodative positioning, and I, I recently rebalanced my equity allocation to equal weight as it had really grown to an overweight position.
• 7:13
  That makes sense.
• 7:14
  And, and how about sector leadership in the United States?
• 7:19
  Well, in 2025, US market leadership has really been driven, like I said, technology, industrials and selective areas within utilities and communication services.
• 7:28
  You know, tech continues to outperform on strong AI and cloud demand, while industrials really benefit from infrastructure and reshoring trends.
• 7:36
  Right now, uh, utilities tied to grid modernization and power demand.
• 7:40
  Are really gaining momentum and communication services has rallied on strength in streaming and digital media.
• 7:47
  Despite index highs, the rally remains really narrow.
• 7:51
  You know, highlighting the importance of stock and sector selection and really concentration risk is back in the focus, the top 10 stocks really now make up about 40% of the s and p 500 with mega tech names like Nvidia, Microsoft driving a disproportionate share of the returns this year.
• 8:09
  That makes the market very vulnerable when these names stumble, the whole index feels it.
• 8:15
  And finally, before we wrap, let's zoom out a bit.
• 8:19
  How are international markets performing relative to the United States?
• 8:24
  They've been surprisingly strong.
• 8:26
  In fact, international equities broadly outperform US markets in the first half a year.
• 8:31
  And this was really driven by several key factors, a weaker US dollar, improving sentiment in Europe and emerging markets, and continued monetary easing and really abroad.
• 8:42
  Europe has really led the way with double digit gains.
• 8:45
  Fueled by renewed fiscal stimulus and falling rates, especially really in Germany, and, you know, emerging markets, particularly in Latin America and Asia, posted gains with Latin America rising over 12% in the first quarter despite volatility.
• 9:01
  Where the performance has been driven.
• 9:03
  It's not all equities.
• 9:04
  And we've seen private credit, private equity, and infrastructure step up.
• 9:08
  As you know, effective diversifiers this year, private credit is benefiting from elevated yields.
• 9:15
  While private equity has added value through selective growth opportunities, infrastructure with inflation and cash flows has shown real resilience this year, and even money markets are back in play.
• 9:26
  They're offering solid yields and helping manage short-term volatility.
• 9:30
  Takeaway here is clear global diversification is working again.
• 9:36
  Well, thank you, Scott, for taking the time to share your thoughts.
• 9:39
  Thank you to our audience for tuning in, and remember to please submit your questions to General at Paramount as SO c.com.
• 9:49
  For now, stay informed.
• 9:51
  Stay ahead and join us next time for more key updates shaping the global economy.