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JUNE 2025 Market Firming Amid Policy Volatility At Strategas, we assess 16 foundational market indicators each month, classifying them as either "Assets" or "Liabilities" to guide our outlook with dispassion and discipline. After a brief stint in the Liability column in May, the market's Technical Picture has returned to Asset status. The rationale: a classic rebound from correction lows—characterized by broadening participation, new highs, and pro-cyclical leadership— suggests durability. While historical comparisons are not prophecies, this market setup strongly resembles the 2018 correction and the ensuing "Powell Pivot," when investor confidence returned amid a surprising softening in policy rhetoric. With 1Q earnings robust, trade rhetoric softening, and tax optimism building, the rally feels more earned than speculative. We remain skeptical, however, about drawing too much from 2Q economic data. Trade distortions, delayed spending, and policy ambiguity make it a "broken play." Instead, we're emphasizing three enduring indicators: the consumer, credit spreads, and corporate profits. Encouragingly, consumer confidence ticked up for the first time since November, credit spreads remain tight, and 1Q earnings were strong — up +14% Y/Y — though downward revisions for 2Q and 2H are outpacing the norm. The rollout of President Trump's aggressive trade agenda has complicated the landscape. Market volatility, policy inconsistency, and headline-driven swings in equities have made long-term corporate planning difficult. Yet markets have absorbed the chaos. Since Inauguration Day, equities are flat, bond yields are down, credit spreads are stable, and employment is robust. Until real economic pain surfaces, don't expect volatility—either in markets or policymaking—to abate. The U.S. remains on a narrow path. After years of absorbing shocks with minimal disruption, cracks are beginning to appear. Labor market strength is eroding, and tariff-driven price distortions could reignite inflationary pressures. Our current probabilities for 2025 reflect this uncertainty: 35% chance of recession, 50% soft landing, and 15% upside surprise. But with unemployment claims low, credit spreads tight, and corporate earnings still expanding, the economy appears resilient for now. So, what are the key themes guiding portfolio construction? Sticky inflation persists, driven by fiscal deficits, wage demands, deglobalization, and immigration. The Fed may ease, but less than the market hopes— short-duration, cash-flow-rich equities are preferred. Major thematic bets remain Artificial Intelligence, Cash Flow Aristocrats, the Industrial Power Renaissance, and De‑Globalization. We continue to favor Large Cap Value over Growth, but shorter-term investors will note that Tech has firmed in recent weeks. We continue to recommend Overweight allocations to Financials, Energy, Utilities, and Industrials, though we would note Energy remains unloved by the Street. As we move through the middle of 2025, we continue to characterize the second quarter as a period of transitory dislocation, not a structural inflection point. FOR ONE-ON-ONE USE WITH A CLIENT'S FINANCIAL ADVISOR ONLY. 1 insight Brought to you by Envestnet S T R A T E G A S 20250611-4578110