The U.S. economy rebounded in Q2 2025 with a 3.0% annualized GDP growth, reversing a 0.5% contraction in Q1, primarily driven by a sharp decline in imports and increased consumer spending.

Business investment in equipment was revised upward to 7.4%, indicating stronger corporate spending, while underlying domestic demand grew by 1.9%, reflecting solid consumer activity.

Despite trade tensions, the job market remains resilient with fewer unemployment benefit claims, supporting consumer confidence, though economists forecast growth slowing to around 1.5% as tariffs' impact becomes more evident.

However, underlying economic momentum shows signs of weakening, with some analysts warning that the headline growth may be overstated due to factors like front-loaded imports to avoid tariffs.

Inflation remains controlled, with the PCE index steady at 2.0%, aligning with the Federal Reserve’s target, and core prices at 2.5%, suggesting stable price pressures.

Trade policy uncertainty, especially tariffs on steel and aluminum, continues to pose risks, impacting sectors like Industrials and Financials, and potentially slowing future growth.

Future economic performance will depend on how quickly businesses deplete inventories, consumer confidence, labor market trends, and Federal Reserve monetary policy decisions.

Undervalued cyclical stocks such as Hanesbrands, Adient, CarMax, and Yum China are positioned to benefit from ongoing consumer spending and sector-specific trends.

The retail sector is adjusting through streamlined store formats, supply chain improvements, and a focus on value, with some sectors like freestanding retail maintaining higher occupancy rates.

While consumer spending remains resilient, growth is expected to slow to around 1.5% due to tariffs and trade tensions, which could lead to supply chain disruptions and higher costs.

Deeper analysis suggests that despite positive headline figures, underlying demand was weak, with final sales to private domestic purchasers increasing only modestly, indicating cautious private sector activity.

Major retail earnings reports exceeded expectations, with companies like Dollar General, Best Buy, Dick's Sporting Goods, and Burlington Stores posting strong results and raising guidance, reflecting sector resilience.