Tariff Impact & Price Increases - Tariffs take time to impact end consumers due to distribution chain delays [1] - Price increases in categories like personal computers and audiovisual equipment are attributed to tariffs [2] - Many companies expect to pass some or all tariff costs to the next party in the chain, ultimately the consumer [2] Supply Chain & Cost Absorption - The supply chain involves manufacturers, exporters, importers, retailers, and consumers, each trying to avoid paying the tariff [3] - It's difficult to predict how the tariff burden will be distributed among the parties in the chain [3] Data & Economic Outlook - More actual data is needed to make better decisions regarding tariffs [4] - The economy remains in solid condition, allowing time to learn more about tariff impacts [4]

Inflation & Monetary Policy - The Federal Reserve's decisions are based on data, not speculation [1] - The forecast for inflation in December was 25% core PCE for 2025 [2] - Tariffs are expected to be substantially larger than previously anticipated, leading to higher inflation [3] - Inflation forecasts have increased from 25% in December to 28% in March and 31% currently for 2025, a 60 basis point increase [4] - The Federal Reserve aims to restore price stability, targeting 2% inflation on a durable and sustainable basis, alongside maximum employment [7] - Current monetary policy is considered modestly restrictive [8] - Confidence that inflation is coming down is crucial for future policy adjustments, but tariffs create uncertainty [9] - The Federal Reserve is taking time to assess the size of the effects of tariffs before reacting [10] Economic Outlook - The unemployment rate is 42% [10] - Headline inflation is 23% over a 12-month basis [11] - Real wages are increasing at a healthy pace [11] - The economy is described as good and solid, with decent growth [11]

Inflation Trends - Core services inflation, including housing and non-housing, is trending towards levels consistent with 2% inflation [1] - Goods inflation has slightly increased, and further increases are expected over the summer due to tariffs [2] - Tariff effects on consumer prices are beginning to be observed, particularly in categories like personal computers and audiovisual equipment [3] Tariff Impact & Uncertainty - Companies anticipate passing some or all tariff costs to consumers [4] - The magnitude, duration, and timing of tariff effects remain highly uncertain [4] - The industry believes a cautious approach is appropriate while further information on tariff impacts is gathered [4] Monetary Policy & Inflation Expectations - The industry expects inflation to rise and then decline, but this is not guaranteed [5] - A key objective is to prevent a one-time inflation increase from becoming a broader inflation problem [5] - Maintaining anchored inflation expectations is crucial [5]

Market Sentiment & Economic Outlook - The market is facing a battle between resilience and complacency as the second quarter ends [1] - Some believe the market is resilient and will continue to rise towards all-time highs [2] - Concerns exist about the removal of buybacks and the end of the 90-day tariff extension [3] - The market may react negatively if the dot plot indicates only one rate cut, while two cuts may already be priced in [12] - The market has pure momentum in basically every sector, with strong appetite for IPOs until the second quarter earnings reports [17][18] Monetary Policy & Federal Reserve - The FOMC meeting is anticipated with uncertainty, especially regarding Chairman Powell's stance [3][4] - Some argue that recent weak data points, such as the largest drop in retail sales since March 2023 and poor home builder sentiment, justify a dovish stance [5] - Michigan consumer one-year inflation expectations have decreased from 73% to 53%, which the Fed may consider significant [6][7] - Uncertainty regarding tariffs and the Middle East conflict may prevent the Fed from adopting a dovish position [8][9] - The Fed's own measure of uncertainty is near pandemic and financial crisis levels, suggesting caution [22][23] - The core PCE went up by 03%, Real GDP went down by 04%, and the funds rate kept unchanged at 39% [21][22] Inflation & Tariffs - Looming tariffs and the conflict in the Middle East create uncertainty regarding future oil prices [8] - Inflation readings have been relatively good recently [8] - Inventories not subject to tariffs are dwindling, potentially leading to higher prices [16] - One company's aluminum costs, previously sourced from China, increased by 50%, leading them to source from the US, but costs are still up 35% year-over-year [14]

Housing Market & Disinflation - Housing inventory is at its highest level since 2020, indicating a potential slowdown in demand [3] - Home prices experienced a decrease last month, marking the first decline since January 2023 [4] - John Hancock believes housing disinflation will influence economic data, potentially leading the Fed to cut rates more than anticipated [4] Inflation & Tariffs - The analysis suggests that disinflation, particularly in the service-based economy, might offset the potential inflationary effects of tariffs [6] - Markets are overly focused on potential inflationary impacts of tariffs, while underlying disinflationary trends are being overlooked [2][5] Labor Market & Economic Growth - Initial claims are being closely monitored as indicators of potential cracks in the labor market, with a level approaching 260 signaling a more significant deceleration in growth [7][8] - Economic indicators, such as PMI data, suggest a slowing economy, and leading economic indicators have rolled back over [13] - While a recession is not anticipated, a gradual deceleration in growth is expected, with consumer spending showing signs of pullback [12] Fed Policy & Market Expectations - The Fed may be behind the curve in recognizing disinflationary data, similar to the market's oversight [10] - The bond market is pricing in only one to two rate cuts this year, which is viewed as inconsistent with current economic dynamics [10] - There's a possibility the Fed is already too late in adjusting its policies, potentially leading to more rate cuts than currently expected [9][10] Investment Strategy - John Hancock recommends locking in elevated income through high-quality bonds, given elevated bond yields [8] - The recommended investment strategy for the remainder of 2025 is to focus on income generation through high-quality bonds and dividend-paying stocks [14]

Well, investors watching developments in the Middle East while they await the Fed's decision on interest rates later today. In the meantime, Treasury yields are a little weaker. Tenure right now at 438.And joining us to discuss all of this is Kamal Shri Kumar. He is the president of Shri Kumar Global Strategies. Um Shri, let's talk this through.First, maybe what you think the Fed is going to do and then we can get to what you think they should be doing. You you think that nothing's going to happen today. In ...

Market Trends & Geopolitical Risks - Investors are closely monitoring Iran and Israel's trading strikes, alongside the Federal Reserve's meeting [1] - Markets appear inclined to shrug off risks related to geopolitical or trade tensions [2] - There's no shortage of a bid from the international community [9][10] Interest Rates & Debt Market - Volatility in rates is a significant concern [2] - US debt level is a frequent topic of discussion on Wall Street [1] - Credit markets have been exceptionally resilient, with both high yield and investment grade retracing losses [3] - Credit market activity is incredibly resilient, potentially leading to a record first half, absent the Covid acceleration of debt [4] Inflation & Economic Growth - Increased inflation is expected to be a focus in the Fed's projections and press release, with a potential downgrade of growth and one rate cut pushed into next year [13] - Tariffs are expected to increase inflation, with businesses potentially passing through about 50% of tariff costs to consumers [17] - The Fed may adopt a more hawkish bias than the market anticipates, potentially pushing one rate cut into next year [20][21] Fed Policy - The Fed is in a position to wait for more data, given strong labor markets and favorable inflation numbers [10] - The Fed aims to temper expectations of a "Fed put," viewing the inflationary impact as a one-off event that will be resolved by the fall of 2026 [19]

Market Overview & Valuation Concerns - The market's confidence seems too high relative to existing uncertainties such as Middle East, China-Taiwan, and Russia-Ukraine tensions [3] - S&P 500's valuation is around 23 times earnings, placing it in the 97th percentile of historical valuations, suggesting it's expensive [2] - Tariffs and "guns and butter" policies could lead to crowding out, further exacerbating the stock market's problems [3] - Averages are expected to go nowhere, with individual stock picking and unweighted indices performing better than cap-weighted indices like the S&P 500 [5][6][9] Investment Strategy & Stock Picks - The firm's investment approach is bottom-up, focusing on individual stock selection [7] - Fidelis Insurance (FIHL) is highlighted as a favorite idea, trading at a discount to its book value of around $21 and expected to earn close to 20% on equity, implying around $4 in earnings [7] - Other favored names include Apollo in private equity, Energy Transfer (yielding about 8% with 10% earnings growth), KBR, and Verizon [7][8][9] - The firm likes energy stocks with low production costs, citing Tourmaline, a major natural gas producer in Canada, and Energy Transfer [11] Specific Company Analysis - Mr Cooper is undergoing a "world-class merger" by combining its mortgage servicing rights (number one) with Rocket Mortgage's mortgage origination (number one) [8] - Legato's bonds are considered undervalued at 30 cents on the dollar, with potential for a triple in capital appreciation plus a coupon; the firm believes the government is unfairly treating the company regarding its 5G spectrum [12][13]

Geopolitical Impact on Markets - The market initially reacted positively because the situation between Israel and Iran didn't worsen significantly over the weekend [2] - Markets generally don't react strongly to geopolitics, except for oil prices, which are closely monitored [2][3] - The market believes that as long as the US remains on the sidelines and oil prices stay relatively stable, the conflict's impact on stocks will be manageable [4] - US involvement would change the market's assessment [2][5] Market Drivers and Sentiment - The primary driver of the market is currently momentum, with a return to the momentum trade [6] - Equity markets assess geopolitical events based on their potential impact on companies' bottom lines [7] - The AI trade and mega-cap tech are currently not significantly affected by the geopolitical situation in the short term [8] Economic Concerns and Fed Policy - The economy is showing signs of a slowdown, which is a concern [11][12] - The Fed is unlikely to cut rates due to concerns about tariffs and potential higher oil prices [9][12][13] - The major risk is that the economy slows down while the Fed remains on the sidelines, potentially disrupting the momentum trade in the long run [13]

Trade Policy Impact - Tariffs implemented by President Trump were intended to secure trade concessions from other countries [1] - The benefits resulting from these tariffs have been limited [1]