Friends,
The first half of 2025 has seen staggering shifts in both U.S. government policies and geopolitical developments which have translated into very high levels of volatility in financial markets. The Trump administration’s rollout of sweeping new trade and tariff policies shook the stock market in April. “Uncertainty” has become the most often used word in the financial press and has led to fears of slower global economic growth and stubbornly high inflation. In response, the stock market sold off hard (17% in the S&P 500) and interest rates temporarily spiked. Fortunately, the administration demonstrated flexibility by hitting a 90 day pause button in order to make time to reach trade deals with our most important trading partners. That 90 days was scheduled to expire on July 9th, but it sounds like it’s being pushed to August 1st as of now. In addition, the U.S. move to assist Israel in severely damaging Iran’s nuclear capabilities and hopefully move towards a cease fire was considered a net positive by markets. Given these factors, the stock market rebounded strongly in May and June and has recently hit new highs. Through July 4th, the domestic stock market was up about 7% year to date and the bond market was up almost 4%. Interestingly, foreign stocks were up 19% year to date.
Going forward, we anticipate continued uncertainty and volatility around tariff policies until they are mostly resolved; this could lead to choppiness for the next few months. However, we are cautiously optimistic that damage to financial markets will be more limited than they were in April. Since the beginning of the year, the U.S. has increased its effective tariff rate from less than 5% to about 15% now. There will continue to be much back and forth on this issue but it’s hard to see the overall tariff rate increasing materially from where we are.
In addition to pursuing new trade policies, the administration is advancing major pro-growth tax and regulatory reforms. The big new bill passed last week extended the 2017 Tax Cuts and Jobs Act (preserving the tax cuts included in that bill) while introducing new tax cuts for businesses, working families and senior citizens. While there are still legitimate concerns regarding the long-term impact of this bill on our nation’s deficit and debt, the short-term impact should be stimulative to economic growth. Bottom line, we remain bullish on the U.S. stock market.
We are pleased to say that our investment portfolios held up well during the roller coaster ride of the second quarter. There was no panic in April…we stayed with our disciplined and diversified approach (e.g. our allocations to foreign stocks and bonds) and that served us well.
We hope you and your families had a Happy 4th of July. Let us know if you have any questions regarding your portfolio or if we can do anything for you. As always, we appreciate your support and encouragement.
Matt and Andrew