Zacks Investment Management

In this week’s issue of Steady Investor, we unpack the latest developments influencing investor sentiment, including:

• Inflation steady despite new tariffs
• The latest on legal challenges to U.S. tariff policy
• U.S.–China ease trade tensions

May Inflation Data Shows Little Price Pressure from Tariffs – Many market watchers were wondering if May would be the month when tariff-induced price pressures appeared in the inflation data. They’ll need to keep waiting. According to the Labor Department, the consumer price index (CPI) rose just 0.1% in May, softer than expected, and held steady at 2.4% year-over-year. While forecasters had expected tariff-related price hikes in goods like cars and clothing, those categories saw prices fall, not rise.This outcome raises questions about whether tariff-driven inflation will materialize at all, or if it may arrive later—and in milder form—than anticipated. One explanation is that businesses, unable to pass higher costs onto customers in a cooling demand environment, are absorbing the impact. Another theory is that firms built up inventories ahead of the tariff deadlines, giving them runway before raising prices. Some categories—like appliances, car parts, and audio gear—did show modest price increases, but the broader inflation picture remained subdued. In our view, the latter scenario is the most likely, and we expect to see some price pressures later this summer—but not much. As for the Federal Reserve, it’s likely to hold interest rates steady at its upcoming meeting given the steady state of the economy and the possibility of price pressures surfacing later this summer. In our view, it will be important to watch the Fed’s projections based on the latest data. If inflation continues to underwhelm and the labor market shows signs of softening, rate cuts could be back on the table later this year.¹

The Rules to Follow When Markets Turn

Market headlines can shift overnight—from muted inflation data to renewed trade tensions. But the one constant? Volatility. And how you respond can make or break your long-term outcomes.

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The Latest on Legal Challenges to U.S. Tariff Policy – A federal appeals court this week granted a temporary stay that will keep the Trump administration’s tariffs in place for now, while also agreeing to hear the legal challenge on an expedited basis. The decision came in response to a trade court’s earlier ruling that the executive branch had exceeded its authority in imposing the tariffs. The appeals court said it would hear arguments on July 31, meaning the contested duties are likely to remain in effect for at least the next two months. The original lawsuit was brought by a group of small businesses and state attorneys general, who argued that Congress’s approval is required for unilateral tariffs in the absence of a national emergency. The Trump administration appeared to suggest that trade deficits rose to the level of emergency, which the businesses contest. In legal filings, businesses argued that the economic toll could be irreversible, especially for smaller enterprises. On the other side of the legal challenge, the Justice Department said the lower court’s injunction jeopardized months of economic and diplomatic planning, and posed risks to national security. A final resolution may ultimately fall to the Supreme Court, depending on the outcome of this summer’s hearing. From an investor perspective, this legal turn adds to the growing list of evidence that the worst-case scenario on tariffs continues to be avoided. Even amid legal uncertainty, markets have largely looked through the tariff noise, anticipating that the tariffs that ultimately stick will be lower than previously expected.³

The U.S. and China Agree to Thaw Trade Spat, but a Major Deal Remains Elusive – A tentative agreement between U.S. and Chinese negotiators has restored access to critical rare-earth materials for American manufacturers, though only on a temporary basis. Under the deal, China will begin issuing six-month export licenses for rare-earth elements used in electric vehicles, defense systems, and electronics—giving U.S. companies some near-term relief but little long-term clarity.The license renewal is part of a broader framework agreed to during recent trade talks in London, aimed at stabilizing tensions that had escalated sharply after a breakdown in earlier negotiations. In return, U.S. negotiators signaled a willingness to ease some recent export restrictions on products including jet engines, related parts, and ethane. The full agreement remains subject to further approvals, and many of its terms—particularly those governing the durability of any concessions—are still being worked out.While the restoration of rare-earth supplies marks progress, it’s also a reminder that both sides are reserving the ability to quickly ratchet tensions back up. The six-month limit on export licenses ensures that China retains leverage if talks falter, while the U.S. has left in place controls on access to sensitive technologies like semiconductors and AI hardware. In effect, both sides have returned to the familiar rhythm of trade skirmishes: sharp escalation followed by limited de-escalation—without ever resolving core disagreements.For markets and manufacturers, the end result is more of the same. Tariffs remain higher than they were at the start of the year, and recent agreements amount more to “a plan to make a plan” than a comprehensive deal. Trade policy remains as such remains uncertain, and businesses are left navigating a landscape where policy direction is still being hashed out one negotiation at a time.⁴

Handling Market Swings in Today’s Economy – Volatility is unavoidable—and the stakes have never been higher. Without a solid plan, sudden market swings can seriously threaten your portfolio and your financial future.

In our exclusive guide, The Do’s and Don’ts of Stock Market Volatility⁵, we share key strategies for navigating turbulent markets, including:

• 3 best practices to successfully manage periods of market volatility
• 3 most common mistakes investors make, and why they are so damaging to your long-term investing goals
• Historical data that supports our conclusions and underscores the recommendations we propose

If you have $500,000 or more to invest, get our free guide today!

Download Your Copy Today: The Do’s and Don’ts of Stock Market Volatility⁵

Disclosure