Market Update - US fiscal issues continue to affect financial markets

Highlights: Fiscal issues surrounding the debt ceiling, the budget, and a wider budget deficit going forward will continue to trouble financial markets until a resolution is reached. Once fiscal policy is set, financial markets must reprice valuations to properly reflect the new economic fundamentals. How the Trump policy agenda of tariffs, lower taxes, deregulation, and new domestic and foreign investment in the US will impact the economy and the financial markets must all be reassessed once the agreements on these topics are reached.

• Given the many imponderables, we believe uncertainties will continue to cloud the US financial markets in the short term. Despite these near-term concerns, we hold a constructive tactical view for equities, supporting our overweight US equity position
• In spite of the downward revisions, consensus earnings forecasts remain above-trend in 2025 and are estimated to accelerate further next year. In the long-term, we think technology will continue to drive productivity and profitability as the next iteration of Al provides more value-added products and services that should further lift productivity and profitability
• The combination of fiscal and other policy drivers (tariffs, lower taxes, and deregulation) combined with a technology revolution that is just beginning should attract domestic and foreign capital and encourage the relocation of manufacturing plants to the US
• For fixed income investors, the political uncertainty surrounding the debt ceiling, the budget, and the potential for wider federal government fiscal deficits is expected to sustain market volatility. Therefore, we recommend investors keep an active approach to fixed income investing, looking for tactical opportunities to lock in higher yields when they occur