U.S. capital deployment is hindered by tariff and trade uncertainty. A reconciliation bill is expected to pass the Senate, avoiding significant tax increases in October 2025. Bipartisan support is driving a U.S. nuclear energy renaissance.
Overview
| MID-YEAR HIGHLIGHTS |
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We have observed a volatile first half of the year in U.S. equities. A significant factor contributing to this volatility has been the dynamic and frequently evolving nature of tariffs. The current administration’s proactive approach, which appears to address various global trade considerations simultaneously, has introduced considerable uncertainty into the market. This has often resulted in fluctuating conditions, as tariffs were announced, communicated through public platforms, and subsequently adjusted, creating a rather complex period for capital management. Despite this intricate backdrop, as we approach mid-June, the market is approximately flat compared to the beginning of the year. Interestingly, for an observer disengaged from daily market discussions, this period may appear relatively uneventful.
There has been some moderation in the Consumer Price Index (CPI). Following a somewhat challenging Q1 GDP report, the second quarter appears to be demonstrating signs of recovery. However, we have also noted moderately concerning data from Purchasing Managers’ Index (PMI) reports, which indicate weakness in new orders alongside elevated prices paid. While it may be premature to raise a definitive alarm, it’s not a combination we want to see persist.
Source: Bloomberg, as of May 31, 2025
From an employment perspective, recent weeks have revealed shifting patterns in one of the early warning signals we monitor: weekly initial claims reports. This metric, which tracks new unemployment filings, has exhibited an upward trend. Although not yet at levels we would consider alarming, it is positioned above the thresholds where we would confidently assert that conditions are entirely stable.
Outlook
Amidst these economic currents, the development of artificial intelligence continues to accelerate rapidly, with regular announcements of new models consistently showcasing enhanced performance and expanded functionality.
Tariff and Trade issues
The eventual resolution of tariff and trade issues is poised to be crucial for the U.S. economy. Virtually every CEO with whom we interact indicates that the current level of uncertainty complicates capital deployment on major projects. We anticipate some reduction in this uncertainty, primarily due to political imperatives. With midterm elections approaching, economic uncertainty is generally not a favourable platform.
Policy changes
The reconciliation bill has passed the House of Representatives and is now awaiting action in the Senate. It is highly probable that some iteration of this legislation will ultimately be enacted, primarily to avert a substantial tax increase in October 2025, when the 2018 tax cuts are set to expire. Generally, politicians prefer not to face elections after having failed to prevent a significant tax increase for their constituencies. Thus, the reconciliation bill is likely to advance in some form, and we are monitoring its progress closely.
Energy (nuclear) renaissance
We have maintained a positive outlook on a nuclear renaissance in the United States for an extended period. This initiative generally enjoys bipartisan support and is aligned with both energy security and broader national security objectives. We were encouraged to witness a series of positive developments in the first half of the year and expect this momentum to persist into the second half. One of the key indicators we are monitoring is the initial announcements regarding large-scale new nuclear plant constructions. While some form of government support may ultimately be necessary to mitigate against undue cost overruns, viable avenues for advancement appear feasible, particularly given that the reconciliation bill seems to offer support for nuclear energy. Additionally, hyperscalers are increasingly engaging in this sector by forming partnerships with utilities for a reliable energy supply, which could significantly influence new nuclear developments. In summary, we believe this trend is likely to maintain its upward trajectory.
In light of the various near-term factors, we remain fundamentally optimistic about the future of the U.S. market. Although we may continue to witness some volatility, we believe there are sufficiently important tailwinds to support the fundamentally strong U.S. economy, which should continue to present compelling long-term opportunities in U.S. equities.
Download the full Empire Life 2025 Semi-annual Market Outlook (PDF).
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July 2025
