Mid Year Review

Before we jump into the review, note that, during the first half of August, we will have a summary of the OBBBA legislation in your inbox.

At the national level, the first half of 2025 featured tariff negotiations, the impact of DOGE on the psyches of federal employees, and the uncertainty generated by these activities on households and businesses.  There appears to be continuing tension between the executive branch and the FOMC over the amount and direction of interest rates.

Sentiment

The UM Consumer Sentiment Index was up slightly in July over June though still down 7% YoY.  More interesting, this same survey shows that the “Index of Consumer Expectations” is down almost 15% YoY.  Business?  The NFIB Small Business Optimism Index was steady in June, at 98.6%, in line with the 50-year average of 98%. 

The Conference Board’s Leading Economic Index (LEI) was down slightly in May and down 2.7% for the six months through May.  This compares to a drop of 1.4% in the LEI for the prior six months.  Conference Board analyst JZ Monica said the April stock price recovery was the primary positive.  Consumer pessimism, persistently weak new manufacturing orders, and a decline in housing permits weighed on the index.

It will be interesting to track the impact of tariff negotiations and immigration policy on supply chains and goods/services availability.  It will likely be some months, perhaps Q4, before we begin to see the impact of these decisions.  And professional prognosticators remain mixed in their opinions regarding inflation, recession, and the direction of the public markets.

Stock Market

The stock market started 2025 modestly after two very good years and had a nasty fall in early April.  From which it has recovered nicely.  Through June, the S&P 500 was up 6.2%.  Leading sectors were Communication Services, which were up 12.1%, Industrial up 12%, and Technology up 8.9%.  The NASDAQ finished H1 up 5.9% while the DJIA was up 4.5% and the Russell 2000 was down 1.8%.  On the international front, Emerging Markets, as measured by MSCI, were up 15.6% while the MSCI EAFE was up 19.%.  The German DAX has been one of the clear winners internationally, up more than 20% YTD.

Bond Market

Bond market returns YTD have been in line with historical norms.  Junk bonds were up 4% during H1, investment grade corporates were up 3.6%, US Treasuries up 3.3%, 90-Day T-Bills up 2.2%, and preferred securities up 1%.  The downgrade of US debt and the world’s reaction to the tariff discussions has had the most impact on long-term Treasuries.  YTD, long treasuries are off 7%.  They are off 10% over the last year and have a five-year annualized return of 3%.

Our Approach

Our current approach is simple.  Build cash and hold it in CDs or high-yield money market accounts.  Not just 90 days of reserves.  Shoot for one to two years, so you have some dry powder when opportunity shows up – and it will.  Continue your dollar cost averaging habits into long-term investments.  Doing these two things will give you cash to capitalize on opportunities when they arise, and maximize long-term portfolio returns.

And until we see you again, wishing you only the best.