The Pulse on the Economy and Capital Markets: June 2025

To Summarize: Despite signs of a decelerating economy, the markets are holding up better than expected. However, a slowdown in hiring, flattening earnings expectations, and cautious consumers have even the most seasoned investors struggling to make sense of the mixed signals. Increased AI investment is the surprising upside to this story, with the most profitable companies pouring historical amounts into AI.

The big takeaway – Big investments in AI are driving GDP growth despite a decrease in hiring, stalled earnings, and cautious consumers.

In the Markets: Domestic market performance has been positive across the board, with copper and Bitcoin rallying and oil down nearly 10%. International stocks have continued to outperform everything this quarter except the Nasdaq. However, macro hedge funds experienced the worst start to a year in two decades. Recent geopolitical events and changes to trade policies and immigration have even the most sophisticated investors struggling to navigate the turbulence.

Economy Cools Impacting Earnings & Jobs: Professional investors aren’t the only ones feeling uncertain about the economy; employers are too. Job postings on Indeed.com have been decreasing, quietly signaling that businesses are pulling back on growth plans. After first quarter earnings announcements in April, corporate earnings estimates for 2025 have mostly flattened. Wall Street is holding its breath with caution, awaiting Q2 earning reports.

AI Investment is Driving GDP Growth: While the economy is set on cool mode, the investment in AI to boost productivity continues to accelerate, specifically in white-collar industries such as law, consulting, finance, and professional services. The investments by the most profitable and largest companies, the “Magnificent 7,” in AI is quickly approaching $1 trillion of combined CapEx and R&D.

Top Headlines: We’re reading about companies deploying agentic AI to assist with operational decision-making; the NATO alliance agreed to increase defense spending to 5%; the rise in AI adoption increases the likelihood of a rise in productivity in the coming quarters; the U.S. government announces proposals to speed up the development and deployment of autonomous vehicles.

Related resources:

• AI: Agentic AI – 9 Promising use cases for business
• Aerospace & Defense: NATO allies agree to higher 5% defense spending targets
• Technology: Productivity gains are coming
• Automotive: Autonomous vehicles emergence and which countries are ahead in the global race

Disclosures 

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