Investment Viewpoint: tariff trouble continues

Simplify the complex with clear and concise market insights direct from our investment experts every week.

Markets and macro insights with Bernard Swords, Chief Investment Officer

How did markets fare last week?

• Last week, markets were somewhat on edge due to uncertainty about tariffs, with a number of measures threatened, culminating in the announcement on Saturday of 30% tariffs to be imposed on the EU and on Mexico from August 1. Before this news, equity markets were already down to a modest extent.

• Bond yields were a little higher in the euro area, due to conflicting signals from European Central Bank (ECB) members about the prospect of interest rate cuts. The cost of the fiscal boost in Germany continues to worry fixed income investors. Last week saw renewed focus on the use of fiscal policy—rather than a looser monetary policy—as a means of bolstering German and wider European economic growth.

What is Goodbody’s assessment of the situation?

• Goodbody had expected a rougher summer period for financial markets after their recovery in the second quarter of the year, and we see some indications of that trend. However, we would view any corrections in risk markets as potential opportunities to add exposure, rather than recommending adjustments to protect against potential volatility.

• This week, we held our monthly asset allocation meeting, which allowed a review of the assessments gathered by Goodbody Chief Economist Dermot O’Leary from economists, policymakers and investors during his recent trip to the US.

What can be predicted about the short and medium term?

• As regards trade policy, Dermot O’Leary reported that the global trade environment remains tense, with a non-negotiable tariff level of at least 10% remaining in force, even if higher levies threatened by August 1 can be forestalled or reversed due to market pressure or new talks and agreements.

• In respect to US fiscal policy, the much-vaunted One Big Beautiful Bill Act (OBBBA) will in fact be of limited economic impact, involving mainly an extension of personal taxation relief. Slower growth is expected for the US economy in the second half of 2025, driven by tariffs, business uncertainty, and declining immigration. Nevertheless, a recessionary scenario is not on the horizon.

What further predictions can be made?

• Tighter control of immigration will stymie labour-force growth and hence limit consumption. As a result, 2026 is likely to be another year of sub-trend growth. In the fourth quarter of 2025, inflation is projected to rise by 3.5 to 4%, driven by tariffs and labour constraints. During the second half of the year, a stagflation trend may be observable in the US. To a certain extent, however, deregulation is benefitting productivity, particularly in the IT and financial services sectors.

• Overall, the picture for the US economy is less positive than might previously have been hoped, especially in regard to longer-term growth potential, and the possible future impact of headlines identifying the emergence of stagflation.

What conclusions does Goodbody draw from Chief Economist Dermot O’Leary’s report?

• The prognosis offered above might seem to challenge Goodbody’s over-weight position in US equities, but some key factors must be borne in mind. Firstly, all regions (not only the US) currently face difficulties, and the US remains the fastest-growing of all the developed markets.

• Secondly, the US equity market should not be identified with the US economy. Over half the sales of companies in the S&P 500 come from overseas.

• Thirdly, the sectoral mix of the US equity market is much more skewed to structural growth than is the case in the rest of the world. If global economic growth is shaky, the US equity market remains the safest place to be. Lastly, and allied to the previous point, profit growth is much more resilient in the US than elsewhere, partly due to the sectoral mix of the US market.

What new data was released last week?

• The only release of note last week was the minutes of the last Federal Open Market Committee (FOMC) meeting, the interest-rate-setting committee of the US Federal Reserve. The committee’s analysis remains unchanged, classifying growth as solid, and inflation as elevated. The policy outlook appears rather more obscure.

• The majority of committee members expected an easing of tariff policy at some point this year, due to the negative impact of tariffs on the economy and the fact that they do not ease inflation in the longer term. Such conclusions suggest that the Fed will respond in future to data on growth rather than on inflation.

The week ahead: what to watch out for

In addition to further news on tariffs, we will receive the Inflation Report (CPI) and the Industrial Production and Retail Sales reports from the US. China will release its GDP figures the second quarter of 2026, as well as its monthly trade data.