Navigating 2025: Tariff Pressures, Global Divergence, and Where to Find Opportunity - 6/20/25

 In this episode of Paramount Wealth Perspectives, host Chris Coyle sits down with Chief Investment Officer Scott Tremlett to unpack the macroeconomic forces shaping today’s investment landscape. Together, they explore five timely questions: what's driving Scott’s top-down macro view, how tariffs are influencing inflation and monetary policy, why U.S. equity positioning is shifting, where international markets offer better value, and what investors should focus on for the rest of 2025. From India’s market leadership to the inflationary bite of trade policy, Scott shares data-driven insights on portfolio strategy in a world where global divergence and selectivity matter more than ever. Whether you're navigating volatility or searching for smart global exposure, this episode delivers the strategic clarity investors need now. 

Transcript

Chris Coyle: 0:00

Intro song

0:12

Hello everyone. Welcome to Paramount Wealth Perspectives, your go-to podcast for the latest updates on global markets and current economic events. This is your host, Chris Coyle. I'm the marketing director here at Paramount Associates Wealth Management, and today I'm joined by Scott Tremlett, chief Investment Officer at Paramount Associates Wealth Management. In today's episode, we'll explore five key questions. What's driving Scott's top-down macro view right now? How should investors interpret the impact of tariffs? How does this environment shape Scott's US equity stance? Where is he finding better value outside of the United States? And what should investors focus on for the rest of 2025? So now let's begin to unpack these dynamics and discuss how to position portfolios in a market that demand selectivity. Scott, all of our clients know your investment philosophy starts with a macro view. What are the most important signals guiding your outlook right now? Thanks, Chris. Yes. I anchor everything to my global rankings and there are three key factors, current economic power, momentum, and the overlay of monetary policy and valuations. Right now, India ranks number one across the board, strong GDP falling inflation in a proactive central bank, cutting rates has set the tone. Meanwhile, Italy, China, Japan, and Spain are also outperforming. Contrast that with the us, which is ranked number 19, the current metrics, yeah, they're decent manufacturing and retail sales have been solid, even with the one month retail sales number dropping in May. But overall. The momentum is lacking. The big drag is policy uncertainty and inflation risk, especially from tariffs. I have seen estimates that for every 1% increase in tariffs, one would expect inflation to increase by one basis point or 0.1%. Consider tariffs have risen overall over, you know, 10% from where they were. We should see this reflected in inflation numbers in the future. Big picture. When growth is being pressured by policy, while others are stimulating around the globe, you do begin to see divergence in market performance. That makes a lot of sense, Scott, especially given how your framework captures both where economies stand today as well as where they're headed. It's striking to see such a stark contrast between the United States and countries like India or Japan, especially when policy divergence is driving performance gaps. The tariff driven inflation risk you mentioned seems particularly important. Those compounding effects could really limit the Fed's flexibility in the months ahead. The next topic I want to discuss with you, Scott, is tariffs. Tariffs seem to be reshaping the trade and inflation expectations. What's the net takeaway from recent tariff shifts? Tariffs are acting like a stealth tax on the consumer. The Fed estimates that the 20% increase in Chinese tariffs added around 0.33 percentage points to the overall core goods inflation. Between just January and March, it's been estimated that there's been about a 54% pass through rate to the US consumer. Consumers are paying more Plain and simple. We're seeing FedEx and UPS Tech on import duties, post-delivery costs, so there's real Sticker shock starting to happen at the macro level. JP Morgan pegs the impact at$400 billion in annual costs just for core goods in the United States. That kind of pressure forces businesses to either eat margin or raise prices. And households are projected to pay around$2,800 more this year for core goods than they did last year. There is divergence on the household effects of these new costs with low income earners feeling more pain, middle and high income earners are at or near record level wealth. So the effect may be limited, but the biggest issue to me is that it's also freezing the Fed's hand a bit. They pause cuts waiting to see the full effect of these tariffs on inflation, and that's policy friction with some bite. Absolutely. When you lay it out like that, it's clear. Tariffs aren't just a trade tool anymore. They're actively shaping consumer behavior and monetary policy. That$2,800 annual hit to households is no small burden, especially for lower income families who feel it most, as you pointed out. And with the Fed, essentially in a holding pattern waiting to see how inflation evolves. It really underscores how interconnected trade policy and interest rate decisions have become. Now, let's talk positioning. You've shifted from overweight to underweight US equities. What triggered that move? Three things, Chris. Valuations, earnings expectations. To me seem overly optimistic considering the macro backdrop and the Fed US equities. Yes, they've rebounded from lows earlier this year, but given the uncertainty, it is difficult to see what may push broad markets much higher from where they are right now. The market is pricing in a soft landing and strong earnings growth year over year in the fourth quarter of this year, but I think that's. Too ambitious earnings per share. Beats have been strong, but forward guidance hasn't necessarily kept up. The fed isn't going to aggressively cut, in my opinion. One, maybe two cuts max and only if inflation behaves. I really believe we are in the calm before the storm when we're talking about inflation. But core pressures do persist. Wages are still running hot at 3.9% growth year over year, and long bonds are yielding about 4.4% right now. Add the risk of tariff driven inflation and you've got a recipe for market volatility going forward. I think the s and p 500 does end the year between 61 75 and 63 50, which is just about three to 5% from where we are now. But the risks, valuation, policy and inflation definitely lean in my mind to the downside. I agree that perspective really highlights how stretched market expectations might be. Right now, with valuations already elevated in earnings, optimism, possibly outpacing reality, it's hard to see a strong catalyst for broad upside add in, limited fed flexibility and persistent inflation pressures. And it does feel like investors should be preparing for more volatility than the current pricing suggests. Which leads me to my next question. If the United States is expensive and there's uncertainty, where do you see more attractive opportunities? Well, internationally I am much more constructive. non-US stocks are trading at a much larger discount to US peers than historical averages, and the expectations are lower, creating a lower hurdle to beat to impress investors. So I am now overweight, developed international markets and equal weight emerging markets. Europe is really starting to benefit from rate cuts and improving sentiment. The M-S-C-I-E fee is up over 18% year to date versus under 2% for the s and p 500. That's a huge gap. Even emerging markets like China are getting more interesting. Again, Beijing is stimulating and any kind of tariff deescalation would be a tailwind. It's not about blanket exposure, it's selective. Look at countries with monetary support, reasonable valuations, and manageable geopolitical risk. That's where the upside exists. Well, you definitely make a compelling case for looking beyond the United States, and I like your point about being selective. It's not just about moving capital abroad, but being strategic about where the real opportunity lies. Which leads me to my final question. What's your core advice to investors through your end? Focus on fundamentals. This isn't a year in my mind from what might be called passive beta or just blind index exposure. I. Stock selection matters more than ever. You want companies with pricing power, consistent earnings, and strong balance sheets. As for other asset classes, I am underweight government bonds. I do prefer private credit and infrastructure. Instead, alternatives like private equity, venture capital, and infrastructure can outperform in this rate environment. Commodities and REITs, I'm cautious there due to macro headwinds, however. There is a looming deadline for the originally announced tariff amounts to go back into effect, and precious metals will seem more interesting to me in that environment. Ultimately, it's about adapting. Blind optimism doesn't work here. You need to be nimble, selective, and think globally. That's how you stay on offense in a defensive market. Absolutely. This underscores how critical it is to stay nimble in today's environment. Where broad exposure simply won't cut it, and success depends on focusing on fundamentals, quality, assets, and global opportunities. Well, I really appreciate you taking the time to share your insights. Scott. I also want to thank all of our listeners for tuning in. And remember, if you have a question you would like to hear our perspective on, please submit them via email to general@paramountassoc.com. For now, stay informed. Stay ahead and join us next time for more key updates shaping the global economy.