A Trifecta of Forces that Could Boost Stocks
Tariffs remain the most prevalent topic in markets today, which I think dampens their potential impact on markets going forward. Markets tend to price-in factors that are widely discussed, moving instead on surprise factors and fundamentals that few are focusing on.
Case-in-point: when the Trump administration started sending out tariff letters in early July, the financial media responded as though the trade war had returned in full force. Meanwhile, the stock market kept going up, as it became apparent that most of the countries on the list account for less than 1% of U.S. imports. The market’s message here, in my view, is that tariff bluster is not the same as trade policy, and investors should stop treating it as such.
Beyond tariffs, however, there is a trifecta of fundamental forces I think are more important to stocks’ direction in the second half of the year and beyond. Readers will recognize these forces as classic drivers of economic activity and growth. They are fiscal policy, monetary policy, and deregulation.
Let’s review each of these factors in turn.
What’s Driving Markets Now—and What Comes Next
With tariffs back in the conversation, many investors are looking in the wrong direction. The real story lies in the fundamentals—fiscal stimulus, monetary policy, and deregulation—which continue to support market strength.
Our July Stock Market Outlook Report2 explores how these forces are reshaping sector leadership and what it means for your portfolio. Inside, you’ll find:
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First is fiscal policy. With the passage of the One Big Beautiful Bill Act (OBBBA). There’s been much debate over the size of the bill, its price tag, and its potential effect on deficits and U.S. debt. I won’t rehash those arguments here. From an investment perspective, markets in the short term did not appear very fazed by its passage. Many believed the bond markets would go haywire at the prospect of soaring debt combining forces with inflationary pressures from tariffs.
Provisions in OBBBA could bolster corporate earnings, which may neutralize some of the tariff headwinds. These include expensing for capital equipment and R&D investments, more favorable treatment of interest expenses, and full write-offs for new factory construction. Together, these measures could incentivize a wave of domestic investment, particularly in manufacturing and technology-intensive sectors, generating hundreds of billions of dollars in savings for US corporations.2
Next is monetary policy. The Fed is now expected to begin easing as soon as September, as disinflationary forces such as softening wage growth, falling rents, and weak travel demand are outweighing the inflationary pressure from tariffs—creating room for a policy shift. The labor market also seems to be giving the Fed some wiggle room, in my view. While broadly stable, it’s showing signs of strain. Job openings are declining, and it’s getting harder for unemployed workers to find new positions. These dynamics, combined with seasonal quirks and immigration-related workforce disruptions, may give the Fed enough justification to act sooner.
Finally, there’s the deregulation factor. Under a new executive order, federal agencies must repeal at least 10 regulations for every new one introduced. Agencies have also been instructed to review existing rules for legality, constitutionality, and economic impact. Rules that are seen as impeding small business formation, innovation, or economic growth are top targets for repeal. In many cases, traditional public comment periods are being bypassed under legal exceptions, accelerating the process.3
Sector-specific efforts are also well underway. The Department of Labor is rewriting or eliminating more than 60 workplace regulations, while the EPA is engaged in the largest deregulatory action in its history—rolling back rules related to energy production, auto manufacturing, and state-level environmental policy. Markets have responded favorably in key sectors like Financials, Industrials, and Energy, where lower regulatory burdens could translate to margin expansion and increased capital spending.
Bottom Line for Investors
In my view, markets have already processed the most pessimistic scenarios surrounding tariffs and have moved on. Fundamental drivers should take over going forward, and I think fiscal stimulus through the OBBBA, a dovish turn at the Fed, and a broad deregulatory push will provide tailwinds in the second half. This trifecta of pro-growth policies—if it persists—has the potential to support earnings, boost business investment, and keep the economy growing.
Of course, there are risks. Tariffs could escalate further and blunt markets with a negative surprise, and delayed inflation effects could delay rate cuts further. But with the Fed showing flexibility, businesses facing lower compliance burdens, and tax incentives flowing through to the private sector, the medium-term environment looks supportive of equities. The tariff story will likely take the back seat.
Markets are shifting focus—from short-term noise to lasting fundamentals like fiscal stimulus, monetary policy, and deregulation. These forces are already shaping sector performance and capital flows. To see what they could mean for your portfolio in the months ahead, download our July Stock Market Outlook Report4 for timely analysis and forward-looking positioning guidance. Inside, you’ll find:
If you have $500,000 or more to invest and want to take charge of your financial journey, click the link below to get your free report today!
Download our Exclusive July Stock Market Outlook Report4
Disclosure