Confidence Surges, Rates Hold, Tariffs Ease—Ride the Rally with Everstead’s Edge

Markets are navigating crosswinds from expansive fiscal spending, a cautious Fed, and a tentative U.S.–China trade truce. After a volatile spring, the macro outlook is improving: inflation is cooling, a preliminary trade agreement has eased some uncertainty, and the Federal Reserve is poised to hold interest rates steady. Below, we break down the latest on fiscal and monetary policy, the new U.S.–China trade framework, a look at the housing market, and how Everstead is positioning for resilient cash flow.

Macroeconomic Overview: Policy Crosswinds and Market Resilience

Volatility is easing as policymakers tread carefully. U.S. fiscal policy remains stimulative, with federal spending and deficits still historically high – a trend that continues to add demand (and debt) even as the economy expands. The nation’s fiscal path is deemed “unsustainable” in the long run, with public debt growing faster than the economy. In the near term, a debt ceiling X-date looms in late summer 2025, and the Treasury is expected to exhaust extraordinary measures by roughly August. While another partisan standoff could spur market jitters, investors currently assume Congress will ultimately lift the borrowing limit, as failing to do so would risk default.

On the monetary policy side, inflation has moderated significantly, giving the Federal Reserve breathing room. The May Consumer Price Index rose just 0.1% (2.4% year-on-year), cooler than expected. Core CPI (excluding food and energy) is running at 2.8% year-on-year, and core PCE – the Fed’s preferred gauge – is around 2.6%. Notably, shelter costs (rents) are still a primary inflation driver, rising 0.3% in May and accounting for a large portion of the monthly CPI gain. However, many economists believe that without the recent import tariffs, inflation would be on track to hit the Fed’s 2% target. In fact, underlying price pressures were quite muted in the latest data, and the Fed is expected to keep interest rates unchanged at its meeting next week. Futures markets even anticipate the Fed could resume easing by this September if price stability continues. The main caveat ahead is the new tariff regime: the Trump administration’s sweeping tariffs are anticipated to reignite inflation later this year, as businesses gradually pass on higher import costs to consumers. Policymakers will need to balance this inflationary impulse against a cooling economy.

Financial markets have shown resilience through these crosswinds. Despite turbulence earlier in the spring, when rapidly shifting tariff announcements and recession anxieties sparked volatility, equity indexes have largely recouped their losses. Investors were encouraged by this week’s benign inflation report and trade detente. Stocks on Wall Street rose on the news, while the dollar eased and Treasury yields fell modestly. This suggests growing confidence that a soft landing is achievable: price pressures are easing, the Fed is not over-tightening, and worst-case trade war outcomes may be averted. Still, caution is warranted. Any renewed brinkmanship in Washington (over budgets or debt limits) or an inflation flare-up from tariffs could quickly revive volatility. For now, the market’s base case remains cautiously optimistic, supported by a strong labor market and robust corporate earnings, even as it keeps one eye on policy risks.

U.S.–China Trade Agreement: Fragile Truce Bolsters Sentiment

A tentative trade truce between the U.S. and China has lifted market sentiment, though investors are parsing the details and implications. This week, Washington and Beijing announced a preliminary trade agreement that restores a fragile ceasefire in the trade war. Negotiators met in London and reached a framework deal to implement the “Geneva consensus” struck last month. While the accord still needs formal approval from both President Trump and President Xi, it outlines mutual steps to halt further escalation:

• Tariffs: The U.S. will hold tariff rates at a 55% effective level on Chinese imports (a sum of various tariffs), while China will maintain about 10% tariffs on U.S. goods. These rates are lower than the feared triple-digit tariffs that were on the table, but still historically high, locking in much of the trade war’s tax burden on imports. A White House official clarified that the 55% U.S. rate is a blended figure (including a baseline 10% tariff on all imports and additional China-specific duties). Importantly, negotiators indicated these tariff levels are fixed and unlikely to change in the near future, offering businesses some clarity on cost structures going forward.
• Chinese Exports & Students: Beijing agreed to remove export restrictions on critical rare earth minerals and magnets, addressing a key U.S. concern. These materials are vital for high-tech manufacturing (from electronics to EV batteries), and China’s export curbs had threatened global supply chains. In return, the U.S. will allow Chinese students broader access to American universities again, a goodwill gesture reversing recent limitations on visas. This exchange suggests both sides are keen to normalize some people-to-people and supply-chain links despite strategic rivalries.
• No Chip Quid Pro Quo: U.S. officials were quick to clarify that export controls on advanced semiconductors remain in place – there is no quid pro quo trading high-end chip access for rare earth supplies. National security sensitivities around AI chips and aerospace tech persist. The deal sticks to tariffs and minerals, avoiding more sensitive tech transfer issues.
• Next Steps: The London framework is essentially an agreement “in principle.” Each delegation will now present it to their leaders. If approved by both governments, the framework will move to implementation of the agreed terms. Timelines are still fuzzy, and many specifics remain unclear, such as enforcement mechanisms and exact quotas or timelines for rare earth exports. Officials on both sides have been light on detail, which is keeping some analysts skeptical.

For investors, this deal is a mixed bag. On one hand, it greatly reduces the risk of further tariff escalations in the near term – a positive for multinational companies and market sentiment. The fact that negotiators put “meat on the bones” of the Geneva handshake is a welcome sign. It should alleviate some uncertainty that has been hanging over corporate planning. Indeed, the trade war’s twists and turns had roiled global markets and disrupted supply chains earlier in the year. A ceasefire allows firms to breathe a bit easier and perhaps resume investments that were on hold.

On the other hand, tariffs remain elevated, continuing to pressure profit margins and prices. As one wealth manager noted, “it’s a done deal according to the President, but we haven’t seen details – the devil is in the details”. Because duties are still far higher than pre-trade-war norms, the drag on global growth persists. In fact, the World Bank this week cut its 2025 global growth forecast by 0.4 percentage points, citing higher tariffs and geopolitical uncertainties. Bottom line: The trade truce is a relief rally catalyst and a step “back from the brink,” but it’s not a full repeal of trade barriers. Investors can take comfort that U.S.–China relations are marginally better than a month ago, even as they monitor how this framework is finalized. Caution is warranted until more concrete terms and enforcement provisions emerge.

U.S. Housing Market: Cooling Prices, Rising Supply (and Inflation Implications)

The housing market is navigating a soft cooldown – a welcome development for inflation and would-be buyers. After two years of roller-coaster activity, supply and demand are edging back toward balance. The key story as we head into summer: Inventory is finally rising from record lows, while buyer demand remains subdued by high mortgage rates. Active listings of homes for sale have jumped over 30% from a year ago, marking the highest inventory levels since 2019. In fact, housing supply is up about 29% from its winter trough and climbing faster than the usual seasonal trend. Even with this surge, inventory is still ~13% below comparable 2019 levels, but the gap is closing. More homes on the market give buyers breathing room that was absent during the frenzied seller’s market of 2021–2022.

On the demand side, home sales remain sluggish. Existing home sales are roughly flat compared to this time last year, which is to say, still stuck near cycle lows. Affordability challenges (mortgage rates hover around multi-year highs) and economic uncertainty have kept many buyers on the sidelines. With supply up and sales tepid, prices have come off the boil. Nationally, home price appreciation has slowed to a crawl: April data showed only a +2.0% year-over-year gain – the smallest annual increase in over a decade. Prices for single-family attached homes (e.g., townhouses) even ticked down slightly (-0.08% YoY), marking the first annual home price decline in some segments since 2012. In nominal terms, home values have essentially plateaued in many regions, and some previously red-hot markets (such as parts of Florida and Texas) are seeing modest year-on-year price declines. Buyers are no longer in bidding wars every weekend; they can negotiate again. Importantly, however, this is not a 2008-style crash. With supply still relatively constrained and lending standards solid, we aren’t witnessing fire sales or a surge in foreclosures. Instead, it’s a gradual rebalancing: price growth cooling from unsustainable double-digits to something closer to income growth.

What does this housing cooldown mean for inflation? Housing costs are a major component of U.S. inflation indices – rent and owners’ equivalent rent account for a large share of core CPI and PCE. For now, shelter inflation remains high (rents rose ~0.3% last month and 8% over the past year in CPI measures), reflecting the lagged effect of the earlier housing boom. But the current market trend points to easing pressure ahead. As home price appreciation stalls and more rental supply comes online, economists expect rent growth to slow, tempering one of the last robust drivers of core inflation. In other words, the housing cooldown is good news for the Fed’s fight against inflation – it suggests that by 2026 the shelter component of CPI/PCE could decelerate significantly, removing a thorn from the inflation outlook.

Investment implications: A stabilizing housing market creates a more predictable environment for investors in real estate and related sectors. Homebuilders, for instance, face less risk of a price collapse; in fact, builders might benefit from the shortage of existing homes, as buyers turn to new construction. Real estate investors focusing on rental properties can be cautiously optimistic that while rapid home price gains are unlikely near-term, rental demand is solid and cash flows should remain healthy (especially as would-be homebuyers continue renting). Additionally, lower housing inflation translates to less pressure on interest rates, which is constructive for mortgage lenders, REITs, and equity markets broadly. If the Fed feels confident that housing isn’t overheated, it has more leeway to eventually lower rates, a scenario that could revive housing activity down the road. For now, housing is in a holding pattern: not a boom, not a bust – and that equilibrium is exactly what policymakers wanted to see.

Everstead Edge: Investing in Resilient Cash Flows

Everstead’s strategy in this environment is to lean into cash-flowing, subscription-based businesses that can thrive in good times and bad. With economic growth slowing and inflation still nibbling at margins, Everstead is focusing on assets that generate steady, recurring revenue regardless of macro swings. A prime example is the express car wash industry, which embodies the kind of subscription-model, cash-generative business Everstead favors. Modern express car wash chains often operate on monthly membership plans – customers pay, say, $20–$30 per month for unlimited washes, creating a predictable income stream for owners. This model has proven remarkably resilient: even during downturns, people continue to get their cars washed, and the membership revenues roll in reliably. In fact, many top car wash chains see 60–70% gross profit margins, with the bulk of sales coming from monthly subscribers that provide passive income to the business. It’s easy to see the appeal for investors: high-margin, repeat revenue with low economic sensitivity. Everstead has been selectively investing in such “boring-but-beautiful” businesses that use subscriptions to build loyalty and cushion against volatility. These include not only car washes but also other everyday services and niche infrastructure where customers value consistency. By targeting enterprises with strong unit economics and stable demand, Everstead aims to deliver reliable cash yields to investors – the kind of durable performance that can weather interest rate cycles or market mood swings.

This “Everstead Edge” approach of prioritizing real, cash-producing assets aligns with the broader macro backdrop. In an era of higher interest rates and normalized liquidity, companies that can self-fund through cash flows (rather than rely on speculative growth or constant refinancing) hold a distinct advantage. We continue to hunt for opportunities in sectors exhibiting subscription/recurring revenue models, high retention rates, and essential services. These investments not only provide inflation-hedged income but also the potential for long-term value appreciation once the economy re-accelerates. Everstead’s current focus – exemplified by express car wash platforms – is about staying defensively positioned without sacrificing upside. It’s a strategy of playing the long game: invest in what people will keep using (and paying for) every month, rain or shine.

Final Thoughts

The overall tone of the market is cautiously optimistic. Major risks like inflation and trade tensions are starting to abate, even as new challenges (tariffs, fiscal showdowns) emerge. In this newsletter, we highlighted how smart policy navigation and selective investing can turn volatility into opportunity.

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