Shelter CPI vs tenant repeat rent indices (12/31/99–6/30/25)

Heavy Things: Tariff-induced inflation may be showing through in core goods, but a tug-of-war is emerging between tariff effects and the ongoing disinflationary process that remains underway in core services. Plenty of disinflation in the shelter cost pipeline will continue to serve as a meaningful offset to any continued tariff-induced inflation in core goods to come. And given the far larger weight of services in the inflation basket, those disinflationary impulses are likely to mute the degree to which core goods inflation pressures headline inflation prints higher.

Real durable goods consumption vs inflation (1/31/08–6/30/25)

Down with Disease: Shelter disinflation isn’t the only force that is likely to offset tariff-driven goods inflation. Nominal growth and consumption are cooling, as labor slack continues to build. As a result, any increase in core goods prices simply erodes real incomes and weighs on volumes and real growth. That’s already showing through in the data, as goods inflation has risen 1.65% annualized so far in 2025 as real consumption has contracted. The greater risk from tariffs remains on the labor side of the mandate.

S&P 500^® Q2 earnings evolution (2011–2025)

Stash: Another earnings season and another quarter of stronger-than-expected results, as corporate dynamism was on full display with management teams navigating nimbly through the changing policy landscape. But the reaction to the news is more important than the news itself, and despite corporates posting top- and bottom-line beats at a meaningfully higher clip than the historical median, those beats are being only modestly rewarded while misses are being punished heavily. The price action speaks to not only discerning investors, but also the risk that much of that dynamism has been priced in, as risks of a modest pullback are likely to rise as the prevailing narrative around the growth backdrop shifts.

AI investment vs consumer spending (12/31/21–6/30/25)

The Divided Sky: The US may be a consumer-driven economy, but with real consumption taking a breather through the first half of the year, the economy increasingly appears to be firing on just one cylinder: artificial intelligence (AI) investment. Over the first half of the year, AI investment has contributed more to real gross domestic product (GDP) growth than consumer spending. There may still be plenty of runway for continued AI spending, but the stasis and outright softening that have taken hold of broader growth momentum are likely to weigh on labor markets to a degree that offsets the still powerful contributions from the AI investment boom.