VWG Wealth Management 2025 2nd Quarter Review

By VWG Wealth Management on July 3, 2025

Executive Summary

• The S&P 500 Index plunged 12% to start the 2^nd quarter in reaction to President Trump’s “Liberation Day” announcement of sweeping import tariffs.  Violent moves were also seen in the U.S. dollar, U.S. Treasury bond futures, and crude oil.
• A subsequent 90-day pause in tariff rollouts, comforting inflation metrics and select corporate earnings began to ease stock and bond markets by early May.  At the end of the quarter U.S. stocks rallied near to all-time highs, bolstered by an Israel-Iran peace fire and encouraging trade negotiations.
• For the quarter, the S&P 500 Index gained 10.7%, reaching an all-time high.  It has returned 6.0% this year.  International stocks continued this year’s outperformance, with the MSCI EAFE Index rising 11.2% in the quarter, 20.2% this year.
• Despite much improved sentiment and asset prices, a number of potential headwinds and uncertainties face the U.S. economy.  These include employment, housing, the timing and size of tariffs to be imposed, and the possibly detrimental effects of tariffs on growth.
• VWG recommends diversified, balanced portfolios.  Long-term investors must maintain exposure to equities and strategies seeking capital appreciation.  Excessive pessimism and attempting to use macroeconomic and geopolitical events to attempt timing markets, are rarely prudent investment strategies.
• Volatility and periodic chaotic episodes should be expected.  Trade and fiscal policies are uncertain and will likely remain fluid.  Geopolitical tensions show little sign of diminishing.  Investors should maintain allocations to cash and quality, liquid short-term instruments. 
• There are numerous positive catalysts that could reward markets and investors.  These include forthcoming financial deregulation, partial re-shoring of essential U.S. industries, and cuts in the short-term Federal funds interest rate anticipated later this year.  Investors must remain focused on the massive acceleration of the development and deployment of artificial intelligence (AI), automation and robotics.  These disruptive technologies have great potential to transform and energize businesses, and the U.S. economy and its fiscal position.
• As always, thoughtful financial planning and reviews should drive portfolio allocations and investment decisions. 

Review of the Markets

The market turbulence experienced in the 1^st quarter of 2025 bled into the 2^nd quarter.  After mostly recovering from a swift 10% decline in February, the S&P 500 Index plunged 12% (10% in two trading sessions) in early April, reacting to President Trump’s “Liberation Day” announcement of sweeping import tariffs of up to 145%.  The 4-day increase in the CBOE Volatility Index (VIX) was reported to be the third largest such spike in its history.  The U.S. dollar weakened 3.9% against major peers.  Yields on 10- and 30-year bonds spiked over inflation concerns.  The ICE Bank of America MOVE Index (measure of Treasury bond futures volatility) spiked to levels last seen in 2007.  Crude oil fell 15% in three days as the threat of a trade war fanned fears of a global recession.

Perhaps in partial response to market stress, policy was subsequently softened with a 90-day pause in tariff rollouts, and the working towards a U.S.-China trade framework.  Evidence of stable inflation, some solid corporate earnings releases eased concerns.  On the backdrop of extremely negative investor pessimism, rampant expectations of imminent recession, and softened policy stances, stocks rebounded, and bond yields receded.  U.S. precision airstrikes targeting Iranian nuclear enrichment sites, an Israel-Iran peace fire, and encouraging progress in trade negotiations helped propel U.S. stocks to all-time highs by quarter’s end.

U.S. large stocks as measured by the S&P 500 Index gained 10.7% in the second quarter.  They have increased 6.0% this year.  Smaller stocks increased 8.4% in the quarter but are still down 1.8% year to date (Russell 2000 Index).  International stocks continued this year’s strength, with the MSCI EAFE Index advancing 11.2% for the quarter and posting a 20.2% return for the year.  This year’s outperformance of international stocks has been attributed to their cheaper valuations, the continuing slide in the value of the U.S. dollar, and marginal asset flows being directed away from U.S. markets.

Despite the intense volatility, bonds finished the quarter relatively flat.  The yield of the 10-year U.S. Treasury note finished the quarter at 4.23%.  The Bloomberg U.S. Aggregate Bond Index earned a 1.2% total return.  Credit spreads remained well bid, with the Bloomberg Barclays High Yield Bond Index gaining 3.7%.

Crude oil also experienced violent price swings.  The NYMEX West Texas Intermediate Crude continuous futures contract fell a stunning 22.5% in April as markets quickly priced in a full-blown global trade war.  It subsequently stabilized, then spiked higher with Israel’s launching of military actions targeting Iran’s nuclear facilities in June.  It pulled back with the peace fire announced on June 23. 

In contrast to stocks, bonds and oil, the U.S. dollar and gold did not reverse their moves with the easing of trade concerns.  This was surprising, as both are considered as ‘safe haven’ assets which would be expected to trade in tandem with perceived market risk.  The ICE U.S. dollar index fell 7.0% in the quarter and has declined 10.7% this year.  Gold continued its rise, with the NYMEX Gold continuous futures contract gaining 5.0% in the quarter, and has now appreciated 25.2% this year. 

As We Enter the Second Half

Jerome Powell recently reported to the House Financial Services Committee that the U.S. economy appears to be “in a solid position.¹” Markets have calmed, and stocks once again reflect optimism.  Has the chaos passed, with only clear blue skies ahead?  Most likely not.  Several of the respected strategists we follow see potential economic headwinds and uncertainties ahead.  These include:

• Employment.  Renaissance Macro’s Neil Dutta reports that “continuing jobless claims keep rising to fresh highs.  This means unemployment is going up.  The rates of hiring have declined even if rates of firing have not materially increased.²”
• Housing.  Dutta also reminds that “the NAHB Housing Market Index sank to 32 in June (with 50 being neutral), the lowest since 2022.  The sub-index measure of present sales has not been this weak since 2012.  Homebuilder sentiment implies weakness ahead, specifically for new home sales and single-family construction.³”
• Corporate indecision.  The outlook for business investment appears sluggish, perhaps held back by uncertain and fluctuating trade and tax policies.  The New York Fed’s survey of 6-month expected forward capital expenditures fell to a fresh low of -7.3 in June.  Corporate CEO and consumer confidence is weak. 
• Timing and the size of tariffs.  The Yale Budget Lab estimates that U.S. import tariffs are at a 15.8% composite level⁴, the highest level in almost a century.  This figure corresponds to the current 90-day pause level after which higher “reciprocal” tariffs could be reimposed.  Although it appears that trade negotiations are progressing favorably, including a framework with China, the timing and the amount of import tariffs are far from being settled.  The potential for trade war retaliation has not been eliminated.
• Economic effects of tariffs.  Regardless of whether tariffs are inflationary or a one-time price increase, the bottom line is that tariffs will slow growth, at least in the near term.  George Washington University economist Tara Sinclair recently voiced, “Economists don’t agree on much, but we agree that tariffs are taxes on consumers.  Tariffs, as a consumption tax, increases prices, leading consumers to reduce their purchases.⁵” Goldman Sachs Chief Economist Jan Hatzius makes tariffs and trade policy an important input to his economic projections.  “We expect tariffs to reduce US GDP growth this year by almost 1% through a tax-like hit to consumer spending and the impact of policy uncertainty on business investment.  Coupled with the effects of other changes to fiscal and immigration policy, we expect 2025 full year GDP growth at a below potential 1.25%, resulting in a 0.2% increase in the unemployment rate.⁶” 
• Overhanging Fiscal Deficit.  Apollo Global’s Chief Economist Torsten Slok calls this the “X-Factor⁷” to his restrained outlook. His work, supported with data from the U.S. Congressional Budget Office, projects the “One Big Beautiful Bill Act” (OBBBA) to add $5 trillion (increasing to 129% of GDP) to the national debt over the next decade if passed.  The projections are based on the OBBBA’s expectations of increased tariff revenues.  Although not a ‘current’ headwind, the debt and deficit are poised to weigh on the U.S. bond market and long-term interest rates.  ‘Higher for longer’ interest rates will be a suppressant to housing, business investment, and the costs of financing the federal debt, which are now 13.6% of the annual budget.

Portfolio Positioning

Amid ongoing global military conflicts and a host of potential economic, political, and fiscal headwinds, long-term investors should remain committed to owning equities and capital-appreciation oriented strategies within diversified portfolios.  While we cannot foresee the future or reliably anticipate how markets will respond to these, history has shown that excessive pessimism or market-timing rarely rewards those seeking long-term appreciation.

Concurrently, this is no time for complacency.  Volatility and periodic episodes of market disruption should be expected.  Trade and fiscal policies are uncertain and will likely remain fluid.  Geopolitical tensions show little sign of diminishing.  The relentless news and hype cycle can be disorienting.  At Morgan Stanley’s recent Australia Summit, Oaktree Capital’s Howard Marks provided insight and guidance on this situation.  He said, “as someone who is a serial negotiator, Donald Trump values unpredictability.  Investors should expect uncertainty to endure under Trump.  This, combined with relatively full valuations in the S&P 500, requires a prudent approach.⁸”

Therefore, diversified portfolios must also include a healthy allocation to assets offering liquidity, stability, and cash flows.  The portfolio must be structured commensurate to each individual’s financial plan that projects future goals, needs, and some measure of flexibility as change inevitably occurs.  More conservative investors, and those expecting significant expenditures over the next 1-2 years should take periods of relative strength and stability to raise levels of cash and liquidity.

Importantly, investors cannot overlook the potential positive catalysts on both the short and longer-term horizons.  U.S. corporations are largely as healthy as they have ever been, generating increased cash flows and profits with less leverage.  The revitalization and partial onshoring of essential U.S. industries holds great promise.  Forthcoming financial deregulation may unleash new avenues for corporate growth and opportunity.  Capital market activity and initial public offerings (IPOs) are showing some early signs of improvement.  Reductions in the federal funds short-term lending rate are anticipated later this year.  Investors must stay focused on the dramatic growth, capital expenditures and advances being made in artificial intelligence (AI), automation and robotics.  “AI capabilities have improved across multiple domains while costs have declined, exceeding expectations.⁹”  The rapid growth in usage is astounding.  As example, ChatGPT announced in February that the number of its weekly users had grown by 100 million (to 400 million) in only two months!  The rapid adoption by U.S. businesses is exploding across a variety different industries and businesses, as shown by this chart:

Share of U.S. Businesses with paid subscriptions to AI models, platforms and tools

The speed of AI innovation is extraordinary.  It has far-reaching implications for transformation and disruption across all types of businesses.  AI is quickly reshaping the global investment landscape and is poised to be a major force in the years ahead.  VWG Wealth Management recently hosted a webinar examining the evolving impact of artificial intelligence on markets, business strategy, and investment decision-making.  You can watch a replay here.

Coatue Management, a prominent public and private technology-focused investment firm, detailed the diverse, transformative AI implementations gaining traction during their tenth annual East Meets West conference.¹⁰  These included:

• Assisting enterprise sales productivity and creativity
• Transforming physician practice workflows
• Providing contract analysis and litigation support for law firms
• Software development and coding
• Optimizing energy usage and supporting emissions reductions
• Enhancing fraud detection and risk assessment

Coatue, Rick Rieder, Blackrock’s CIO of Global Fixed Income and Head of Global Allocation, and numerous respected observers postulate that the adoption and continual enhancement of disruptive AI and automation innovation could set off a virtuous flywheel, benefiting both businesses and the broad economy^11,12:

They see the potential for accelerated growth in productivity, which could ultimately lead to higher GDP growth, increased tax revenues, increased government efficiency, and ultimately a reduction in the U.S. federal debt. 

The VWG team continues to monitor the quickly shifting geopolitical, economic, artificial intelligence, and investment landscape.  We don’t expect the cadence of events to subside anytime soon.  It is especially important in volatile times to let us know if you encounter any significant life changes, or if your cash needs have changed, so we can proactively make adjustments.

We hope you find time this summer to relax, spend time with family, get away, and engage in some activities (or take a break from them) that give you great joy and fulfillment.  Enjoy!

Regards,

VWG Wealth Management

Suzanne, Ashley, Rashmi, Kay, Brandi, Emily, Lynette, Michelle, Mary Kate, Ryan, Ryan, Ryan, Justin, Jack, Elana, John, Rick and Jeff

* All stated index returns are as of 6/30/2025 unless otherwise indicated.

* Index Data and Charts sourced from FactSet Research, Morningstar, Bloomberg, Goldman Sachs Global Investment Research, Federal Reserve Bank of New York, Apollo Chief Economist, J.P. Morgan, Ramp, Coatue Management.

Footnotes:

1. Jerome Powell testimony to House Financial Services Committee June 24, 2025.
2. Neil Dutta, Renaissance Macro, “Why the Fed might need to ‘get on with it’ and cut rates,” Yahoo Finance, June 12, 2025.
3. Neil Dutta, Renaissance Macro, LinkedIn post June 17, 2025.
4. The Budget Lab, “State of U.S. Tariffs,” June 17 2025 analysis.
5. Tara Sinclair, George Washington University, Politifact interview, March 12, 2025.
6. Jan Hatzius, Goldman Sachs, “June FOMC Preview,” June 16, 2025.
7. Torsten Slok, Apollo Global Management, “2025 Mid-Year Outlook,” June 23, 2025.
8. Howard Marks, Oaktree Capital Management, comments from the Morgan Stanley Australia Summit, June 12, 2025.
9. Michael Cembalist, J.P. Morgan “Eye on the Market,” May 13, 2025.
10. Coatue Management, East Meets West 2025 Keynote Presentation, June 17, 2025.
11. Coatue Management, East Meets West 2025 Keynote Presentation, June 17, 2025.
12. Rick Rieder, BlackRock, “Thinking about What is Money in this New World” market webcast, June 26, 2025.

VWG Wealth Management is a team of investment professionals registered with HighTower Securities, LLC, member FINRA and SIPC, and with HighTower Advisors, LLC, a registered investment advisor with the SEC.  Securities are offered through HighTower Securities, LLC; advisory services are offered through HighTower Advisors, LLC.

The information provided has been obtained from sources not associated with Hightower or its associates. All data and other information referenced herein are from sources believed to be reliable, although its accuracy or completeness cannot be guaranteed. Any opinions, news, research, analyses, prices, or other information contained in this report is provided as general market commentary, it does not constitute investment advice. VWG Wealth Management and Hightower shall not in any way be liable for claims and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

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