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Quarterly Market Commentary : July 2025

Capital Markets Recap

  • The Seasonally Adjusted Annual Rate for GDP in 1Q25 was a negative 0.5% as the tariff talk led to a surge in imports ahead of any implementation that detracted from GDP. This was followed by the tariffs announcement April 2nd, suggesting much higher tariffs on the trading partners of the US. While the tariff numbers have come down as countries are negotiating agreements and the deadlines have been pushed out, economists have revised down US 2025 GDP growth to 1.5% and global growth to 2.8%.

  • The unemployment rate decreased to 4.1% in June and has been at the low 4% level for several months. CPI Inflation has been coming down and rose 2.4% YoY in May and 2.5% YoY in April and has positively surprised three months in a row. However, the core CPI (ex food and energy) has been higher with May at 2.8% and April 2.9%. Combined with uncertainty about the impact from tariffs, the FED has been on hold for the first half of 2025. Currently, the market expects two, maybe three, cuts in 2025 with the first cut coming in September.

  • The S&P 500 had a very strong 2Q25, increasing 10.6%, despite tariff and growth concerns. Technology (23.59%) and Communication Services (18.2%) led the sectors while Energy (-9.4%) and Health Care (-7.6%) were the laggards.

  • The 10-year Treasury bond yield increased by 2 bps during the quarter to end at 4.23%, keeping bond prices essentially flat. The Aggregate US Bond Index increased by 1.2% in 2Q25, and was up 3.9% in 1H25.

  • We favor investment grade intermediate term bonds. While long-maturity bonds offer higher price appreciation in a recession scenario, the yield difference versus intermediate bonds is too small for the elevated risks of future declines if the US does not reduce fiscal deficits.

  • We recommend bond ladders of IG Intermediate bonds with attractive yields but we expect less price appreciation than in the past with almost all bond returns coming from the coupons going forward.

  • Short term interest rates fell in 2024, matching the cuts made by the FED. The FED is guiding to another 100 bps of cuts by the end of 2026, indicating further reductions to money market returns. With this in mind, we recommend investors to term out cash positions not needed for liquidity purposes.

  • Studies show that market timing typically produces inferior returns. We encourage diversification and a focus on working towards financial planning goals.

Economic Data Points                          As Of

Unemployment                               4.1%                04-July-25
10 Yr Treasury Rates                    4.42%                08-July-25
30 Yr Mortgage Rates                   6.67%                03-July-25
 CPI YOY                                            2.4%               11-June-25
US GDP Growth 3Q 2024              -0.5%               26-June-25


Model Portfolio Positioning

Fixed Income & Alternatives

Equities

Looking Ahead


  • Geopolitical unrest and the risks to global growth:
    • Responding to severe market reactions, the announced April 2nd tariffs were postponed by 90 days for negotiations calming the markets. While the US has signed several trade deals, the tariff deadline has been extended to August 1st for trade negotiations to conclude.
    • If negotiations fail, higher tariffs will hurt US and economic growth. This will be magnified if it leads to retaliatory tariffs.
    • Israel launched a surprise attack on Iran’s nuclear and missile facilities and was later aided by the US. This was followed by a truce that is currently holding. The US is also attempting to make Israel and Hamas sign a truce while negotiating a peace agreement. Unfortunately, Russia continues the war in Ukraine and has been uncooperative in peace negotiations.
    • Cold War 2.0 has started with Russia, China, Iran, and North Korea on one side. This has led the West to increase defense budgets but the West and its allies are fragmented. Increased tension and trade wars will have a negative impact on global growth and the potential for disruptions given highly integrated global supply chains.
    • The US President is very aggressive towards both allies and opponents, risking alienating allies with his trade policies and rhetoric, and making it harder to agree trade terms with adversaries.
    • The political wind in Europe has changed as the continent realizes they have to pay for their own defense and historical ruling party coalitions are losing support among populations.

  • Economic growth, unemployment, and FED action:
    • The US economy surprised to the upside in 2024, followed by a slight contraction in 1Q25 as imports surged ahead of tariffs. Expectations for 2Q25 is a return to growth of 1.5% aided by a job market that has remained robust.
    • The tariffs have made the job of the FED much more challenging given its dual mandate of stable prices and employment. The market currently believes the FED will support the economy through multiple cuts in 2H25.
    • The corporate sector remained strong as earnings continued to surprise to the upside in 1Q25. The EPS for the S&P 500 is currently projected to grow 8.2% in 2025, indicating further strength, but this could prove to be a mirage should tariffs lead consumers and companies to dial back spending due to uncertainty about future prices.

  • US Government budget deficits:
    • The US continues to run large budget deficits despite robust tax revenues. The fiscal 2024 deficit was ~$1.8 Trillion, or 6.2% of GDP, and the fiscal 2025 deficit is projected at $~1.9 Trillion. While DOGE found savings by identifying government waste and fraud, the current savings will only trim roughly 10% of the deficit. Importantly, the recently passed budget bill will do little to trim the deficit as current tax cuts will be extended.

  • US Government Debt:
    • US Federal debt-to-GDP has risen to 123% versus 57% in 2000. The Congressional Budget Office (CBO) projects US Federal debt to rise by ~$20 trillion in the next decade even in the most positive scenario to ~$57 trillion.
    • Continued large budget deficits will make this worse and eventually force harsher changes when the music stops.
    • Interest payments on the Federal debt held by the public were ~$882 billion for fiscal 2024, and are projected to rise to $1 trillion for fiscal 2025. This compares to fiscal 2024 defense spending of ~$841 billion.
    • As the interest on the Federal debt will consume a higher, and higher percentage of the government’s budget, it will crowd out other spending, making it harder to make changes the longer we wait.

  • Emerging market growth and China
    • Prior to Covid, China was an economic growth machine as the country invested massively in infrastructure and housing. This also drove demand growth in raw materials from other countries such as Brazil and Indonesia.
    • Recently, China’s economic growth has slowed partly as its population has peaked, requiring less infrastructure spending, and partly from poor top-down economic policies from the communist party that created a real estate bubble and an overhang of bad debt from large real estate developers. As a result, new construction has nearly stopped and China’s “miracle growth” has slowed.
    • Wages in China have become less competitive, and China has become very assertive to its neighbors in the South China Sea. Combined with tariff threats, it has led companies to move or establish new production away from China to diversify risks. India has been a big beneficiary as the country’s economic growth has surpassed China. Mexico has also benefited from near-shoring to the US.
    • Higher demand for key raw materials used in the energy transition will benefit select EM economies such as Brazil, Chile, and Indonesia that have these resources, but Brazil is facing its own economic challenges.

  • Economic growth, corporate earnings, and financial markets:
    • Putting it all together, we are worried about the fallout on economic growth from the proposed tariffs and a tariff war. If used to extract better trade terms, the tariffs could benefit the US, but the risks are the tariffs will be too high, hurting both US and global economic growth. It could also further alienate allies, making future agreements more difficult with negative consequences for LT economic growth and corporate earnings.
    • We favor intermediate IG corporate bonds due to a combination of strong balance sheets and attractive yields.
    • We recommend long-term investors to stay invested despite darker clouds such as a potential tariff war as 2Q25 was a strong reminder markets can still outperform despite tariff announcements and a brief war between Israel and Iran.

Disclosures

These are the opinions of Ascend Wealth Planning, LLC and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing in securities involves risk of loss. Further, depending on the different types of investments there may be varying degrees of risk Clients and prospective clients should be prepared to bear investment loss including loss of original principal. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors. Diversification and asset allocation strategies do not assure profit or protect against loss. Indices mentioned are unmanaged and cannot be invested into directly. Past performance is not a guarantee of future results. Registered Representatives offering securities through Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC and Investment Advisor Representatives offering advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Ascend Wealth Planning, LLC are not affiliated.