PNC Report: Equity Markets Climb as Tariff and Inflation Fears Ease

According to PNC's Global Market Snapshot—July 2025, US equity markets rebounded strongly in the second quarter, with the S&P 500® closing at a record high and recovering from volatility experienced earlier in the year. This recovery came amid a series of shocks, including tariff changes, government budget negotiations, and geopolitical tensions in the Middle East.

Per the report, the brief surge in volatility tied to the conflict between Israel and Iran subsided after a ceasefire was reached in June. As a result, markets redirected their attention toward fundamentals. Both the S&P 500 and Nasdaq Composite® Index ended the month of June at new highs, with the latter supported by gains in mega-cap technology stocks linked to artificial intelligence (AI).

International equities also posted positive returns, driven by emerging markets, which benefited from a weaker US dollar and attractive valuations. PNC said that bond markets followed suit, with the Bloomberg US Aggregate Bond Index experiencing its strongest month since February and its best first-half performance in 5 years. Oil prices, after spiking due to geopolitical concerns, fell following the ceasefire.

According to PNC, investor focus has turned to the potential impacts of US fiscal policy and expected interest rate cuts. While tariff negotiations continue, the report notes that the most disruptive outcomes appear to have been avoided. Inflationary effects from tariffs have been less severe than anticipated, with companies managing the impact through supply chain adjustments, contract renegotiations, and cost absorption.

Per PNC, a key area of market attention is the newly passed US budget package known as the "One Big Beautiful Bill." The legislation includes significant business tax incentives, such as full expensing for capital equipment and research and development, and enhanced interest expense deductions. These measures may spur increased capital expenditures, potentially boosting gross domestic product in the latter part of the year.

The report suggests that while the AI-driven capital investment trend is likely to continue, the budget bill could encourage broader spending across other sectors. PNC said that historically, corporate tax cuts have shown a modest correlation with capital investment, which could reinforce growth in the coming quarters.

Looking ahead, PNC anticipates greater clarity on budget implementation and tariff negotiations by Labor Day. The firm continues to expect a "choppy path higher" for equities through year-end and stable long-term bond yields. Key drivers include restrained inflation from tariffs, potential Federal Reserve rate cuts, and a consumer and business spending boost from the fiscal package. For companies facing increased exposure from tariff-related supply chain shifts or investing in new technologies under the budget's capital incentives, captive insurance structures may offer a strategic way to finance and manage these emerging risks.