Resilient Markets, Rising Tariffs, and Signs of a New Economic Cycle - 10/6/25

In this episode of Paramount Wealth Perspectives, Chris Coyle and CIO Scott Tremlett break down a volatile yet resilient week in global markets. Despite a U.S. government shutdown and political uncertainty abroad, equities hit new highs as investors focused on interest rate cuts and early signs of an economic reset. The conversation covers how tariffs are reemerging as a source of inflation, what the latest labor data reveals about a “low hire, low fire” job market, and why this moment may mark the start of a new early-cycle phase for investors.

Tune in as Chris and Scott explore where opportunity—and caution—lie in today’s evolving market landscape.

Transcript

Chris Coyle: 0:00

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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 and an advisor here at Paramount Associates Wealth Management. And today I'm joined by Paramount's, chief Investment Officer, Scott Tremlin. Scott, good to have you back. Let's start with the big picture. Last week was anything but quiet. New records in US equities despite a government shutdown in the United States, political drama abroad, and some data surprises. Walk us through what stood out to you. Yes, Chris. It was an interesting week. You'd expect the shut down headline to shake investor confidence, but the market essentially shrugged it off. The s and p 500 climbed another one plus percent, setting a fresh all time high in capping its fifth straight monthly gain up roughly 14%. Year to date. The story was a mix of two things. Rate cut, expectations getting stronger after soft and. Employment data and ongoing optimism around the AI driven investment cycle. It's worth noting that globally equities did well too. European and UK indices posted some of their best weeks of the year driven by strength in technology and healthcare. And what really stood out was how resilient investor sentiment has become even amid. Political dysfunction in Washington. Markets are focusing on what comes next in monetary policy rather than all the noise. So investors look past the shutdown, but from a macro perspective, how disruptive is this for the economy? In the near term? Not very disruptive. It's mostly a data blackout problem. Economic releases like payrolls and CPI maybe delayed, and that complicates things for policy makers who rely on the fresh numbers. But historically, shutdowns have only had short-lived effects. What matters more is how long it lasts. If federal workers start missing paychecks next week, pressure will build fast. But in market terms, it's the uncertainty that matters more than the lost output. And right now, markets are betting it'll get resolved. It's interesting. Rather than reacting to politics, markets seemed to look through it. Which sectors led that move? Well, the driver wasn't all tech this time, but the winner for the week was actually healthcare, which rallied nearly 7%. After President Trump announced an agreement with Pfizer to provide several high cost drugs at steep discounts, that deal took a major cloud off the sector and markets immediately priced in the possibility that more companies would follow. Utilities and technology also gained while energy lagged as oil prices softened. But the broader takeaway was that investors are still rewarding policy clarity, even if it comes from unusual places. Healthcare pricing reform was once seen as risk. Now it's being reframed as relief. That is an interesting turn. Government action boosting sentiment instead of dampening it. What else caught your eye in the data flow? A couple things. Chris first, manufacturing and services pmmi came in mixed globally, still in expansion, but off recent highs in the us. The A DP employment report surprise sharply to the downside, showing a loss of 32,000 jobs versus expectations for a small gain and consumer confidence dropped. To its lowest level since April. Meanwhile, global PMI edged down to 52.4 from 52.9, suggesting growth is moderating, but still expanding. Europe held up better than expected and emerging markets outperformed, particularly China and India. There are also subtle signs that inflationary pressures are changing shape. For example, US consumer goods inflation is now being nudged higher by tariffs. We'll get into that in a minute. Even as a broader inflation trend remains contained. Yes. Actually, let's go there. The conversation around tariffs and inflation seems to be heating up again. What are you seeing in the data? The impact is finally showing through. According to recent reports, the Trump administration's reciprocal, quote unquote tariffs, which now cover a broad set of imports, are beginning to push consumer prices higher across categories like. Clothing, electronics and car parts. For instance, in the six months to August, audio equipment prices jumped 14%, dresses 8%, and tools and hardware 5%. These are all largely imported goods. Retailers are no longer absorbing these costs, they're passing them on to the consumers. Companies like AutoZone and Ashley Furniture have already announced additional price hikes as new tariff rounds hit later this month. So we're seeing a clear shift. What started as a trade policy tool is now a consumer price story. It's not runaway inflation. But it does complicate the Fed's balancing act. Headline inflation is stable, but goods inflation is creeping back up. So in a sense, tariffs are functioning like a tax on consumption. How's that playing into the political and market narrative? That's right. Attacks on consumption and markets are recognizing the tariffs have become a structural inflation tailwind. Even if modest, the White House is betting that stronger domestic investment and manufacturing offsets that pain. But for consumers it means fewer bargains and more selective spending. For investors, the question is whether these cost pressures start eroding margins in retail, autos and manufacturing. So far, earnings estimates haven't flinched. But if tariffs persist next year, we could see downward revisions in those sectors. Speaking of earnings, let's pivot there. The latest global market expectations came out and they tell an interesting story about where the markets think we are in the cycle. They really do. Globally, earnings expectations are broadening out. Again, here's a snapshot. S and P 500 earnings are projected to grow about 11% in 2025 and 13.5% in 2026. Developed international, excluding the US are expected to rise 2.5% this year than almost 10 and a half percent in 2026. Emerging markets are expected to be stronger as well. Nearly 9% in 2025, accelerating to 12% in 2026. That distribution tells you investors expect a rotation. US leadership remains intact, but the growth gap is narrowing internationally. Corporate margins have proven resilient and balance sheets remain healthy at the same time. The forward price to earnings multiple on the s and p 500 has climbed to 22.8 times, which is pricey, but not extreme given where rates and inflation are. So we're in a market that's optimistic but not euphoric. That kind of setup you typically see in an early cycle environment. That's a good segue. There's been a lot of debate lately about where we are in the economic cycle. Some analysts argue we're already in a new early cycle phase. Do you agree with that? I do. Cautiously. I mean, historically, early cycle recoveries come after recessions, but this time feels like a soft reset version of that pattern. We may have skipped the formal recession, but the ingredients of an early cycle environment are emerging. Earnings are reaccelerating. Unemployment has ticked up modestly and monetary and fiscal conditions are poised to ease in 2026. If you look at past cycles like 1993, 2003, 2009, those were all early cycle years marked by outsize equity gains in improving risk appetite. This year's international performance with the developed international index, excluding the US. Up almost 29% in dollars fits that same mold. The implication is that we could be entering a multi-year recovery window where on paper, small cap value and cyclical sectors should start to outperform Again. Let's be clear, my portfolios are not necessarily structured that way, but I'm not going into the year end risk off. Overall, it's not without risk. Valuations are high and global politics are noisy, but structurally it looks like a pivot from defense to opportunity. And that aligns with the idea that markets are looking through near term uncertainty toward a broader expansion. But there's one big variable left labor. You've talked before about the labor market being sticky. What's the latest there? It's become one of the most interesting stories globally. Labor markets are stuck in what economists are calling a low hire, low fire cycle across the G seven job growth has slowed dramatically, just 0.5% annualized in the us. And 0.4% across the other G seven economies. Companies aren't cutting aggressively, but they're not hiring either. They're basically holding their workforces steady while waiting to see how trade technology and AI reshape productivity in the us. Job creation nearly stalled over the summer. Some regions even posted net job losses in June. Europe shows a similar pattern, particularly in the UK where payroll employment fell by. About 0.5% over the past year. The paradox is that unemployment remains low, yet job mobility has collapsed. LinkedIn data shows that the share of workers changing jobs is roughly 20% below pre pandemic levels in most major economies. Debt reflects caution. Employees want stability, and employers are reluctant to take risks. So it's not a jobs crisis, but a freeze. What are the implications of that for policy and markets? That's spot on. It's a stalemate, not a collapse. For policymakers, it complicates interpretation. If fewer people move jobs. Wage pressures can ease even without layoffs, which does help inflation. But when job growth stalls, it takes a spark out of the economy. Fewer job changes means slower productivity gains. From a market perspective, it argues for moderate growth. with Persistent slack that's a sweet spot for equities in the short term because it allows central banks to stay accommodative longer, but structurally. If this drags on, it could weigh on long-term potential growth. It's also demographic. Aging workforces across Europe and North America are less mobile, so the labor market is normalizing, but it's not firing in all cylinders. But remember my point. From previous episodes with less immigration, we may not need the same amount of hiring to keep the job market healthy. Let's tie this all together. We've got early cycle signals, firm earnings expectations, sticky labor dynamics in the reemergence of tariffs in the inflation mix. How do investors make sense of all that? Well, I. Really been reluctant to say this, but I'm now convinced that we are in a transitional market. Moving from resilience to recovery, the narrative is shifting from will growth break to how strong will the rebound be. Earnings are, reaccelerating policy is set to ease. Inflation is evolving, not exploding, and a labor market is softening without cracking that combination supports risk assets, but it's also a reminder that this next phase will be selective. You can't buy everything and expect the same result. Investors will need to emphasize quality, pricing, power, and flexibility. The traits that hold up across regimes, if the early cycle view proves right, the next few quarters could be rewarding, but success will depend on being disciplined, capturing upside without ignoring the structural shifts. They're redefining the economy. That's a great way to frame it. Disciplined optimism. Scott, as always thoughtful and grounded. Thanks for joining. Thanks, Chris. Always a pleasure. I also want to thank our audience for tuning in and remember to please submit your questions 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.