As we approach the middle of 2025, it is a good time to step back and review where we are both economically and in the markets. The elephant in the room are tariffs. In part 2, we will look more into the role of tariffs and the state of American manufacturing and exports.

It would be an understatement to say that current conditions and geopolitical events are changing fast enough that some of what you read in this blog may already seem dated. But, none-the-less, this is where we stand as of today.

With the talk of tariffs, there has been a great deal of discussion of higher inflation and the onset of a recession. The good news, as of today, both inflation and the risk of a recession have not risen.

U.S. Recession Risk Indicators³

One of many economic perspectives that we follow is from ClearBridge Investments³. ClearBridge utilizes 12 different economic indicators to assess the risk of recession. Each individual indicator can signal expansion, caution or recession in the economy. The signals from each of the 12 indicators are combined into an overall dashboard signal. The indicators, signals and changes are based on ClearBridge’s interpretation of the data. The dashboard is not a crystal ball but can serve as a tool to evaluate the risk of recession in the US economy. It is a simple picture using stop/go symbolic indicators signaling the recession risk.

Recession Risk Declining³

The ClearBridge Recession Risk Dashboard showed its first upgrades since January:

• Yield curve improved from red to yellow (a positive sign, but not yet signaling full expansion).
• Truck shipments moved to green, reflecting solid economic activity.
• Dashboard now shows: 8 green, 2 yellow, 2 red → suggesting continued economic expansion.
• Recession odds over the next 12 months remain low at 35%.

Labor Market Remains Resilient³

• Job openings (JOLTS) rose to 7.4 million, a positive sign.
• Initial jobless claims rose slightly but are seen as seasonal, not a warning of mass layoffs.
• Continuing claims are inching up, signaling it’s a bit harder to find new jobs—but overall labor market is stable.

Tariff Uncertainty Could Create Near-Term Volatility³

• U.S. tariffs, especially under potential Trump policies, are unlikely to go away.
• Even if some tariffs are struck down by courts, alternative legal paths exist for reintroducing them.
• The upcoming July 8 reciprocal tariff deadline could bring higher trade tensions if deals aren’t reached.
• Markets may react to tariff-related news with short-term volatility.

Equity Market Outlook²

• U.S. stocks have rallied sharply from April lows.
• Based on historical bull market patterns:
  • We are in “year three”, which tends to be a
• flat or choppy consolidation period.
• Expect some sideways movement or volatility in the coming months.
• International market have outperformed domestic markets year-to-date.

Near-term risks³

• Tariff escalation
• Higher long-term interest rates
• Slower payroll growth
• Inflation bounce from tariffs
• However, these risks all are viewed as temporary possibilities.

Reasons for Long-Term Optimism³

• A major fiscal package (“One Big Beautiful Bill”) is expected to:
  • Boost consumer spending (via child tax credit, overtime/tip tax relief, higher SALT limits).
  • Support business investment (bonus depreciation, R&D incentives).
• Weaker U.S. dollar and rising AI-driven productivity could further support earnings.

Deficit & Interest Rate Outlook³

• The U.S. deficit is unsustainable long-term, but manageable in the near term.
• Tariff revenue projections help offset some deficit concerns.
• 10-year Treasury yield expected to remain in the 4.00–4.75% range through year-end.

Final Takeaway for You

The U.S. economy remains on solid footing despite trade noise. Labor strength and upcoming fiscal stimulus provide support for continued growth. While short-term market volatility is likely, especially around tariffs and geopolitical events, we view this as a buy-the-dip opportunity for long-term investors. That being said, volatility doesn’t feel comfortable when it occurs – we understand that and take that very seriously in how we manage your money. With each of our clients, we consider both risk tolerance and risk capacity in planning for which investment strategy, style, and products are used. As independent planners, we have a vast array of options that we can utilize. Likewise, we also manage for upside performance in all that we recommend.

Sources:

¹Bloomberg. Returns through 6/9/2025. Accessible online at: www.bloomberg.com

²Capital Market Consultants, Inc. Capital Market Indicators for June 12. June 12, 2025. Accessible online at: https://www.horsesmouth.com/capital-market-indicators-for-june-12

³Franklin Templeton. (Host). Anatomy of a Recession Update: Tarriffs still in play [Audio Podcast]. June 20, 2025. Talking Markets with Franklin Templeton. Accessible online at: https://www.franklintempleton.com/articles/2025/clearbridge-investments/aor-update-podcast-tariffs-still- in-play

Disclosures

Advisory Services are offered through Creative Financial Designs, Inc., a Registered Investment Adviser, 2704 S. Goyer Rd., Kokomo, IN 46902. 765-453-9600. Firm Foundations Financial Group LLC. is not affiliated with Creative Financial Designs.

Neither Firm Foundations Financial Group or the CFD Companies give tax or legal advice.