GW&K Investment Review 2Q 2025

ECONOMIC COMMENTARY

I’ve been thinking a lot lately about how hard it is for people to agree on anything—especially when it comes to world events, politics, or even the economy. Recent global events have highlighted the remarkable capabilities of the US military, including a complex and high-stakes mission involving nuclear facilities in Iran.

While most have celebrated the technological success, many have become more worried about what happens next. And in some ways, that’s fine—no one truly knows what comes next. What we do know is that Iran’s ability to develop nuclear weapons has been seriously disrupted, reducing a major threat to global security.

Still, I can’t help but notice how divided the national conversation has become. It feels like, more and more, people can only see things through an all-or-nothing lens. Many seem unable to find common ground or credit success where it’s due, regardless of the administration in charge. This polarization doesn’t just affect how we view world events; it filters into how people feel about the economy and markets.

We’ve seen this play out recently: investor sentiment often correlates not with economic data, but with personal or political leanings. Some are pessimistic about growth and inflation; others are optimistic and see opportunity. The reality is more nuanced. Good business leaders, like good investors, have no time for ideology. They have to adjust. They have to adapt. Whether it’s a new tariff, regulation, or geopolitical event, companies find ways forward. That adaptability is what keeps markets resilient.

Back in April, I said I believed the market had hit a bottom. That wasn’t a lucky guess—it came from years of watching how markets behave. When fear dominates and sentiment is overwhelmingly negative, history has shown us it can be the best time to invest. We saw that in the depths of the Covid crisis, and we’ve seen it again this year as global tensions rattled confidence.

As we look ahead, much of the current concern centers on inflation and the potential pace of interest rate cuts. Many expect minimal action from the Federal Reserve. But I would argue the Fed is behind the curve and will be forced to ease more aggressively. Tariffs, while impactful, are not the driving force behind inflation right now. If the Fed does act, it could unlock growth—particularly for small businesses that are most sensitive to short-term rates.

In my view, we’re at the beginning of a new bull market. That’s a bold claim, and not one many are ready to accept. But investing is as much about psychology as it is about economics. When confidence is low and doubt is high— that’s often when the best opportunities appear.

There’s good reason to be optimistic. Technological advances—especially in artificial intelligence—and a potential stabilization in global risk hotspots could lead to long-term strategic shifts. If countries like Saudi Arabia and Israel are truly collaborating to bring investment and innovation to the region, the ripple effects could be profound.

I don’t mean to downplay the risks. The world is messy, and we’re not always going to agree on how best to navigate it. But from a markets standpoint, it’s important to focus on what is happening, not just what could go wrong. The ability to adapt, to think rationally amid uncertainty, and to recognize opportunity when others are focused on risk—that’s what drives long-term success.

As always, my goal is to help you stay grounded in long-term thinking. In times like these, when many are fearful or divided, investors would do well to step back and remember a key truth: the market is a reflection of human behavior as much as it is of economics. And while these moments test our patience and perspective—they also can be the moments that reward it.

Harold G. Kotler, CFA