Five for Friday
June 27, 2025
Earnings, Rates, Seasonals, National Debt, and Going Nuclear
1. Profits
Amid the uncertainty around trade policy, mega tax bills, geopolitical tensions, and budget deficits (among other things), the core driver of U.S. stock prices—corporate earnings—have shown incredible resilience. Though expectations for near-term profits have moderated a bit amid the tariff shock, S&P 500 earnings are still expected to grow 9% in 2025 and 14% in 2026. That is strong growth any way you slice it and a good reminder of why investing in stocks has been such a profitable exercise over the last century: U.S. companies try to adapt to changing conditions to maximize profits. Sometimes it’s worth not overthinking that reality.
2. Rates
A key component of what investors are willing to pay for a share of those earnings is interest rates. A dollar of earnings received in the future is worth less than a dollar of earnings today—and, broadly, higher interest rates lower the present value of future earnings (or cash flows, dividends, etc.). Higher rates also generally weigh on corporate profitability (more goes to pay interest on debt) and consumer spending (reduced appetite for financing purchases). This is why investors often cheer Federal Reserve interest rate cuts, and why stocks seemed to like recent commentary suggesting that rate cuts are still on the table for next month’s Fed meeting. Despite anxiety over tariffs, headline inflation has been below 3% for 12 straight months, oil prices are back down, home price growth is cooling, and inflation expectations remain muted. Odds of a July rate cut (as priced by futures) sit at just 27% today, but in this strategist’s opinion, the Fed should be cutting rates soon as the labor market cools—and recent commentary suggests some voters on the committee agree.
3. July
The stock market’s V-shaped recovery off the April “tariff tantrum” lows has brought the S&P 500 back to within a hair of its all-time high. Can it continue into July? Only time will tell, but it is a good omen that since 1926, July has been far and away the best month for the stock market (and in fact, the July-August stretch has been the best 2-month span over the same period). In more recent times, the S&P 500 has been positive in every single July over the last decade. Conventional wisdom says that summer months can be challenging for investors (i.e., “sell in May and go away” or “summer doldrums”), but the evidence just hasn’t backed that idea up.
4. Debt
Artificial intelligence is one of the most importance themes today—not just because of the market’s concentration in Big Tech stocks, but because the potential for efficiency gains from the technology itself offers a path to stronger economic growth and lower inflation. With few avenues to meaningfully grow the population of workers, productivity—how efficiently our remaining workers producing things—will be an increasingly relied-upon driver of growth in the U.S. This is important for a multitude of reasons, not the least of which is that it can help get U.S. debt-to-GDP levels to a more sustainable level —as Strategas Chief Economist Don Rissmiller details here. The national debt is a tricky topic that will be with us in perpetuity, but strong economic growth can temper the issue and higher productivity would be part of that solution.
5. On this day
in 1954, the world’s first nuclear plant to generate power for an electrical grid began operating in Obninsk, Russia. Nearly 71 years later, New York Governor Kathy Hochul announced plans to construct the first major new U.S. nuclear power plant in over 15 years. While we can debate nuclear energy’s role in the future of power generation, the world’s heightened electricity demands are clear as we are witnessing a rapid build-out of infrastructure to support AI, electric vehicles, cryptocurrency, and more. The world needs more power, and nuclear is back on the menu.
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