Nuri Rubenstein, Assoc. Wealth Advisor- Legacy Wealth Management

08/14/2025

Market Commentary August 14, 2025

Stocks Sailing Smoothly Through Policy Crosscurrents So Far

We’re all ready to put the tariff talk to bed. But don’t worry. While this commentary provides an update on the tariff situation, there’s more happening on the policy front than just tariffs. Whatever policy we highlight, it’s clear that the stock market is sailing through those choppy, even unprecedented waters. Here we discuss the most important policy headwinds and tailwinds and try to explain why the stock market has been so sanguine.

Tariffs Have Been Very Well Absorbed by the Stock Market

We have been pleasantly surprised by how well stocks have handled the sharp increase in tariffs. Since the market low from the early April tariff scare, the S&P 500 Index has gained more than 28%. There are several reasons for the impressive rally in the face of these headwinds:

•Goods-selling companies have been running down excess inventory, delaying tariff effects.
• Consumers and businesses did some “front-running,” ordering extra products ahead of tariff implementation dates.
• There have been pauses and exemptions, delaying or muting the effects.
• Canada and Mexico are mostly protected by the USMCA trade agreement.
• Some international trading partners have eaten the tariffs.
• Some businesses have been able to shift some production.
• Businesses and consumers have substituted products to reduce tariff burdens.
• Some businesses have evaded high tariffs through transshipments.

Also keep in mind that as of July 1 (the latest available data on tariff revenue the U.S. government has received), the effective tariff rate was only around 9% (source: Strategies Research). So, more tariff costs are coming.

The stock market’s ascent and low volatility tell us stocks are absorbing tariffs well. Another way to demonstrate the market’s comfort is with an analysis of how stocks with the most perceived tariff risk are performing relative to those stocks with the least amount of perceived tariff exposure. Our friends at Goldman Sachs created a basket of stocks they believe are most immune to tariffs and another basket of stocks most at risk from tariffs. Somewhat counterintuitively, stocks most at risk from tariffs have performed much better since the so-called “Liberation Day” tariff announcements back on April 2.

The Debate Over Where Tariff Rates Are Headed

We are all ready to move on from tariff talk, but it can’t be dropped just yet. The “guess the final tariff rate” game so many are playing is still interesting, with dispersed estimates despite additional clarity gained in recent weeks. In our informal survey of some respected policy strategists, estimates for the final rate ranged from 14% to 18%. That doesn’t seem like a wide range, but it could be $1.50 or more off S&P 500 EPS over the next year and an extra 0.1% or 0.2% increase in inflation. Not a game changer but meaningful. The wide range also provides evidence of how much uncertainty there still is in terms of high rates that could come down, e.g., with India and Brazil at 50%, and questions around exemptions that came up this week with Apple(AAPL) CEO Tim Cook’s trip to the White House.

Because of how comfortable markets have been with tariffs thus far, numbers in this range are unlikely to cause much market disruption. However, given how much of these tariff effects have yet to come through, we do think the market has become a bit overly complacent. It’s not so much the temporary inflation impact as it is the additional cost pressure on corporate America. Margins have been resilient thus far with sparse evidence of tariff-related margin compression beyond several high-profile announcements from automakers and consumer goods companies, including GM (GM), Ford (Ford), Proctor & Gamble (PG) and AAPL.


Significant Policy Tailwinds Coming in 2026

The recently passed “One Big Beautiful Bill Act” includes stimulus in the form of business tax incentives and consumer tax cuts that the policy strategy team at Strategas Research estimates will be worth 0.9% of gross domestic product, including $120 billion in fresh consumer tax cuts. Importantly, this stimulus will offset tariff revenue running at an annualized pace of over $300 billion. After the one-time tariff price adjustment is put in place, the subsequent upward pressure on inflation should be limited. As 2026 approaches, and more tariff uncertainty clears, market participants have gotten more comfortable taking on equity risk.

The risk of markets getting overly complacent makes us less comfortable predicting that stocks will continue rising at their current pace, although we would stop short of calling this market a bubble despite renewed attention on meme stocks.

It’s Not Policy-Driven, but Artificial Intelligence is a Key Driver of the Rally

Earnings season has been outstanding. We’ll get into all the numbers in next week’s commentary, but artificial intelligence (AI) investment, which has started to bear fruit, is a big reason earnings growth and guidance have been so much better than we — and most others — anticipated. We wrote in early July that double-digit growth on the bottom line was a reach, but we got there handily with S&P 500 earnings per share (EPS) growth for the second quarter tracking to 12% (source: FactSet). The increase in EPS estimates during reporting season — a rare feat — was even more impressive.

The power of the AI investment cycle, in which hundreds of billions are being invested this year by the biggest U.S. technology companies, is quite evident in the latest rally. Since the April 8 low in the S&P 500, the technology sector has gained more than 50%, nearly double the S&P 500, led by several AI names including Palantir (PLTR), Advanced Micro Devices (AMD), Arista Networks (ANET), and Oracle (ORCL), which have all doubled during that time. NVIDIA (NVDA) and Broadcom (AVGO) aren’t doing too shabby with gains of 88% and 95%, respectively.

While tariff costs have started to pressure company profit margins, the amount of investment in AI and early returns on that investment in the form of productivity gains have kept overall profit margins steady. With limited upward pressure on inflation so far, stocks have been able to achieve and maintain strong gains.

Conclusion

The stock market has shown remarkable resilience despite ongoing trade uncertainty, buoyed by corporate flexibility, fiscal policy tailwinds, and the powerful earnings momentum from AI. While we caution against complacency, especially with more tariff costs yet to flow through, the combination of fiscal stimulus and transformative technology investment continues to support rich equity valuations. Bouts of volatility will likely come over the next several months, but dips are likely to be bought quickly due to supportive company fundamentals, upcoming Fed rate cuts, and the power of AI that has only started to bear fruit.

Asset Allocation Insights

LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) maintains its tactical neutral stance on equities. Investors may be well served by bracing for occasional bouts of volatility given how much optimism is currently reflected in stock prices and lingering tariff risk. LPL Research advises against increasing portfolio risk beyond benchmark targets currently and continues to monitor trade negotiations, economic data, earnings, the bond market, and various technical indicators to identify a potentially more attractive entry point to add equities on weakness. The Committee’s regional preferences across the U.S, developed international, and emerging markets (EM) are aligned with benchmarks. The Committee still favors growth over value, large caps over small caps, and the communication services and financials sectors.

Within fixed income, the STAAC holds a neutral weight in core bonds, with a slight preference for mortgage-backed securities (MBS) over investment-grade corporates. The Committee believes the risk-reward for core bond sectors (U.S. Treasury, agency MBS, investment-grade corporates) is more attractive than plus sectors. The Committee does not believe adding duration (interest rate sensitivity) at current levels is attractive and remains neutral relative to benchmarks.

If you have any questions please contact me at 954 414-0902.

Best Regards,

LWM Investment Committee
Legacy Wealth Management
1250 S. Pine Island Rd Suite 350
Plantation, FL 33324
Phone: 954-474-7100 | [email protected] | lwmfl.com


IMPORTANT INFORMATION

Securities and advisory services are offered through LPL Financial, Member FINRA/SIPC. investment advice is offered through LWM Advisory Services, LLC, a registered investment advisor. Legacy Wealth Management, Legacy Retirement Plan Advisors, and LWM Advisory Services, LLC are separate entities from LPL Financial.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All investing involves risk, including possible loss of principal.

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

All index data from FactSet.

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial

This research material has been prepared by LPL Financial LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank / Credit Union Guaranteed |
Not Bank / Credit Union Deposits or Obligations | May Lose Value

RES-0005028-0725 Tracking #781440 | #781745 (Exp. 08/26)
For a list of descriptions of the indexes referenced in this publication, please visit our website at lplresearch.com/definitions.

08/08/2025

THE LAST FEW DAYS OF JULY and the beginning of August have brought a flurry of key economic data, central bank activity, company earnings results, and tariff news. Here are some takeaways from the week of July 28:

Slowing U.S. economy. Second-quarter gross domestic product grew at a 3% annualized rate, though much of the growth stemmed from a sharp drop in imports after companies rushed orders ahead of tariffs. July’s jobs report showed a slowdown in hiring, signaling a labor market losing some steam. While this could support the Federal Reserve’s (Fed) case for easing, it also introduces concerns about consumer spending.

Though we see no signs of an imminent recession, we believe the U.S. economy is unlikely to grow faster than 2% in the second half.
Resilient corporate earnings. Earnings season has been better than anticipated, showing that corporate America has more earnings power than previously thought. Analysts called for S&P 500 earnings per share to grow 4–5% year over year when earnings season began. We expected some upside, perhaps to around 8%, but companies are collectively on track to grow earnings by over 10% (source: FactSet). Big tech companies have been the key driver, accounting for half of earnings growth amid big investments in artificial intelligence (AI).

Stage set for a September rate cut. The Fed held rates steady on July 30, but Fed Chair Powell’s comments were less definitive than markets had hoped. The weak jobs report on August 1, however, revived expectations for a rate cut in September, which may help mitigate the magnitude of any stock market pullbacks. Two cuts of 0.25% each are likely this year, if not three, which should help support the bond market.

Don’t dismiss trade risks yet. The August 1 negotiation deadline passed, with several countries slated for tariffs well above the apparent floor at 15%. Only about half of the presumed tariffs have been implemented, meaning more upward pressure on prices and company profit margins lies ahead — after more tariffs take effect on August 7.

Meanwhile, negotiations are continuing with China and several other key trading partners.

What this means for you. The market is navigating a complex landscape, with several economic and policy crosscurrents. A slowing economy, tariff implementation, and seasonal stock market weakness point to potential bouts of volatility ahead. Expected rate cuts, AI investment, and impending stimulus from tax and spending legislation passed last month may help buoy investor sentiment.
Pullbacks, when they inevitably come, can refresh bull markets and set them up for their next leg higher. So, we believe it’s important to stay invested and well-diversified, while looking for opportunities to add equities on a dip. Economic and corporate fundamentals remain in great shape.

Thank you for your continued trust.

08/01/2025

Market Commentary August 1, 2025

Economy in Uncharted Waters

We believe this more complex macro environment will force the Federal Reserve (Fed) to maintain its cautious stance on monetary policy for longer than markets originally expected. One factor adding to the complexity is the post-pandemic impact on economic and financial models. Another obvious factor is dynamic trade policy. Tailwinds from improved tax policy will help businesses wade through the uncharted waters. In general, the economy should be able to successfully charter through choppiness if the average effective tariff rate stays in the mid- to high-teens.

Muddied Outlook Because Pandemic Broke the Models

Last week, investors were reminded of the persistent impact the pandemic had on many macro models. In particular, the Leading Economic Index (LEI), which has historically been the Conference Board’s accurate leading indicator of the business cycle, still points to a deep, imminent recession as of last month. Ironically, the LEI is at its lowest since 2015 and has signaled a recession since mid-2022, when businesses were madly raising wages to attract qualified workers and consumers — especially the upper-income — who were wildly spending discretionary dollars on travel, autos, and luxury items.

We highlight the LEI because it illustrates the challenging macro environment that the Fed and investors must navigate. Despite the models still being impacted by unusual fiscal and monetary policy, other metrics provide insight into the trajectory for growth and inflation.

The economy will likely post a solid second quarter after the first quarter was suppressed by a surge in imports from businesses front-running tariff threats. The subsequent rebound in growth might create a perception of a strong recovery, but we think this is likely a head fake. The whiplash in trade policy is adversely impacting official economic data and creating difficulties for investors, as it becomes almost impossible to discern whether the economy is genuinely rebounding or merely experiencing short-term fluctuations. Such distortions highlight the importance of looking beyond government statistics to industry reports from the likes of the Institute for Supply Management (ISM) to form a clearer picture of economic conditions. The ISM Composite Index, which gives insights into business views from across the country in both the goods and services industries, fell in recent months and points to a broader slowdown coupled with reaccelerating inflation.



Business leaders’ perspectives serve as a vital complement to official government statistics, which often suffer from low response rates and delayed reporting. Listening to these insights helps provide real-time signaling on industry health and emerging risks, which is even more crucial in uncertain economic times.

Fed officials have expressed concern over the difficult tradeoffs involved in navigating the current environment, especially as new tariffs and policy measures could exacerbate inflationary pressures. This echoes the past, when aggressive monetary tightening was implemented to tame inflation, often at the expense of economic growth, illustrating the delicate balancing act policymakers must undergo. And public attacks on the Fed chair for various items, ranging from an over-budget renovation project to high interest rates, further cloud the already muddied waters. For additional context on Fed independence, check out our “Federal Reserve Independence Depends on Your Definition” blog.


Comfortably Numb

Capital markets appear comfortably numb to the headwinds of the economy, from reaccelerating inflation to high tariff rates, and rising delinquencies. One reason could be the apparent tailwind from tax policy changes within the One Big Beautiful Bill Act (OBBBA).

There is a little bit of everything packed into President Trump’s OBBBA. Proponents tout its simplification of the tax code, the removal of uncertainty over the sunsetting Tax Cuts and Jobs Act (TCJA) tax provisions, pro-growth initiatives, an America-first framework, and its focus on protecting our borders and national security. Opponents believe it is too expensive, benefits the wealthy, threatens clean energy initiatives, and leaves too many Americans without healthcare or SNAP benefits. From an investor standpoint, healthcare insurers, especially with high Medicaid populations, the renewable energy space, and even longer-duration Treasuries could face headwinds from the bill, while small caps, defense and border security companies, and capital equipment and R&D intense firms could be outsized beneficiaries.

The bill does bring some certainty to the market regarding tax policy and the debt ceiling (the debt ceiling was raised by $5 trillion as part of the reconciliation bill).

The markets continue to reach new highs despite the uncertainty of trade. It's likely investors are optimistic about where they think the average effective tariff rate will settle. If trade deals emerge with the rest of our top trading partners and businesses can utilize free trade zones and receive generously granted exclusions and exceptions, the economy can achieve a soft landing and skirt a recession.

Rising Delinquencies Are Yellow Flags

We do think growth will remain positive this year as businesses realize the benefits from real personal income growth. However, investors should expect margin compression as businesses hold off raising prices because of customers’ growing price sensitivity, according to the latest Fed Beige Book. Business leaders in several regions across the country plan to postpone both hiring and layoff decisions until they get clarity about trade policy. Given persistent cost pressures, we should expect an increasing likelihood that consumer prices will start to rise later this summer if businesses are successful in passing along higher input costs.

Overall business activity was up in the last month, but the outlook was slightly more pessimistic. We should be watchful for signs of margin compression at the business level, financial stress via rising delinquency rates, and a sluggish housing market as inventories rise.

As it relates to consumer health, credit card and auto loan delinquencies are elevated relative to previous stressful periods. We think this is worth monitoring and raises a yellow flag amid the optimism of pro-business tax policy, a stable labor market, and seeming U.S. exceptionalism.


The Call to Action

The future path of growth and inflation is critically important for several reasons. Inflation matters for stock valuations. Inflation’s effect on stock valuations remains crucial (higher inflation dampens future earnings value, while historically, low inflation correlates with high stock valuations). The S&P 500 recovery has been remarkable since its April 8 correction low, driven by technology, communication services, and industrials.

While the technical setup continues to improve, fundamental and macro risks remain. A lot of good news is priced into the market; longer duration Treasury yields remain uncomfortably high, and trade policy uncertainty is still elevated despite some notable progress.

The call to action is to look for opportunities amid wider market breadth. We have witnessed a meaningful rotation in market leadership so far in 2025. After a prolonged run, U.S. mega cap tech stocks have taken a breather, creating space for other areas to shine. Notably, European markets — including Germany, the U.K., and France — have delivered strong relative performance, reversing years of underperformance. Emerging markets have also gained traction, with Hong Kong and South Korea posting impressive gains. Non-U.S. small cap stocks have emerged as key beneficiaries of recent U.S. tariff policy as well.

This shift in leadership has been supported in part by continued weakness in the U.S. dollar, which enhances the appeal of non-U.S. assets.

As this broadening continues, small cap equities — particularly in the U.S. — stand to benefit. Their relative undervaluation, domestic focus, and sensitivity to economic growth position them well in an environment where capital is flowing beyond the usual large cap leaders. After a sharp decline in the dollar during the first half of the year, a short-term reversal of the greenback could also put domestic small caps in a more favorable position.

ASSET ALLOCATION INSIGHTS

LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) maintains its tactical neutral stance on equities. LPL Research advises against increasing portfolio risk beyond benchmark targets currently, as the market seems to be factoring in a lot of positive news. Investors may be well served by bracing for occasional bouts of volatility until trade uncertainties are resolved. LPL Research continues to monitor tariff negotiations, economic data, earnings, the bond market, and various technical indicators to identify a potentially more attractive entry point to add equities on weakness.

During periods of policy uncertainty, LPL Research prefers to stray little from its benchmarks. In that spirit, the Committee recently upgraded emerging market (EM) equities to neutral, leaving regional preferences across the U.S, developed international, and EM aligned with benchmarks. The Committee still favors growth over value, large caps over small caps, and the communication services and financials sectors.

Within fixed income, the STAAC holds a neutral weight in core bonds, with a slight preference for mortgage-backed securities (MBS) over investment-grade corporates. The Committee believes the risk-reward for core bond sectors (U.S. Treasury, agency MBS, investment-grade corporates) is more attractive than plus sectors. The Committee does not believe adding duration (interest rate sensitivity) at current levels is attractive and remains neutral relative to benchmarks. The Committee would get more interested in adding long-term bonds if the U.S. 10-Year Treasury yield got closer to 5%.

If you have any questions please contact me at 954 414-0902

Best Regards,

LWM Investment Committee

IMPORTANT INFORMATION

Securities and advisory services are offered through LPL Financial, Member FINRA/SIPC. investment advice is offered through LWM Advisory Services, LLC, a registered investment advisor. Legacy Wealth Management, Legacy Retirement Plan Advisors, and LWM Advisory Services, LLC are separate entities from LPL Financial.

IMPORTANT DISCLOSURES

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.

Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.

All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.

All investing involves risk, including possible loss of principal.

US Treasuries may be considered “safe haven” investments but do carry some degree of risk including interest rate, credit, and market risk. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.

The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The PE ratio (price-to-earnings ratio) is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher PE ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower PE ratio.

Earnings per share (EPS) is the portion of a company’s profit allocated to each outstanding share of common stock. EPS serves as an indicator of a company’s profitability. Earnings per share is generally considered to be the single most important variable in determining a share’s price. It is also a major component used to calculate the price-to-earnings valuation ratio.

All index data from FactSet.

Jeffrey Roach, PhD, Chief Economist, LPL Financial

Adam Turnquist, CMT, Chief Technical Strategist, LPL Financial

Jeffrey Buchbinder, CFA, Chief Equity Strategist, LPL Financial

This research material has been prepared by LPL Financial LLC.

Securities and advisory services offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. To the extent you are receiving investment advice from a separately registered independent investment advisor that is not an LPL affiliate, please note LPL makes no representation with respect to such entity.

Not Insured by FDIC/NCUA or Any Other Government Agency | Not Bank / Credit Union Guaranteed |
Not Bank / Credit Union Deposits or Obligations | May Lose Value

RES-0004766-0625 Tracking #774430 | #774432 (Exp. 07/26)
For a list of descriptions of the indexes referenced in this publication, please visit our website at lplresearch.com/definitions.

05/22/2025

Market Update: Tariff Pause Boosts Sentiment, Fed Steady

Investor sentiment dramatically changed after Treasury Secretary Scott Bessent and other members of the Trump administration announced a temporary pause on tariffs with China. Was that sentiment shift warranted and did anything materially change? Estimates of the effective tariff rate continue to vary and have wide confidence intervals. Volatility will likely remain as the Trump administration is interested in managing perceptions with both midterms and markets in mind. This might explain the high degree of strategic variations in trade policy. Amid the variance, what hasn’t changed is the exceptional structure of the U.S. The two main reasons we believe U.S. exceptionalism will remain — probably for a very long time — are the depth and breadth of U.S. capital markets, and the reserve currency status of the U.S. dollar (USD).

What Just Happened?

In just a matter of hours last week, investors apparently decided that stocks were on sale, and it was time to buy. But nothing materially changed as consumers were still pessimistic about the future, firms were on the sidelines
waiting to deploy capital amid tariff uncertainty, and the Federal Reserve (Fed) remained committed to their “Wait and See” stance.

The catalyst for the rally in the stock market was another announcement that the Trump Administration will place a pause on retaliatory tariffs, and this time, the corresponding trade partner was China.

The temporary trade deal with China paused reciprocal tariffs for 90 days. Details are still emerging, but what that did was push the U.S. effective tariff rate (ETR) down to 13.1% from 22.8%, according to Fitch Ratings. Other estimates are higher.

However, this is far from being over. The temporary deal puts greater pressure on the two countries to develop a mutually amicable agreement. What investors know now is U.S. tariffs on Chinese products are down to 30% from 145%. And China will lower its tariffs on U.S. goods to 10% from 125%. The temporary agreement should allow for further discussions and negotiations. But even before these tariff spats, businesses have been aggressively shoring up their “China plus one” strategy, which describes the efforts of firms reducing reliance on just one country by expanding operations beyond China. Decreasing dependence on China does not mean decoupling all together. This is an important concept as trade negotiations continue.

The Fed Is in An Awkward Position

Inflation is still above target and there is a lot of uncertainty about the trajectory of growth. The latest Federal Open Market Committee (FOMC) decision kept the benchmark interest rate unchanged at 4.25–4.5%. Here are the key takeaways. First, uncertainty has increased. The Fed acknowledged rising risks to both inflation and unemployment, signaling caution in future rate moves. They are being careful about their next moves because they do not want to be accused of being late, like they were during the post-COVID-19 recovery.

Second, inflation seems to be moving sideways. Fed Chair Jerome Powell described inflation as stable but above target, suggesting that the Fed is monitoring price trends closely. Our take is inflation will have some upward
bounces in the coming months, but by the time we end the year, inflation should be trending lower, albeit above the 2% target. Nagging unknowns include where tariff rates will ultimately land and how they will impact growth and inflation.

Given the uncertainties, the Fed is in no hurry to adjust policy at this point.

Bigger Is Better


It seems headline risk has never been more rampant. Just last Friday, Moody’s, one of the “Big Three” global credit rating agencies, downgraded U.S. debt from Aaa to Aa1 because of profligate spending. This is not necessarily a big surprise given that S&P Global Ratings downgraded the U.S. back in August 2011, during the Obama administration.
Fitch moved to a downgrade in 2023, so it was just a matter of time before Moody’s acted. Dangerously large fiscal deficits as a percent of GDP will likely put upward pressure on interest rates, but the U.S. could still maintain its exceptionalism. In fact, Moody’s appealed to the U.S. dollar’s dominant reserve currency status as a reason to upgrade the outlook to “stable” from “negative.”

Despite recent shifts, including trade policies, inflation concerns, and geopolitical tension, which have led some to predict U.S. exceptionalism will fade, we think the U.S. will maintain its unique role in global markets for a variety of reasons. One structural reason is that this country has deep capital markets.

The “Having the Biggest Markets Helps U.S. Exceptionalism” chart highlights some of the biggest stock exchanges in the world and how they rank as a percentage of global market capitalization. Of course, exchanges are the backbone of global financial markets, facilitating the buying and selling of securities. The New York Stock Exchange leads the world with a market capitalization of approximately $32 trillion as of today, followed closely by Nasdaq, which specializes in technology stocks and has a market cap of over $30 trillion. It’s quite a gap going down to the third largest, which is the Shanghai Stock Exchange with $7.1 trillion. To put this in perspective, the market cap of Microsoft and Apple together have a market cap larger than the biggest exchange outside this country. The breadth
and depth of U.S. markets helps explain why American exceptionalism will persist, in our view.

The Liquidity of USD Reserve Currency Status Provides Unique Structural Advantages

The U.S. dollar remains the world's primary reserve currency, reinforcing demand for American assets. Since the Bretton Woods Agreement of 1944, the dollar has been the primary currency for global trade and financial
transactions, with roughly 60% of global foreign exchange reserves currently held in USD. This dominance allows the U.S. to borrow at lower interest rates and maintain economic influence worldwide. However, recent trends indicate a gradual diversification among central banks, with increasing allocations to nontraditional reserve currencies, such as the Chinese yuan, Canadian dollar, and gold. With diversification comes risks, especially liquidity risks. The USD market is quite deep, giving global investors comfort that there will always be others willing to take the other side of
a trade. While the dollar remains the most trusted currency, geopolitical shifts and economic fragmentation continue to challenge its supremacy.

CONCLUSION

We are indeed experiencing many changes. For several months now, consumer spending has been growing faster than personal income. The divergence between these two metrics cannot last like this for long. The most likely scenario is a slowdown in spending to create balance with softer income growth. Furthermore, uncertainty around trade policy is creating a headache for firms eager to increase capital spending but unsure of when and how to implement strategic planning.

The soft survey data hints at a slowdown in hiring, but investors are still waiting for confirmation. Consumers feel jobs are less plentiful and purchasing managers allegedly say they have fewer plans to increase employment. But the weekly number of those claiming unemployment insurance benefits is historically low and layoff announcements
have not quite filtered through yet.

As the Fed waits for the hard data to either confirm or deny the emerging narratives from the soft data, investors should not expect policymakers to be eager to cut rates. Amid the uncertainty, a few positives remain. The breadth
and depth of U.S. markets provide an exceptional place to transact, and the liquidity of the USD market is unparalleled.

Following the recent stock market rebound, LPL’s Strategic and Tactical Asset Allocation Committee (STAAC) maintains its neutral stance on equities but does not rule out the possibility of a reversal lower and retracement of a good portion of the latest advance due to the ongoing uncertainty around tariffs and the increased likelihood of a slowdown.

If you have any questions please contact me at 954 414-0902

Best Regards,

LWM Investment Committee



Nuri Rubenstein
Legacy Wealth Management
Associate Wealth Advisor

Phone: 954-474-7100 Direct: 954-414-0902
Web: https://www.lwmfl.com
Email: [email protected]
1250 South Pine Island Road, Suite 350
Plantation, FL 33324

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory Services are offered through LWM Advisory Services LLC, a registered investment advisor. Legacy Wealth Management and LWM Advisory Services LLC are separate entities from LPL Financial.
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