The Market Update with EP Wealth Advisors Managing Director, Investments -
Adam Phillips, CFA^®, CAIA, CFP^®

Often quoted in major national media, Adam is a Chartered Financial Analyst (CFA^®), a CERTIFIED FINANCIAL PLANNER™ (CFP^®), and has been included on the Forbes NextGen Best-in-State Wealth Advisors 2019 list. He is a member of the CFA Society of Los Angeles and the CFA Institute. Adam helps establish asset allocation strategy as a member of the EP Wealth Investment Committee, which supports all EP Wealth Advisors and their clients. The Committee’s top-down approach to portfolio construction begins with an outlook on the economy’s likely direction, followed by the implications for different economic sectors and asset classes. This culminates in strategic selection of the individual stocks, bonds, mutual funds or other investments deemed most appropriate for each individual client’s portfolio.

Market Update: Riding the Rally, But Watch for Trade Risks 

 Markets continue to hover near all-time highs, with the S&P 500 up roughly 26% since its April 8 low. That date marked the day before President Trump announced a 90-day pause on tariffs—a move that has since been extended through August 1. Despite lingering uncertainties, investors have largely shrugged off near-term risks, and optimism is evident: CNN’s Fear & Greed Index recently reached its highest level in over a year. 

That sentiment raises a classic question—should investors grow cautious when others are greedy? While we don’t see this as a signal to sell, it is a reminder to stay aware of how far markets have run and the vulnerabilities that may lie ahead if trade tensions resurface. 

Tariffs: Who’s Paying the Price? 

A key issue we’re watching is who’s ultimately footing the bill for rising tariff revenues. If consumers bear the cost, we may see additional inflationary pressure—something that could further strain households already impacted by higher interest rates. If corporations absorb the costs instead, profit margins could decline, potentially weighing on stock valuations. 

 This question becomes even more relevant as we await the June Consumer Price Index (CPI) report this week and the kickoff of earnings season, beginning with major banks. These updates may offer insight into how tariffs are impacting both inflation and corporate earnings. 

A Fiscal Boost, But Not a Silver Bullet 

Last week’s passage of the much-discussed “Big Beautiful Bill” is expected to offer some economic support, though perhaps not to the same extent as the 2017 Tax Cuts and Jobs Act. Still, it’s a noteworthy development that could help offset some headwinds. 

It’s important to understand the magnitude of the potential impact of tariffs: the U.S. imports roughly $3.3 trillion in goods annually. A universal 10% tariff would bring in about $330 billion in revenue, while a 15% effective tariff rate could generate $500 billion—essentially doubling what corporations currently pay in taxes. This underscores why identifying who is absorbing these costs—consumers or companies—is crucial for assessing the economic and market outlook. 

If you have any questions about how these developments might affect your portfolio, please reach out to your financial advisor. We’ll be back next week with more. 

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Video Summary: 

Adam Phillips: 

Markets continue to trade near all-time highs. And last week, we saw CNN's Fear and Greed Index hit the highest level in about 52 weeks. We know that famous saying by Warren Buffett that you should be greedy when others are fearful and fearful when others are greedy, with the CNN Fear and Greed Index. Entering this extreme greed territory. Is this a sign for us to sell? I don't think it is. We don't necessarily want to take the risk off the table here, but we should acknowledge how far we've come. As I said, markets are trading at an all-time high. We are about 65 days removed from the low in the markets, which was on April 8th, the day before President Trump announced that 90-day pause on tariffs, which, uh, did end up getting extended until August 1st. And so over that 65-day period, we've seen markets rally about 26% if you're looking at the s and p 500. So that is a very strong rally off of those lows, and we know that there's still plenty of uncertainty that remains. Yet the market still seems to, uh, be dismissing a lot of the near-term risks. As I mentioned, the trade pause on tariffs has been extended. Until August 1st, and I think the market is viewing this as really, this is the boy who cried wolf when it comes to this. The market is, is looking at these additional extensions and saying, okay, if we get to August 1st, we still don't have a lot of trade deals. Maybe President Trump will delay again and postpone those tariffs again. Or even better, we'll actually see some trade negotiations and agreements put in place. I think that's the ideal outcome. But for now, the market is really discounting the risks here. So, this is all this is doing is it's, it makes us vulnerable here over the near term. If we, if we get to that August 1st, there's no deadlines or excuse me, there, there's no, there's no trade agreements, no extension. 

Then that could be a disappointing outcome for investors. So I think this is really more of a reflection of how far we've come, and it's a reminder that we should acknowledge the vulnerability here. But don't necessarily get too worried. It doesn't necessarily require any changes to a portfolio's allocation. When it comes to tariffs, one of the big questions for us is that we know that the daily tariff revenues coming into the US have surged here in recent months. But who is footing the bill? That's the big question. Hopefully, we'll start to get some clarity on that. This week, we're getting the, we're recording this on a Monday. 

I think that's always important to say, given how quickly things move these days. So, recording this on a Monday, tomorrow, Tuesday, we are getting the consumer price index, the CPI report. That's the inflation report for the month of June. Far, it's been surprising that we haven't seen. Too much pressure on inflation as a result of tariffs. 

I think that was the big concern. It still is a big source of concern, uh, among those at the Fed, and many economists. So the question is, will we start to see that this month? We are also, we will also see, uh, earnings get underway here later in the week. As usual, it'll start with the banks, uh, and financial institutions, and then move on to other sectors. And so we'll see who is footing the bill. Is it consumers? Is it businesses? Is it a mix between the two? If. End up footing the bill that will be inflationary. It will put additional pressure on many households that are already feeling some pain from living in this higher-rate environment. It falls on businesses that will hurt the profit outlook and impact profit margins, and ultimately weigh on stock prices. So this is an important question for us to get some clarity on. When it comes to the, uh, the corporations and businesses here, I think it's really important to acknowledge, since we got this one big, beautiful bill passed last week. This is what we talked about last week about how this could provide some tailwind to the economy, perhaps not as much as it did, uh, with the tax cuts and jobs act back in 2017. But on net net it will be supportive for the economy. But when we look at tariffs and the impact on businesses, I think it is important to acknowledge that, to the extent that businesses absorb the tariffs on their own, it does weigh on their profit margins. 

It does serve as a tax. The, uh, at, uh, so, so we import about $3.3 trillion in goods into the economy every year. If we have that 10% universal tariff, let's call it 330. A dollar in, uh, in tariff revenue that is essentially taxed by corporations unless they pass on part of that to consumers. If we just ballpark the effective tariff rate after all these negotiations are put through at 15%, let's call it a $500 billion, uh, a $500 billion, um, uh, billion of tariff revenue coming into the US every year. That is about on par with what corporations pay in taxes every year. And so to use that extreme example, 500 billion in, uh, 500 billion in tariff revenue, that would effectively double the corporate tax rate in America. So that is why this question is so important to us: Who is footing the bill? Is it corporations? 

Is it consumers? Neither one is good, but I think understanding who is paying for tariffs ultimately will help us determine where the economy is going and what impact it might have on the outlook for equity prices. I'm going to leave it there for now. If you have any other questions, please feel free to reach out to your financial advisor, and I'll see you next week.