Key Takeaways:
The S&P 500 hit an all-time high last week. The recent rebound marks the swiftest-ever recovery back to a closing high after a decline of at least 15%, according to Dow Jones Market Data.
After the recent rally, the S&P 500 is up 5.6% year-to-date (YTD) through June 27, 2025. International stocks have led the way in 2025, highlighting the benefits of diversification. YTD through June 27, 2025, developed non-US equities have risen 20.2%, while emerging market equities have risen 16.1%; US small caps have lagged, down 1.9%.
YTD through June 27, 2025, fixed income returns have been mixed. US core bonds have returned 3.6% while high-yield bonds have returned 4.6%. Municipal bonds have lagged, down 0.8%.
Real assets have been generally beneficial to portfolios in 2025. Gold has risen 24.4% YTD through June 27, and copper has risen more than 25%; oil is the exception, down 9.2%.
The US dollar remains at multi-year lows, down 10.3% YTD versus a global currency basket. There is no sign of an imminent rebound in the dollar.
“Hard” economic data is weakening – “catching down” with previously weak “soft” (survey) data. Geopolitical, economic, and trade policy uncertainty all remain elevated.
Hard economic data represents real economic activity, such as Gross Domestic Product (GDP), employment data, etc.; while soft data is survey-based.
Survey data has been persistently weak in recent months. Recently, hard data also turned lower, according to data from Bloomberg. The economy is not falling off a cliff, but growth appears to be slowing on the margin.
Housing market activity is slow, even though prices remain elevated. Pending home sales remain near record lows, and nationally, there are 34% more sellers in the market than buyers, according to data from Redfin, the National Association of Realtors, and Bloomberg.
Housing market activity is correlated with economic growth, so we will continue to watch this data closely. Much of the average household’s net worth is contained within real estate. A persistently weak housing market is a bad sign for overall growth, although some of the slowdown in activity is related to higher mortgage rates.
The Strait of Hormuz is an important oil trade route. There was some concern in recent weeks that Iran might attempt to close this waterway. Those fears have yet to materialize, and the Strait of Hormuz remains open with ships passing through freely, according to data from marinetraffic.com.
Bottom line – how to invest now.
Equity valuations are again extended, and credit spreads are tight, while the US dollar is at a multi-year low. In the current environment, we would be judicious about putting fresh capital to work. Leg in incrementally and remain “Neutral to Risk” and neutral to duration. Diversify via real assets and international markets.
When volatility is low, preserve capital. When volatility is high, deploy capital. We continue to watch implied volatility (VIX) and other sentiment indicators for moments to put incremental capital to work. We will continue to highlight these if/when such opportunities present themselves. For examples, please refer to our National Client Call from April 9, 2025.
Real assets, such as gold and energy stocks, have provided important diversification in recent weeks – we continue to recommend real assets in client portfolios. Treasuries have been less effective at offering diversification but could be additive if things worsen materially.
We would use any US dollar strength to further diversify into non-US assets. We believe non-US equities should represent approximately 30% of an investor’s total equity portfolio, although each client is unique.
Equity Takeaways:
Stocks were mixed in early Monday trading. The S&P 500 rose approximately 0.2%, to 6185. Small caps dipped fractionally, about 0.1%. International shares were slightly lower.
The S&P 500 hit an all-time high last week. July is seasonally the strongest month of the year historically, so over the short-term, this rally could continue if traditional patterns hold.
Earnings growth continues to support stock prices. Since early May, forward earnings growth estimates have stabilized and begun to move higher again. Tariff rollbacks and trade deals seem to have stabilized earnings growth expectations, and the stock market has taken notice.
Breadth, as measured by the NYSE Cumulative Advance-Decline Line, continues to set new highs, suggesting the market is likely to power higher on the back of broad participation. Broad market participation is healthy and suggests the recent rally has legs.
Copper prices are a traditional bellwether of economic growth. Copper prices have rallied strongly off the April lows, another sign that traders are expecting economic growth to re-accelerate.
Fixed-Income Takeaways:
Treasury yields moved lower last week as traders anticipated a faster pace of rate cuts beginning later this year. Even though Chair Powell maintained the “wait-and-see” stance at his semi-annual testimony to Congress last week, a portion of this move may have been driven by speculation that President Trump may announce his pick for Federal Reserve (Fed) Chair in the relatively near future (Powell’s term as Fed Chair ends in May 2026). Trump has continued to advocate for lower interest rates in recent weeks, and his pick for Fed Chair is expected to echo that sentiment.
Market participants are now pricing between 50 and 75 basis points of rate cuts by year-end 2025. The current fed funds rate is the target range of 4.25% to 4.50%.
The Treasury curve continues to steepen, with short-term yields moving lower at a faster pace than long-term yields. The short end of the yield curve is heavily influenced by Federal Reserve (Fed) policy, while long-term yields are more influenced by inflation and economic growth.
In early Monday trading, 2-year Treasuries were yielding 3.73%, 5-year Treasuries 3.82%, 10-year Treasuries 4.26%, and 30-year Treasuries 4.81%.
Credit spreads remain very well contained. Liquidity is plentiful. Spreads continue to grind tighter. During the recent stock market rally, high-yield bonds have outperformed their investment-grade (IG) counterparts.