Quarterly Review and Outlook:
June 2025

A Look Back

“America the Beautiful” is the patriotic song we all have come to know and sing, especially as we celebrate Independence Day and all that comes with the national holiday of July 4th. The words were initially a poem by Katherine Lee Bates, first published in 1895. Together with the melody from church organist, Samuel Ward, “America the Beautiful” was first published in 1910. There have been many efforts over the past 100 plus years since to give it legal status as a national hymn or anthem equal to, or in place of “The Star Spangled Banner”. It has been brilliantly performed by major stars from Elvis Presley and Frank Sinatra to Ray Charles and Whitney Houston. As we recently enjoyed the 249th anniversary, it seemed like a fitting title…with the addition of “Big” to refer to the signing of the Big Beautiful Bill signed into law by President Trump on July 4th. We are now 6 months into President Trump’s second term, and after some initial volatility and market declines in April, stock returns here and around the globe have been mostly, well…beautiful. The second quarter of 2025 saw the Large-Cap S&P 500 return nearly 11%, while international stocks performed even better. International Developed stocks are up nearly 20% for the year. Core bonds delivered a healthy 1.54% return in June alone, and now stand at 4.02% for the year. That translates into an annualized number of well over 8%.

It is also worth looking at some of the longer-term numbers in the table above. The boring S&P 500 index has delivered nearly 20% annualized over the last three years and 16.64% over the last five years! Remember, the long, long-term average is a smidge under 10%, so maybe not so boring...

The economic numbers reported over the last quarter all lead to this summary: Conditions are slowing down, but have remained surprisingly okay. After a first quarter of -0.5% GDP growth, the Atlanta Fed is projecting second quarter growth of 2.6% currently. The latest check of the jobs situation in the U.S. showed us adding over 140,000 jobs and a tick down of the unemployment rate to 4.1%. Consumers are still spending, although at perhaps a more selective pace. There are some problematic things, like there usually are in any multi-faceted economy. Credit card debt is inching higher, on average, and delinquent debt is as well. We pay attention to those indicators because it means that the safety net for many is shrinking…and unforeseen obstacles can negatively affect consumer behavior quickly. The uncertainty regarding tariffs has dissipated somewhat, but the next several months should provide a much clearer picture. Against this backdrop, stocks have performed amazingly well

The chart above looks at the S&P 500 from the peak in 2007 before the Great Financial Crisis to present. It also shows the last 12 months in the smaller box in the upper left corner, where the resiliency of the index is on full display. Indeed, the benchmark rose over 28% from the April low of 4835 to close June at 6202. That’s a few years of performance packed into a couple months! (And another reason why it pays to stay committed to your long-term asset allocation…even when it feels tougher to do) Even with the initial volatility surrounding the “Liberation Day” tariff announcement, the S&P 500 has closed at seven new all-time highs…three in the last two weeks.

Importantly, diversification between asset classes has helped overall client portfolio returns. The chart above shows the outsized performance of three asset classes versus U.S. stocks in the first half of the year. We write often about the benefit of this diversification over time…and it has been some time since large-cap U.S. names were not the leader of the pack. The goal of any money manager should always be to deliver the most amount of return with the least amount of risk, and we accomplish that by adding these other asset classes to the mix.

We believe it is important to look at what has happened with the U.S. dollar in the first half of 2025. The U.S. Dollar Index fell 10.8% by June 30th, marking the worst six-month performance in over 50 years. So, why should we care? At the heart of the decline has been the global uncertainty of the aggressive tariff policies mentioned, and how that might lead to prolonged trade wars. Although a weaker dollar boosts U.S. exports, the most immediate impact for consumers is the price on imported goods. Buying things from other countries costs more…and American businesses often pass on those higher costs to consumers. This trend can certainly reverse as specific country trade deals become reality, but this remains something for all of us to keep an eye on.

A Look Forward

It really has been a roller coaster ride so far this year. President Trump has been busy attempting to deliver on many of his campaign promises…from immigration reform, reducing government waste, fairer trade, and most recently, the Big Beautiful Tax Bill. After the initial angst increase in March and April, the markets have digested the news amazingly well. One of the key components of investor angst over the last several years has been inflation. Although we are still not at the 2% level that the Fed prefers, the retreat in the two main inflation indicators shown below has helped allay investor fear. Some worry that the second half of the year might show a tariff-related spike, but the decreasing trend from the summer of 2022 highs of 9.1% can’t be understated.

As we think about what the next 6-24 months might look like, we believe it is extremely useful to look at the past for a guide. Benjamin Franklin reminds us, “experience keeps a dear school.” With all that is going on in a complex global economy and intertwined financial markets, it really is quite difficult to know what the next week or months might bring. It is why the numbers shown below are so powerful. It simply looks at a typical 60/40 portfolio (60% stocks and 40% bonds) and how many times it was positive…and the percentage of times it outperformed cash. Over the last 30 years, it looks at rolling one-month periods all the way out to rolling 15-year periods. Hundreds and hundreds of data points. Even in the shortest, one-month time frame, the 60/40 portfolio has outperformed cash 64% of the time. As we get to five years, it has been positive 99% of the time and beaten cash 80% of the time. Finally, as we get to 15 years and beyond, it is 100% in each category. We like those odds.

With the recent significant rally of the last two months, stock markets have re-entered the longer-term overvalued stage. As we have seen throughout history, it can stay in that stage and still deliver positive returns. We will use any further rallies to judiciously trim gains. There may still be room for International stocks to perform well, especially as specific trade deals are announced, and Core Bonds have been a more reasonable portfolio allocation.

Investors hit the panic button in April as the tariff strategy was announced, but that level of uncertainty has returned to a more neutral position. Currently the market is pricing in at least one rate cut this year, as the Fed has decided to stay pat so far and leave the short-term benchmark alone. We will remain flexible in our views as we review current and forward-looking data. In the end, we know that valuations and expected earnings really matter. As always, we will continue to take a breath and reflect on this beautiful country of ours…and strive to deliver big, beautiful returns!