Stocks ultimately rebounded in the second quarter. Large domestic stocks, as measured by the Standard & Poor’s 500, gained 10.6%. The Russell 2000, a gauge of smaller domestic stocks, rose 8.1%. The Nasdaq Composite Index, heavily weighted in technology companies, advanced 17.7%. Foreign firms, generally speaking, climbed as well with the Dow Jones World Index (ex US) rising 11.4%.
Q2 market action was not for the faint of heart. Stocks cratered in early April as sweeping tariff announcements resulted in what the always amusing Wall Street media machine dubbed the “tariff tantrum”. Sentiment turned decidedly negative as investors weighed predictions of radical retaliation by our largest trading partners. After a number of painful trading days, the administration announced a pause for negotiations. Investor sentiment pulled a 180 with an immediate positive response for stocks.
Some remain concerned that we will see a rise in inflation and a stalling of our economy but, so far, that’s not reflected in the hard data. Inflation is trending toward the 2% Federal Reserve target and corporations continue to report robust earnings. The most recent headline unemployment rate declined to 4.1%. That’s impressive considering 4% has historically been considered to be “full employment”. Many are anxious for Fed Chair Powell and his team to cut interest rates. One can certainly make the case that lower rates would save the US billions in interest expense. But let’s remember, that’s not the Fed’s job. The Fed has a dual mandate: maintain stable prices and keep Americans working. Considering the current economic data, it’s not easy to make a legitimate case for immediate Fed action. It’s always possible that inflation could rear its ugly head or our economy could stumble, but Powell and his Fed are adamant about data dependency. We seriously doubt we’ll see a cut at the July meeting, and perhaps not in September.
So how do we see 2025 playing out? Of course, short-term market movements are impossible to time accurately with any consistency. However, we remain optimistic for the medium-term and certainly long-term. Trade negotiations will likely result in agreements more beneficial to the United States. Corporations are relieved that, with the signing of the tax & spending bill into law, uncertainty has been eliminated. To be sure, the stock market hates uncertainty. By continuing to maintain one’s thoughtfully designed portfolio based on historical expected return and volatility characteristics, one should have confidence in achieving one’s long-term financial goals.
Please know we welcome your calls, emails, texts, etc. And, as always, we adhere to our discipline of strategic asset allocation and style diversification; a strategy designed to mitigate overall portfolio volatility and enhance long-term returns