Weekly Stock 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 Topics for Week of May 12, 2025

• Markets Performance Year-To-Date

• Reviewing Federal Reserve's Stance

• U.K. & China Trade Deal Updates  

• Understanding Trade Tariffs' Impact

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Video Transcription: 

Rob Black

welcome in to the informed investor. Long-term thinking I'm Rob Black, joining me today is managing director of investing at Ep. Wealth. Adam Phillips.

Interesting year. It's getting more interesting. The Dow Jones industrial average is down 3% year to date the S. And P. 500 down 3.7% year to date, the S. And P. 500 down 5.6% year to date the Nasdaq down 7.2%, and the Russell 2,000 down 9.3%. There's a lot going on. Oil's collapsing. Gold is going higher. There's talks of recession, there's talks of inflation. What will the fed do? What will the fed not do

but wait. There's some signs of life, some green shoots, if you will.

Adam, what do you make about the market numbers, and where we are with all the drama this year?

Adam Phillips

01:10

Look, it's it's been it's been dizzying to say the least, over the last. Let's call it 5 or 6 weeks.

but at least over the last couple of weeks the markets have been going in the right direction, the S. And P. 500. If we just look at the screen. Today, we're recording this on a Monday. Given how fast things are moving. I think it's important to just highlight that. So recording this on Monday morning, and the S. And P. 500 is at its highest level since early March. And so it's actually trading higher by about 3% compared to where it was just after Liberation Day, Liberation Day on April second.

So we are seeing a lot of progress here. Things got a little bit, Dicey there at 1 point the S. And P. 500 was flirting with bear market territory down 20% pretty much touched that on an intraday basis. But it's recovered quite a bit. What I see is there's a lot of retail buying a lot of investors at the retail level, buying the dip

on the quote unquote. I guess the professional investors are still a little bit reluctant to chase this rally. I think perhaps the news that we've received over the last 24 h or so around the Us. And China could change that. But I think we're still going to be in this period of uncertainty here for quite some time, but we're.

I think, the evidence suggests that we are through the worst of it so far that we've seen those lows, and even though it's not necessarily smooth sailing. It appears that the worst case scenarios are now behind us.

Rob Black

02:42

I heard that referred to this morning as peak tariff uncertainty has been, had that sound about right.

Adam Phillips

02:51

I think that sounds about right. Look, it's in. In the early April we were all kind of. We were caught off guard with the with the the tariff announcements. And we things were just so uncertain, and we are still seeing a lot of uncertainty whether it's at the fed, whether it's among corporations we're getting through. We're about 90% of the way through the 1st quarter earnings season. And so I think we are still hearing a lot about uncertainty. This is still a very.

a very tricky environment. If you're trying to forecast anything over the next several months. But we are starting to get some clarity. Some of these blanks are starting to be filled. We had the Uk trade deal announced last week. We are seeing progress on China, and so we're slowly starting to cross off some of the scenarios. And so I think it's the breadth or the potential for for various types of outcomes is starting to narrow a little bit, and so I'll take that, and I think the market's going to take it as well.

Rob Black

03:53

Well, that's a nice update. Let's talk about the Fed meeting from last week.

Why are we looking backwards? What happened? What do you think is important? Here.

Adam Phillips

04:04

Yeah, well, so we weren't. No one was expecting the fed to do anything last week, and so they didn't surprise us. They did not cut rates, but what most of us were focused on was what Jay Powell had to say in his prepared remarks, and during the Q. And a session during the Post Fomc. Press Conference. That's always the most informative, especially at these meetings, when they're not considered a live meeting, meaning there's no expectations for a rate change.

And so last week, Jay Powell, he talked about the strength of the economy. I think most of us were happy to hear him say, there's no urgency here, even though he is receiving some pressure from the White House to cut rates. They think the economy is still on decent footing. He acknowledged some of the weakening and the soft data, the survey data, such as consumer sentiment. business, sentiment, going the wrong direction. But this this can be overstated. And so he, like, we've talked about recently, they are going to wait until they see some evidence of this softening in the hard data in the actual real economic data. So far, we aren't seeing that the job market is still hanging in there. We're seeing initial claims for unemployment remain at relatively low levels. Continuing claims have ticked up a little bit, but they aren't necessarily in the danger zone yet, and so

they were. His. His take was really, you know, what's the hurry? Amid this uncertainty? And so that was that was what the fed shared, the markets celebrated that I think they were really focused on the fact that that there is no urgency to cut, because the economy is doing okay. And we might actually get through this for those that were hoping for some sort of insurance cuts or preemptive cuts in anticipation of some economic weakness down the road. That's a result of tariffs.he said. Look, we did this several years ago back in 2019. Inflation is quite a bit higher than it was back then, and so we just don't have the breathing room to do that inflation is running above 2%. It was running below 2% last time around when they did that. And so they don't have that flexibility this time around, but at the same time based on what they're seeing in the economy. They don't have the urgency either, and so I think investors generally take that as a positive update from J. PAL and the Fomc.

Rob Black

06:26

Let's move on to the next topic.

very similar to the play waiting for Godot. Wall Street took in this mentality of waiting for trade tariffs and trade deals is probably the right way of saying that waiting for trade deals.

Tell us a little bit about what you saw last week, and then this week started off with a bit of a surprise.

Adam Phillips

06:47

Sure. So last week the Trump Administration announced its 1st trade agreement, and that is with the Uk. So maybe this is really just aiming at the low hanging fruit, but it was taken as a positive, because you need to get the 1st one under your belt, and hopefully that will just get you on the road towards additional trade deals with our other partners around the world. And so it was very well received.

Let's just acknowledge that the Uk. This is actually a country that we run a trade surplus with. And this is a country that we have a really good relationship with. And so does President Trump. You know they run a trade surplus. We run a trade surplus with them.

and Trump doesn't really have anything to complain about. They spend on their own defense. And so he has a good relationship with their leaders. And so I think this was really one where it was low hanging fruit. I think what the takeaway with this, though, is that even though there was an agreement that was reached.

the 10% tariff that baseline tariff was kept in place. And so the takeaway for those of us who are watching is that look even. We should expect that 10% baseline tariff to remain in place, at least for the foreseeable future, with whatever is negotiated with the rest of our trade partners, and over the weekend Howard Lucknick, Commerce Secretary, actually confirmed this as well that we should expect to see that 10% baseline tariff around for some time.

Now, as it relates to just this news, we've received over the last 24 h or so, we saw

that coming out of meetings between the Us. And China, Us. Was represented by Treasury, Secretary Scott Besant.

and these actually went very, very well.

But ahead of these meetings President Trump was saying, Okay, this is really up to the Treasury Secretary. But he's okay with bringing that tariff rate from 145% down to 80%. That was President Trump. Speaking, what we saw was, it actually came in quite a bit lower than that. And the market is celebrating that today. So what we saw is this is not a trade agreement. So it's different than the Uk. This is a de-escalation, and I think this is the result of a lot of talk that we've heard over the last week or 2 about potentially seeing empty shelves, supply chain disruptions and and potential for for the laying off millions of people in China that both sides have said, Okay, let's at least let's at least calm things down a little bit and buy ourselves some time. And so the news coming out of this meeting was that the Us. And China are going to take a 90 day pause. The Us. Is going to roll back that 145% tariff rate. It's going to come down to about 30%. So it's higher than that 10% baseline rate. But it's certainly a lot lower than it was at 145% rate, and it gives the 2 sides till mid August to figure things out.

So the market is certainly welcoming this news again. It is lower, much lower than what President Trump was leading with heading into these meetings with the number being about 80%, then so this is good news, and the market is celebrating as such. And obviously it's not. Nothing is a done deal. But I think what it's done is it's removed that it's taken the worst case scenario off the table, and it buys some time. And so I think that's why you're seeing the market response. I think the tough thing, though, is.

this doesn't give any more clarity to businesses to the Federal Reserve. Right? I think it removes that worst case outcome, but it still makes it very hard for businesses to plan in this environment. And so it's going to make it that much more difficult to analyze the economic data here over the next couple of months. What we've seen over the last month or so is that a lot of businesses have been front running potential tariffs trying to get these purchases in ahead of the new tariffs. And so are we going to see this continue our businesses that need to import certain goods? Are they going to rush to import in anticipation of this 30% rate going higher. If things don't work out, in which case the activity that we're seeing in the data isn't necessarily sustainable or indicative of what we're likely to see on a go forward basis. So I think that's what we're kind of struggling with right now, although, on the whole.

a de-escalation is certainly welcome at this time.

Rob Black

11:19

I have a question. I have a follow up because I'm seeing something that I need answered. And I think a lot of people are saying this aren't 10% tariffs that stay in place, and even 30% with China. I know it's better than 100% plus. But is that still going to be inflationary because the cost is going to be passed on. Those are big numbers to ask companies to either eat or pass on to the consumer.

Adam Phillips

11:43

Well, I'm happy. You asked that, Rob. So we mentioned in the very beginning of this update how the market is now trading at the lowest level.

Excuse me at the highest level since early March. The question is, where does it go from here? And that's the hard thing for us. Is that? What is that catalyst for us to retest? That the previous all time high, which was set? I believe it was on February 19? th What is that catalyst, because either way, it doesn't appear that we're going back to

the way things were before April second, even if the market is trading higher than where it was. After the announcement on Liberation Day.

heading into the announcement on Liberation Day. The effective tariff rate in the Us. Was about 2 and a half percent. We saw it, Skyrocket. By some estimates it exceeded 30% at the height of this tariff uncertainty.

Now, with this latest Update and the pause with China. The effective tariff rate is estimated to have gone from about 24% down to 13%.

Assuming the tariffs remain in place as they are today. So that's still quite a bit higher than 2 and a half percent that we've known in recent years. And so yeah, either way, there's going to be pressure on the economy. I think the question is, who absorbs these costs? Do companies eat it? In which case it hurts the bottom line, in which case it could put pressure

on their balance sheets, and maybe actually lead them to to cut labor and and cut their workforce? Or do they try to pass it through to consumers, in which case it could be inflationary or some combination of that. I think that's the really big question there, Rob, but but either way we are. This is one of the reasons that we, along with with many others, don't like tariffs. They're not. They're not good. We know why we're going after them right now. I get the motivation behind it. But these are not good for the economy as far as long term inflation.

The long term inflation impact. Our thinking is that there could be a short term inflationary impact. But ultimately that could actually be undone if the economic impact is high enough to actually cut demand, and where consumer pocketbooks are hurt so much, or we see an impact on the unemployment rate where that moves higher

and consumers actually have to rein in spending, and they and they push back and and change their plans altogether, in which case that actually puts downward pressure on inflation. We've already seen this with the plans for travel and certain discretionary purchases consumers are starting to rein in. We know that over the last couple of years. Consumption has really helped to drive this economy, but it's been really a tale of 2 economies here, where and some have called it the K-shaped economy, where those in the upper income brackets are faring quite well, and those that have the means and the net worth

that has been growing because they are fortunate enough to own a home with a very low interest rate, or they're fortunate enough to own stocks that have been moving higher

over the last couple of years, and the other side of that is the lower income tier of the economy which we know doesn't have the savings doesn't have the same types of assets that are increasing in value. And so those are the ones that are going to be most impacted in this environment, if we do see higher prices. And so, but we do think that this would eventually correct itself.

Rob Black

15:17

Thanks for that. Follow up as a financial media enthusiast. Those numbers were just aren't these high? And you did a beautiful job explaining that for all of us I appreciate it. Thank you so much. He is Adam Phillips. He is the managing director of investments at Ep. Wealth. I am Rob Black for the informed investor. Long-term thinking market outlook.

Good day.