As we enter July and the second half of 2025, markets and the economy remain resilient against a backdrop that feels anything but calm. The U.S. airstrikes on Iranian nuclear facilities over the weekend of June 21–22 introduced a serious geopolitical variable, raising the specter of escalation and potential global conflict. And yet, despite the weight of these headlines, equity markets have moved higher.
This seemingly paradoxical behavior underscores a deeper truth about the current environment: we are in a moment where the signal is increasingly difficult to separate from the noise. Threats of major war, tariff shocks, inflation uncertainty, Fed recalibration, AI enthusiasm, and capital market stirrings — all these factors are colliding to create a complex, sometimes contradictory investment backdrop.
At Carnegie, we continue to screen the noise to identify real opportunities. Here's what we're watching this month.
The market’s ability to move higher even amid global tension and confusing economic data requires the exercise of parsing through the data with greater rigor.
Take June’s widely cited -0.9% month-over-month decline in retail sales. On the surface, it suggested a consumer pullback. But a deeper look tells a more nuanced story: the headline decline was driven by a post-surge cooldown primarily in auto sales, which spiked earlier this spring due to tariffs. Excluding autos, sales were down a modest 0.3% and stripping out other volatile categories like gas and building supplies, sales rose +0.4%.
Post-COVID strongholds like restaurant and building materials spending are also softening — the latter falling 2.7% in the previous month. These sectors had been key drivers of inflationary stickiness. Now, their pullback adds weight to the idea that the consumer is still spending, just differently and more selectively, rather than what the headline figure suggests.
Volatility without a clear direction creates opportunities. And in a noisy environment like this, our focus remains fixed on fundamentals, sector trends, and company-level execution rather than headline macro data.
For all the concerns about tariffs, they’ve yet to deliver the inflationary punch many predicted. In fact, in some areas, tariffs are softening producer pricing power, helping moderate post-COVID inflation pressures. One reason? Retailers like Costco, Home Depot, and Walmart have committed to price stability, absorbing more of the cost increases rather than passing them on for now. In addition, weakness in discretionary sectors (e.g., restaurants, housing-adjacent goods) is reducing the pricing power that businesses held during the post-COVID boom.
The Fed’s preferred inflation gauge, core Personal Consumption Expenditures (PCE), was reported recently at 2.7% Year Over Year— near the slowest annual gain in over four years. Both the Consumer Price Index and the Producer Price Index have also stayed muted, defying expectations of sharp increases tied to tariff fallout.
For investors, it’s a sign that pricing discipline may define the next phase of the cycle and create investment opportunities for companies that showcase solid fundamentals capable of absorbing price increases and supply chain shocks.
At its June meeting, the Federal Reserve held rates steady but revised its 2025 Gross Domestic Product forecast downward, from 1.7% to 1.4%, and raised its year-end PCE inflation projection to 3.0%.
This cautious stance may be more blessing than burden. As inflation normalizes and the Fed remains on hold, the U.S. dollar slipped to a three-year low, although it has since rebounded modestly since the growing geopolitical uncertainty in the Iran-Israel conflict.
We estimate that continued dollar weakness could add up to 3% in earnings upside for the average U.S. multinationals. With earnings expectations already revised downward from mid-teens growth at the start of the year to high single digits today, this boost could matter more than usual come next earnings period.
In a market looking for direction, this combination of a less hawkish Fed, tamer inflation, and currency-driven tailwinds could be the subtle engine that helps salvage second-half performance for multinational names.
It’s not just large caps that continue to buck the noise and uncertainty in the market. The Initial Public Offering market is stirring, bringing much-needed momentum to small-cap equities, many of which have been under pressure for years. With approximately 42% of the Russell 2000 (U.S. small cap index) still unprofitable, capital inflows via new issuance and broader investor participation could prove pivotal.
Meanwhile, AI continues to dominate headlines, though its narrative is evolving. Recent research from Apple suggests that today’s AI remains rooted in pattern recognition, not true cognitive processing. Still, infrastructure sectors like wind, solar, and uranium, as well as enabling technologies, are showing promise as the “picks and shovels” of this new gold rush.
In our view, broad-based market participation, not just leadership from a narrow set of mega caps, is key to a sustainable rally. The recent small-cap and IPO activity suggests that the shift may finally be underway.
These charts show that inflation is cooling, which is significant for investors. The left chart tracks Personal Consumption Expenditure Price Index (PCE) Core Services excluding Housing (YoY), which is now near its lowest level since February 2021, indicating easing pressure in a key inflation component. The right chart highlights that the 3-month change in Core PCE has dropped below 2%, a level consistent with the Federal Reserve's long-term inflation target. For investors, this cooling inflation trend may increase the likelihood of the Fed cutting interest rates, which could boost bond prices and support equity markets and lead to lower consumer borrowing rates.
The headlines are loud: geopolitical tensions, policy uncertainty, and economic misreads abound. But beneath the surface, the U.S. economy is evolving in a way that suggests resilience and recalibration.
At Carnegie, we continue to believe that disciplined investing grounded in data, not drama, is what drives long-term success. Whether it's navigating confusing economic indicators, assessing the impact of tariffs, or parsing real innovation from hype, we're here to help you find clarity in the noise and opportunity in the uncertainty.
This commentary is for informational and educational purposes only and includes general economic and market conditions. Data and other market and economic information referenced is from sources believed to be reliable and opinions are subject to change.
Carnegie Investment Counsel (“Carnegie”) is a registered investment adviser with the Securities and Exchange Commission. Registration as an investment adviser does not imply a certain level of skill or training. For a more detailed discussion about Carnegie’s investment advisory services and fees, please view our Form ADV and Form CRS by visiting: https://adviserinfo.sec.gov/firm/summary/150488.