Is the US economy still resilient or showing signs of strain? A deeper look into 2025
29 JUL, 2025
By Carlo Benetti, Market Specialist at GAM.
The U.S. economy remains in good shape, with early Q2 results indicating that both businesses and consumers have continued to spend. The University of Michigan’s regular survey shows a slight improvement in consumer confidence, helping to keep the S&P 500 and Nasdaq indices at record highs.
However, beneath the surface, signs of economic fatigue are emerging: PMI indices for both manufacturing and services sectors fell more than expected, shifting attention to the data due for release on Thursday, 24 July.
Inflation is also proving stubborn, rising to 2.7% in June, up from 2.4% in May and above the expected 2.6%. This marks an early indication of the impact of tariffs, which are currently being absorbed largely by businesses.
The decline of the U.S. dollar against major currencies and the rise in gold prices suggest growing scepticism towards the world’s largest economy and ongoing concerns around geopolitical risks. Former President Donald Trump’s repeated threats to dismiss Federal Reserve Chair Jerome Powell continue to cause uncertainty, and indeed, the sentiment in bond markets is notably more cautious.
Unlike equity markets, the bond market is not driven by legions of young DIY traders active on Reddit and Robinhood, who continue to "buy the dip" and support stock prices.
Bond investors are weighing the impact of the so-called "Big Beautiful Bill" on public finances, expressing doubt over the federal debt and demanding a risk premium: yields on 10- and 30-year U.S. Treasuries have risen amid expectations of unsustainable increases in deficits and debt.
The complacency reflected in market reactions to the recent tariff-related communications from the White House may downplay potential risks, possibly leading to imprudent investment decisions. It could take just one negative data point, a geopolitical escalation, or a rate surprise to rapidly shift sentiment.
“You’re going to need a bigger boat,” says Chief Martin Brody in the cult film Jaws — investors must ask themselves whether their portfolio could withstand an unexpected wave. If the answer is uncertain, it may be time to speak to a trusted financial adviser and acquire a bigger boat.
That “bigger boat” is a robust, flexible, and well-diversified investment strategy.
Diversification involves spreading investments across multiple asset classes and geographic regions, with the aim of reducing overall portfolio risk. It must go beyond the traditional equity-bond mix and include thematic and uncorrelated strategies, commodities, and alternative investments. The right approach is one of selectivity and flexibility, avoiding concentration in too few asset types or investment styles.
It’s important to monitor markets closely and adjust investment strategies in line with evolving economic and financial conditions.
Lastly, our “bigger boat” must also include information and self-awareness—staying informed about specific risks and being vigilant in managing emotions, knowing that our own behaviour can be more dangerous than market movements.
The combination of macroeconomic and political factors (particularly what’s simmering beneath the surface in Washington) and the risk of complacency suggests that the second half of 2025 may prove challenging for investors. A cautious, informed, and adaptable approach will be essential in navigating this uncertain environment.
Savvy investors — especially those with professional guidance — may already have that bigger boat.
