Despite signs of slower economic growth, through 2025’s first half, the Fed held the line on the federal funds target rate. This short-term rate is influential for borrowing costs such as auto loans and home mortgages.

Fed Chair Jerome Powell says concerns about the inflationary effects of tariffs add to the Fed’s rate-cutting caution. “In effect, we went on hold when we saw the size of tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” says Powell.

In 2024’s closing months, the Fed cut rates by 1.0%, based on signs of labor market weakness. Since that time, the labor market stabilized. While monthly job gains are slower than they have been in recent years, they are keeping pace with population growth,” says Haworth. “If the economy experiences both rising inflation and higher unemployment, the Fed doesn’t have tools to address those concerns simultaneously.” This so-called “stagflation” scenario is considered a potential outcome of increased tariffs if they have a negative economic impact.

While the economy may be slowing, Haworth is optimistic that a recession can be avoided in the near term. “Consensus expectations are for a bit of a second-quarter GDP bounce, which will help offset the first-quarter decline,” says Haworth.

Norfolk Southern NSC is facing significant challenges from economic uncertainties and weak liquidity. The tariff-related woes are also hurting the company’s prospects, making it an unattractive choice for investors’ portfolios.

Let’s delve deeper.

NSC: Key Risks to Watch

Southward Earnings Estimate Revision: The Zacks Consensus Estimate for current-year earnings has moved 0.3% south in the past 60 days. For the next year, the consensus mark for earnings has been revised 0.6% downward in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.

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Image Source: Zacks Investment Research

Dim Price Performance: The company’s price trend reveals that its shares have gained 7.9% quarter to date compared with the Transportation – Airlineindustry’s 8.7% growth.

Zacks Investment Research

Image Source: Zacks Investment Research

Weak Zacks Rank: Norfolk Southern currently carries a Zacks Rank #4 (Sell).

Headwinds: Norfolk Southern is struggling to maintain stable liquidity, as reflected in its fluctuating and generally weak current ratio (a measure of liquidity) over recent years. After dipping from 0.86 in 2021 to a low of 0.76 in 2022, the company saw a temporary improvement in 2023 with a ratio of 1.24. However, liquidity weakened again, falling to 0.90 in 2024 and declining further to 0.78 in Q1 2025. A current ratio consistently below 1.0 raises concerns about Norfolk Southern’s ability to cover short-term obligations, indicating potential pressure on its near-term financial flexibility.

Norfolk Southern is facing mounting challenges amid persistent economic headwinds. Continued uncertainty, coupled with high inflation, is putting pressure on the company’s financial stability by increasing operating costs and squeezing margins.

Moreover, the ongoing tariff-related issues are expected to weigh on performance throughout the year, potentially disrupting trade flows and impacting freight demand. These combined factors could hinder Norfolk Southern’s operational efficiency in the near term.

Stocks to Consider

Investors interested in the Transportation sector may consider SkyWest SKYW and Air Lease AL.

SKYW currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

SKYW has an expected earnings growth rate of 19.4% for the current year. The company has an impressive earnings surprise history. Its earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering an average beat of 17.1%. Shares of SKYW have risen 21.1% year to date.

President Donald Trump wants the U.S. to increase its exports and lower its imports. Thanks to a historic decline in the value of the U.S. dollar, he may get his wish — but at a cost he may not have anticipated.

Over the past six months, the dollar has declined more than 10% compared with a basket of currencies from the U.S.’ major trading partners — something it has not done since 1973. Today, it sits at a three-year low.

The simplest explanation for the decline is that global investors now expect the U.S. economy to no longer outperform the rest of the world as a result of Trump’s tariffs and worsening fiscal issues. Even with U.S. stocks returning to record highs, the return on other countries’ equities has been even stronger. Meanwhile the return on lending to the U.S. is expected to decline as growth here slows.

It wasn’t supposed to be this way. Many, including members of Trump’s own Cabinet, assumed his tariffs strategy would strengthen the value of the dollar relative to foreign currencies. The thinking behind it was that as American consumers began to purchase fewer foreign goods, those other countries’ currencies would weaken relative to the dollar.

Instead, the opposite has occurred. U.S. growth prospects have weakened — in part because of Trump’s tariffs. That has made U.S. debt relatively less attractive for foreign investors, especially compared with the returns on lending to other countries, like Germany and Japan, that are now expected to experience higher growth.

In theory, the advantage of a weaker U.S. dollar is that it makes goods produced in the U.S. more attractive to foreign markets.

Yet it is too soon to say whether that is occurring. In anticipation of Trump’s tariffs, U.S. firms massively increased their imports in the first three months of this year to avoid paying the new duties, and it will be weeks before second-quarter data is released.

Even then, that data will likely only show a snapback effect from the first quarter’s upswing. And while Trump has announced a flurry of new investments designed to beef up U.S. production capacity, many of those endeavors are months or even years from coming on line.

One obvious effect of a weakening U.S. dollar is that it becomes more expensive for Americans to go to popular destinations abroad, since the greenback will be worth less than local currencies. In essence, your money won’t stretch as far. Of course, such excursions tend to be taken largely by travelers who are less worried about increased costs.

At home, a bigger concern is inflation, and lost purchasing power for U.S. consumers and businesses, who still remain heavily reliant on imports. Until America is able to sustainably produce more goods on its own at higher volumes, purchasing power will decline as it becomes relatively more expensive to import goods from abroad.

In the meantime, analysts say, a more alarming trend may be taking root: Foreigners are no longer buying U.S. financial assets, like stocks and bonds, at the levels that have allowed the U.S. to finance its trade deficit in the first place. Although U.S. stocks have returned to record levels, on a relative basis, they’ve underperformed their counterparts in Europe and elsewhere.

“It’s often forgotten that the U.S. is not only reliant on foreigners’ goods, but we’re also meaningfully reliant on foreign capital to support our financial markets,” said Bob Elliott, chief investment officer at Unlimited Funds financial group. “Your bonds are bought by European investors, your stock is bought by European investors — that is making you feel wealthier.”

A weaker dollar, he said, could weigh on foreign investors’ willingness to buy U.S. financial assets, “which are so critical to supporting U.S. household balance sheets.”

“An emerging theme in asset management is the rotation out of US assets into Europe as investors seek non-US exposure,” Bank of America’s Hubert Lam and Christiane Holstein said in a late June note. “Sentiment toward US markets has turned negative due to mounting concerns over protectionist trade measures, abrupt policy shifts, a rising deficit, and a proposal for taxes targeting foreign investors in the US.”

“As such, investors are starting to diversify out of the US in both public and private markets,” they said.

The Bank of America analysts added that many international investors are reallocating their investment choices to their home markets, especially in Europe, “for policy stability” and “patriotic” reasons.

On the other hand, a handful of analysts say fears of continued U.S. dollar weakness are overblown, and that U.S. economic exceptionalism will ultimately prevail. The U.S. has always outperformed on growth thanks to its dynamic markets and pro-growth regulations, and Trump’s bill cementing massive tax cuts — plus initial data showing the U.S. labor market remained relatively sturdy in June — have already provided a brief rally in the dollar’s value this week.

But assuming U.S. growth does weaken, the Federal Reserve will likely start cutting interest rates, further making U.S. financial assets less attractive to outside investors. That will cause the value of the dollar to decline even further, making it even more expensive to buy goods from abroad.

“It’s a doom loop,” said Danny Dayan, an investor and former hedge fund manager.

“So far, the inflation data have been quite benign,” Dayan said. “But we know tariffs will raise prices to some degree.” A weakening dollar will only contribute to accelerating price growth, he said.

American Airlines AAL is facing significant challenges adversely impacting its top line. Economic uncertainty, weak liquidity and escalated operating expenses are major headwinds, putting a strain on the company’s prospects and making it an unattractive choice for investors’ portfolios.

Let’s delve deeper.

AAL: Key Risks to Watch

Southward Earnings Estimate Revision: The Zacks Consensus Estimate for current-year earnings has moved 9.4% south in the past 60 days. For the next year, the consensus mark for earnings has been revised 6.3% downward in the same time frame. The unfavorable estimate revisions indicate brokers’ lack of confidence in the stock.

Zacks Investment Research

Image Source: Zacks Investment Research

Dim Price Performance: The company’s price trend reveals that its shares have dropped 33% year to date compared with the Transportation – Airline industry’s 2.8% fall.

Zacks Investment Research

Image Source: Zacks Investment Research

Weak Zacks Rank: American Airlines currently carries a Zacks Rank #5 (Strong Sell).

Headwinds: American Airlines is facing mounting pressure as a combination of weakening demand, rising costs and fragile liquidity weighs heavily on its financial performance. The 0.2% year-over-year decline in revenues, while modest on the surface, reflects broader headwinds facing the airline. Economic uncertainty has dampened domestic leisure travel, a key revenue driver, compounding the negative impact of the tragic American Eagle Flight 5342 accident. Such incidents can lead not only to immediate reputational damage but also to longer-term declines in consumer confidence, particularly if safety concerns remain in the public eye.

Adding to the strain, total operating expenses rose to $12.82 billion from $12.56 billion in the same quarter last year, indicating limited progress in controlling costs despite stagnant top-line growth. More concerning is the company’s liquidity position. American Airlines ended the quarter with a current ratio (a measure of liquidity) of just 0.52. A current ratio below 1 signals that the airline may not have enough short-term assets to meet its immediate obligations — an alarming sign for a capital-intensive industry like aviation.

American Airlines’ financial stability is under serious pressure. Without strategic adjustments to strengthen liquidity, rebuild traveler confidence and rein in costs, the airline may face deeper challenges in the coming quarters.

Stocks to Consider

Investors interested in the Transportation sector may consider Wabtec WAB and Kirby KEX.

WAB currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The materials sector faces a confluence of macroeconomic and geopolitical headwinds, with the U.S. dollar’s weakening trajectory playing a central role in shaping commodity pricing dynamics. While a weaker dollar typically alleviates some pressures on materials producers, the sector remains in a tug-of-war between cyclical risks and long-term structural tailwinds. Here’s why investors should parse this complexity—and whether the current environment presents a buying opportunity.

The USD’s Decline: A Double-Edged Sword for Materials

The U.S. Dollar Index (DXY) has fallen nearly 8% since early 2025, hitting 97.87 by mid-July. This decline reflects a broader easing of global dollar liquidity and reduced demand for the currency amid falling U.S. interest rates and trade policy uncertainties. While a weaker dollar generally makes U.S. exports more competitive, it also depresses the dollar-denominated prices of commodities like copper and steel, which are critical to the materials sector.

The inverse relationship between the USD and commodity prices is stark: . Copper, often dubbed “Dr. Copper” for its predictive power over economic activity, has dipped 12% year-to-date as the dollar weakened, even as demand for EV batteries and renewable infrastructure remains robust. This disconnect highlights the sector’s vulnerability to macroeconomic noise—yet also underscores its potential upside if demand fundamentals ultimately dominate pricing.

Three Reasons to Consider the Materials Sector Now

1. Long-Term Supply Constraints Favor Commodity Bulls

Despite short-term price weakness, copper’s supply-demand imbalance remains acute. Aging mines, environmental regulations, and underinvestment in new projects have kept production growth stagnant, even as demand for EVs and green energy infrastructure surges. Companies with high-quality reserves and low-cost operations—such as Teck Resources (TECK) and First Quantum Minerals (FMG)—are positioned to benefit from eventual price normalization.

2. China’s Stimulus Could Ignite a Demand Surge

China’s economy, the world’s largest consumer of materials, is expected to rebound modestly in 2025 as Beijing rolls out infrastructure projects and property market reforms. A pickup in construction and manufacturing activity would boost demand for steel, cement, and copper. shows a strong correlation, suggesting materials stocks could outperform if Beijing’s stimulus gains traction.

3. Sector Valuations Are Near Cyclical Lows

The Fidelity Select Materials Portfolio, which holds stakes in TECK, FMG, and specialty players like Linde (LIN) and Ecolab (ECL), trades at a 30% discount to its five-year average P/E ratio. This compression reflects fears over trade wars and dollar volatility—but also creates a margin of safety for investors willing to bet on a cyclical rebound.

Risks to Consider

Trade Policy Uncertainty : Proposed U.S. tariffs on Chinese imports could disrupt supply chains and depress demand for materials like steel.

: Proposed U.S. tariffs on Chinese imports could disrupt supply chains and depress demand for materials like steel. Geopolitical Volatility : Tensions with BRICS-aligned nations (e.g., Russia, Brazil) could lead to commodity supply shocks.

: Tensions with BRICS-aligned nations (e.g., Russia, Brazil) could lead to commodity supply shocks. Dollar Rebound Risks: While the DXY’s downtrend is entrenched, a sudden Fed policy shift or inflation spike could reverse its course.

A Playbook for Selective Investors

Focus on Copper Plays : Prioritize firms with low production costs and exposure to green energy demand, such as Southern Copper (SCCO) and Freeport-McMoRan (FCX) .

: Prioritize firms with low production costs and exposure to green energy demand, such as and . Add Defensive Exposure : Balance commodity sensitivity with “all-weather” names like Ecolab (ECL) , whose water-treatment services are less cyclical.

: Balance commodity sensitivity with “all-weather” names like , whose water-treatment services are less cyclical. Avoid Export-Heavy Firms: Companies reliant on Chinese demand (e.g., steelmakers) face dual risks from tariffs and a weaker yuan.

Final Take

The materials sector is undeniably in a holding pattern, with its fate tied to the dollar’s next move and China’s economic health. Yet for investors with a 3–5-year horizon, the current environment offers an entry point to capitalize on structural tailwinds in copper and specialty chemicals. While near-term volatility is inevitable, the sector’s valuation discounts and long-term fundamentals suggest now is a reasonable time to buy—provided investors stay selective and patient.