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Linus Van Pelt: “Life is difficult, isn’t it, Charlie Brown?”
Charlie Brown: “Yes, it is, but I’ve developed a new philosophy. I only dread one day at a time.”
– Peanuts by Charles Schulz
Our favorite blockhead may dread each day as it comes, but there’s a quiet optimism in him. He never stops trying to kick that football or to fly that kite. I can relate. This is one of those moments when I dread each day, unsure of what the next news cycle or round of messages will bring. And yet, I, too, wrestle with pessimism.
Author Mustafa Suleyman recently introduced the concept of the pessimism aversion trap, the psychological tendency to avoid engaging with negative possibilities. Don’t get me wrong, I let pessimism creep into my personal life. After all, I’m a New York Giants fan. However, my aversion to pessimism lies in how we view society’s ability to overcome challenges and build a better future. That boy has cried wolf one too many times.
Take, for example, the many doomsday predictions that never quite came to pass:
Suleyman might argue that falling into the pessimism aversion trap could lead to dangerous complacency. I’m mindful of that. Still, I can’t help but contextualize the issues currently weighing on investors. Here are two examples:
As Charlie Brown also said, “Learn from yesterday, live for today, look to tomorrow, rest this afternoon.”
The market doesn’t believe that a recession is coming. Since the beginning of the year, U.S. high yield corporate bonds have outperformed the S&P 500 Index.3 High yield bond spreads have tightened by more than 150 basis points since April 8, when spreads peaked.4 Also, this year, the S&P 500 Industrials sector has significantly outpaced the broader index.5
Recession? The market seems to think otherwise.
But what impact could the war between Israel and Iran have on the financial markets?
Geopolitical conflicts and wars often trigger immediate volatility in financial markets, but investors should take a step back and ask two key questions: Does this event meaningfully alter the growth outlook for the world’s largest economies? Does it change expectations for how major central banks will respond? If the answer to both is no, then even tragic and unsettling events are unlikely to derail broader market cycles.
The thinking would only shift if something were to occur that changed the calculus. For example, a closure of the Strait of Hormuz, a vital route for global energy flows bordered to the north by Iran, could significantly disrupt oil and natural gas markets and weigh on global economic growth. However, such a scenario doesn’t appear imminent. It's also worth noting that the U.S. is currently producing 13.4 million barrels of oil per day, a record level that provides a significant buffer against external shocks.6
Why are tariffs not yet showing up in the inflation data?
Imports into the U.S. surged in the first quarter as businesses rushed to stockpile goods ahead of new tariffs.7 Since then, imports have declined sharply. As we move through the summer and into the fall, the impact of these tariffs is expected to appear more clearly in inflation data. If anything, the greater concern for the stock market may be if tariffs fail to show up in inflation data. This would imply that businesses are absorbing the costs, potentially hurting corporate profitability.
The encouraging longer-term view is that bond market expectations for long-term inflation remain stable, suggesting that tariffs may cause a short-term price shock rather than sustained inflation.8
Of the U.S. Federal Reserve Governor Jerome Powell, President Donald Trump said, “I would like to get this guy to lower interest rates, because if he doesn’t, we have to pay.”
I apologize for returning to this topic, but the independence of the U.S. Federal Reserve (Fed) remains a critical safeguard against significantly higher interest rates on government debt. While lowering rates in response to a weakening labor market is a legitimate policy response, doing so to placate the executive branch is a far more troubling prospect. A historical example worth noting is the trajectory of U.S. interest rates following President Nixon’s politicization of the Arthur Burns-led Fed, an episode that highlights the dangers of compromising central bank autonomy.
Currently, the average maturity of U.S. debt is approximately six years.9 Treasury yields, particularly in the intermediate to long end of the curve, tend to reflect the broader strength of the U.S. economy. Historically, a sharp decline in these yields has often signaled a recession, an outcome that would likely further strain the U.S. fiscal position.
Brian Levitt is a Global Market Strategist at Invesco.
Notes
1. Source: Bloomberg L.P., June 18, 2025, based on the total return of the S&P 500 Index from October 7, 2023 to June 18, 2025.
2. Source: Bloomberg L.P., June 18, 2025, based on the 2019 total return of the S&P 500 Index.
3. Source: Bloomberg L.P., June 18, 2025, based on the year-to-date performance of the S&P 500 Index (+2.33%) and the Bloomberg US Corporate High Yield Bond Index (+3.31%) as of June 18, 2025.
4. Source: Bloomberg L.P., June 18, 2025, based on the option-adjusted spread of the Bloomberg US Corporate High Yield Bond Index from the current high of the year on April 8, 2025 to June 18, 2025.
5. Source: Bloomberg L.P., June 18, 2025, based on the year-to-date performance of the S&P 500 Industrial Sector GICS Level 1 Index (+8.32%) and the S&P 500 Index (+2.33%).
6. Source: US Department of Energy, June 13, 2025, latest data available.
7. Source: US Census Bureau, April 30, 2025.
8. Source: Bloomberg L.P., June 18, 2025, based on the 10-year US inflation breakeven. A breakeven inflation rate is a market-derived estimate of future inflation, calculated by comparing the yield on a standard government bond (nominal) to the yield on an inflation-protected bond (TIPS) of the same maturity.
9. Source: US Department of Treasury, May 31, 2025.
Disclaimer
© 2025 by Invesco Canada. Reprinted with permission.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
The opinions referenced above are those of the author as of June 24, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations. Diversification does not guarantee a profit or eliminate the risk of loss. All investing involves risk, including the risk of loss.
Diversification does not guarantee a profit or eliminate the risk of loss.
All figures are in U.S. dollars.
This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.
All investing involves risk, including the risk of loss.
Past performance is not a guarantee of future results.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
Commissions, trailing commissions, management fees and expenses may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Please read the simplified prospectus before investing. Copies are available from your advisor or from Invesco Canada Ltd.
Investment funds are not guaranteed and are not covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. There can be no assurances that any fund or security will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Fund values change frequently and past performance may not be repeated. No guarantee of performance is made or implied. The foregoing is for general information purposes only. This information is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice.
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