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Investment Strategy
by Larry Adam
Chief Investment Officer, Private Client Group

The Fed has room to lower rates to keep the expansion going

June 27, 2025

Review the latest Weekly Headings by CIO Larry Adam.

Key Takeaways

• Despite concerns, there will be no repeat of 1970s-style stagflation
• The fed has room to lower rates to keep the expansion going
• We are not buying into the idea that U.S. exceptionalism is fading

Can you believe it’s been 40 years since Back to the Future first hit theaters in 1985? This beloved classic isn’t just a fun ride through time—it’s also a great reminder that while we can’t change the past, we can certainly learn from it. That idea rings especially true when it comes to investing, economics, and even politics. History has a way of repeating itself—patterns emerge, lessons resurface, and the past often lights the way forward. Just like Marty McFly had to think fast and adapt to the unexpected, today’s investors need to stay sharp, flexible, and ready for anything. That’s why we’ve chosen Back to the Future as the theme for our Q3 2025 Investment Outlook. Many of the dynamics we’re seeing today echo moments from the past—and understanding those parallels can help navigate what’s ahead. Please join us on Monday, July 14 at 4 PM EST for our latest views on the economy and the financial markets.  In the meantime, here’s a sneak peek at our Q3 2025 Outlook.

• No Repeat Of The 1970s Stagflation | Time traveling back to the 1970s would find an economy marked by high inflation, energy shocks and growing trade tensions. Sound familiar? Some of the same trade policies from that era—like the Trade Act of 1974 and the International Emergency Economic Powers Act of 1977—are back in the spotlight today. While the backdrop feels similar, here’s the good news: we don’t see a repeat of 1970s-style stagflation. Why? For one, today’s economy is in much better shape—with lower inflation, low unemployment, and steady growth. Even if President Trump takes, as we expect, the average effective tariff rate up to 15%-17% by year end, the temporary boost to inflation and slowdown in growth should not result in a full-blown recession. And let’s not forget—thanks to policies born in the 1970s, like the Strategic Petroleum Reserve (1975) and the Department of Energy (1977), the U.S. is now far more energy independent. Add in today’s oil oversupply, and prices should stay in check—likely hovering around $60–$65 a barrel over the next 12 months.
• Shades Of The 1990s For The Economy | Jumping to the 1990s would bring us to one of the most enviable decades in modern history for the economy and markets. Back then, the country was in the midst of its second-longest stretch of uninterrupted growth, driven by a surge in productivity, early waves of tech innovation, and a savvy Fed Chair who cut rates just enough to keep the momentum of the economy moving. Today’s Fed faces a similar moment. While growth is expected to slow to 1.4% in 2025 as businesses and consumers adjust to tariffs and hiring cools, the Fed still has room to act—with the fed funds rate around 4.5%. We expect two rate cuts by year end and two more in 2026, helping growth pick up to 1.5% next year. Trump’s “One Big Beautiful Bill” could also provide a modest boost, even if it adds to the deficit. One key takeaway from the ’90s? Fiscal discipline matters. With interest payments now consuming nearly 18% of federal revenue—just like they did back then—it’s a warning sign we shouldn’t ignore.
• U.S. Exceptionalism Of The 2000s To Continue | If we rewind to the 2000s, we’d land in the middle of the dot com boom—and the bust that followed. But today’s tech landscape looks very different. It’s built on a stronger foundation—with mature, profitable companies, diverse revenue streams, and technology that’s deeply embedded in our daily lives. From a market perspective, we’re a bit cautious in the near term. We expect 2025 S&P 500 earnings expectations to ease slightly—from the current consensus of $262 to around $255—which puts our year-end S&P 500 target just below current levels at 5,875. That said, we’re more optimistic over the next 12 months, with a target of 6,375, supported by stronger GDP growth, a more supportive Fed, and greater clarity on tariffs and fiscal policy. Looking abroad, the 2000s also marked the debut of the euro, sparking hopes that Europe could rival the U.S. economically and its equity markets outperform. But those hopes faded as Europe struggled to keep pace. Today, there’s renewed optimism in Europe, thanks to increased fiscal spending. Still, we’re not buying into the idea that U.S. exceptionalism is fading. We continue to favor U.S. equities, where the outlook remains brighter.
• No Re-Run Of 2023’s Debt Déjà Vu | Our final stop brings us to 2023—the last time the debt ceiling was raised. After it was suspended without a cap, bond yields jumped, with the 10-year Treasury briefly hitting 5.0%. Investors were bracing for a flood of new Treasury issuance as the government refilled its coffers and covered trillion-dollar deficits. Now, we’re at a similar crossroads. The debt ceiling is back in place, and with the clock ticking toward another 'x-date' (the expected day the government can no longer pay its obligations), markets are once again preparing for Congress to act. Most likely, the ceiling will be lifted as part of the “One Big Beautiful Bill,” setting off another wave of significant Treasury issuance. Still, we think concerns about soaring yields are overdone. Yes, supply will rise—but demand should stay strong. One key lesson from 2023: smart regulatory tweaks and a shift toward issuing more shorter-term debt helped keep markets steady. We expect the same playbook this time around. That’s why we’re holding to our forecast of a 4.25% yield on the 10-year Treasury by year end and over the next 12 months, with the best opportunities in short-to intermediate-term bonds.

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