Forward by Matt Hudak, Financial Advisor 

Speaking on behalf of our whole team, we’ve been incredibly blessed to have Emma join us for the summer as an intern.  We’re even more excited that she is now a permanent part of your CoCreate crew.  Christa and I have spent a considerable amount of time working with her as she’s been jumping into a variety of financial planning and portfolio management tasks.  She’s been extremely adept at learning new skills quickly, and her contributions have been impressive to say the least.  She’s brilliant, fun and a great conversationalist.  When you get to know her, you’ll be as grateful as we are to have her on your team. 

It’s been a while since we published a “playbook” article, and we’re happy that the whiplash from earlier this year has slowed down quite a bit.  We thought it would be good to share an update with you as we approach August.  Call it a celebration of Emma’s onboarding (though it might seem like hazing to some of you), we thought it would be a phenomenal opportunity for you to hear from Emma.  I hope you enjoy this missive, and reach out to Emma with your thoughts, questions, and congratulations. 

Matt  

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What’s Happening with Tariffs?  
Despite ongoing uncertainty around tariff proposals and international trade agreements, there have been a few notable developments, including the agreement with the EU that was reached over the weekend. The administration is actively engaged in negotiations with key trading partners like China. While no sweeping changes have gone into effect yet, the potential for new tariffs has introduced short-term market uncertainty.  

Tariffs are taxes placed on imported goods. The company exporting goods pays this tax, but it is often the consumer who feels the cost of them. Tariffs are usually structured as a percentage of the value of the imported product, known as ad valorem, however, they can also have a specific fixed fee which is based on quantity. For example, a 15% ad valorem tariff applied to a car valued at $50,000 would cost an additional $7,500. If the tariff was specific, it would be a fixed fee regardless of price. If the specific tariff was $5,000 per imported car, the added cost would remain $5,000 regardless of if the car was valued at $30,000 or $100,000. The impacts of tariffs can be broad, they can significantly affect domestic industries, consumer prices, and international trade relationships.  

If tariffs are raised, it could mean higher costs for U.S. businesses and consumers. On the other hand, if tariffs are reduced or continue to be postponed, it could ease inflationary pressure and support growth in trade sensitive sectors.  

But if tariffs are inflationary, why may the administration want to impose them? Understanding the administration’s priorities is critical. The President has emphasized his commitment to America First policies that prioritize domestic industries, job creation, and economic resilience. Tariffs, even if they may drive-up short-term costs, are seen by the administration as a strategy to counteract unfair trade practices, resolve social and geopolitical issues and protect the American worker. Tariffs could also be used to bring trading partners to the negotiating table, creating more urgency to strike better deals. They send a signal that the U.S. is willing to take assertive steps unless changes are made, turning economic pressure into diplomatic motivation.  

Here are a few highlights of recent trade activity:  

• U.S. – UK Trade Agreement: A 10% tariff will be applied to British imports. Additionally, the first 100,000 imported vehicles will avoid the 25% tariff and only be subject to a 10% one. This range is much lower than the 50% levy placed on other trade partners. The deal also lifts tariffs from Britain’s aerospace sector, but they are still trying to reduce tariffs on key industrial metals.  

• U.S. – Japan Trade Agreement: The U.S. recently finalized a trade deal with Japan that includes a 15% tariff on Japanese imports, while Japan has committed to investing $550 billion into U.S. infrastructure and industry, with 90% of the investment profits going to the United States.  

• U.S. – Indonesia Trade Agreement: There will be a 19% tariff rate placed on Indonesian imports. However, this rate will increase to 40% if transshipping is involved. U.S. imports going into Indonesia will not face any tariffs and Indonesia has also agreed to lift export restrictions on critical minerals, such as nickel.  

• U.S. – Philippines Trade Agreement: There will be a 19% tariff on imports from the Philippines. President Trump also posted on Truth Social that the Philippines will remove all tariffs on U.S. imported goods, but this is yet to be confirmed by the Philippine government. 

• U.S. – EU Trade Agreement: Over the past weekend, the United States and the European Union agreed to a 15% baseline tariff placed on most EU imports.  

• The President announced a plan to impose a variety of heavy tariffs on countries that have not yet negotiated a trade deal before the deadline of August 1. But some project this deadline will be extended, especially for China.  

How is the Economy Holding up? 
Despite policy uncertainty and shifting global conditions, the U.S. economy has shown resilience in the first half of 2025. While Q1 GDP declined by 0.5%, more recent data signals a comeback. The Federal Reserve Bank of Atlanta estimates a 2.4% growth for the second quarter of 2025, pointing towards renewed economic forces. However, it’s important to note that this data does not reflect tariff policies yet, we will have to wait for the third and fourth quarter of 2025 to receive more accurate information. Our team will be watching and adapting along the way.    

The labor market remains stable, with unemployment going down from 4.2% in May to 4.1% in June. Meanwhile, inflation continues to rise moderately, with June’s annual rate coming in at 2.7%; this is slightly above the Fed’s 2% target, but consistent with long-term historical averages.  

The Fed has not yet confirmed a rate cut, but some economists believe it could happen as early as September if inflation continues to cool and growth remains steady.  While I agree that a rate cut in September is a possibility, there are a number of factors that could delay this. Those include tariff agreements, unemployment, and inflation (which hasn’t cooled enough yet). For these reasons, it would be unwise to bank on the Federal Reserve reducing rates this fall.  A rate cut would make borrowing cheaper for businesses and consumers, potentially boosting investment and spending. However, if inflation remains sticky or trade tensions worsen, the Fed may hold off cutting rates to avoid stirring pricing pressures. Either scenario highlights the importance of staying adaptable and focusing on long-term strategy rather than reacting to short-term shifts.  

What Does this All Mean?
At first glance, it can feel like the economy is on shaky ground. Headlines and social media posts often highlight volatility, rising costs, and political tension, making it seem like we’re on the edge of major market disruptions. But when you zoom out and look at the full picture, the U.S. economy continues to demonstrate resilience and adaptability.  

Inflation has cooled to 2.7% as of June, and while it’s still above the Federal Reserve’s 2% target, it reflects some progress from the peaks of recent years. The Fed’s Beige Book (leave it to bankers to be creative) also noted a modest increase in economic activity, especially from late May to early July, signaling that consumer demand and business investment remain strong despite ongoing uncertainty and caution. The labor market has held steady, and many sectors have continued to grow at a slow but stable pace.  

In short, although concerns around inflation, interest rates, and trade policy remain at the forefront of our minds, the underlying economic data tells a more balanced story. It appears that the U.S. economy is not stalling but instead adjusting. Both businesses and consumers are moving forward with caution, not panic.  

What are some Possible Outcomes? 
From here, there is a variety of directions things could go: 

• If tariffs rise and global trade slows, we may see pressure on supply chains and corporate profit margins. This could lead to temporary market volatility, especially in trade sensitive industries like manufacturing, agriculture, and consumer goods. 

• If trade talks ease tensions, resulting in fewer or delayed tariffs, we could see improved investor sentiment, easing inflationary pressures, and opportunities for both international and domestic companies.  

• If inflation data continues to trend downward, the Fed may feel comfortable holding rates steady or entertaining rate cuts, opening the door for stronger lending activity and increasing consumer confidence.  

• If inflation reaccelerates or new trade disruptions emerge, the Fed may neglect to act which could stifle both growth and the market in the short term.  

 
Our Strategy 
Rather than trying to guess the outcomes, we focus on preparation instead of reactivity. Our investment approach is built around adaptability, diversification, and long-term durability. We’ve thoughtfully assessed a range of potential outcomes, from policy shifts to economic changes, and positioned your investment portfolio to remain resilient no matter the direction the market takes. Our approach is investing in individual businesses, and we evaluate those on an extremely regular basis. We consider each company’s exposure to individual policies and scenarios, we measure how frequently the price changes of each investment move with one another to ensure we have adequate diversification, and we make sure we have plenty of cashflow to weather any storm.  

Of course, we can’t predict with certainty what will happen in the future, but we can prepare with intention. By building a well-diversified, resilient portfolio and staying focused on rising dividend income and your long-term goals, we can navigate uncertainty with confidence. We prioritize making thoughtful, forward-looking decisions that help protect and grow your investments over time. 

The American economy has endured through countless shifts and unpredictability. But it’s natural to be wary of shifting policies, and it is important for us to stay vigilant so we can continue to provide you with peace of mind during these times. The ability for the economy to demonstrate resilience and stability, especially amidst near-term risks and unknowns, is a good sign. 

 The stock market volatility followed by the announcement of “Liberation Day” has leveled out, possibly signaling a broader sentiment shift. Either people are growing tired of the constant swings and are responding less actively, or the economic conditions are more unpredictable than most people expected last November. Either way, there has been a noticeable slowdown in policy change and subsequent reactions during recent weeks.  

I’d also like to note that we’ve completed our review of the Big Beautiful Bill and look forward to sharing our insights and discussing its potential impacts in greater detail in the near future in another blog post. Additionally, we do not anticipate any changes in leadership at the Federal Reserve. Jerome Powell only has a year left in his term and it’s unnecessary for Trump to fight against that.  

Uncertainty is a normal part of the market cycle, and we’ve gone through these ambiguous periods before. What matters most is having a plan that’s built to adapt, not just to the good times, but to the unpredictable ones too. We want you to remember that we’re looking at your accounts carefully and consistently and are available to answer any questions that you have along the way. We’re confident that all your accounts are positioned in the best possible structure so that they’ll hold up in a downturn and be poised for growth.