2025 Second Quarter Letter

By David K. MacLeod, CFA, CFP®

Large cap U.S. stocks had an outstanding quarter with the S&P 500 up 11% driven by strong corporate earnings and optimism about tax cuts. However, this strong quarterly gain doesn’t capture the volatility in the quarter that started with the S&P 500 index down 11% in the first 8 days of April. Despite facing headwinds from higher tariffs, small-cap U.S. stocks still gained 5%. International stocks were up 14% partly due to a weaker U.S. dollar. Bond returns were positive as the 10-year U.S. Treasury yield remained at 4.2% and short-term interest rates were unchanged.

Despite numerous challenges, U.S. economic growth still appears to be in solid shape. The June jobs report showed continued hiring with job growth numbers that beat economists’ expectations. The unemployment rate declined to 4.1%. Real gross domestic product (GDP) is expected to have rebounded in the second quarter to an annualized 2-3%+ growth rate. Inflation has come down close to the Federal Reserve’s 2% target though tariffs threaten to reverse the downward trend. While there’s still uncertainty around U.S. trade policy, the de-escalation with China during the quarter was a positive development.

On July 4th, the OBBB Act was signed into law. We will communicate more details on this, shortly, but here are some of the key provisions that will affect many of our clients:

·         Permanent extension of the lower 2017 TCJA tax rates

·         Increased standard deduction to $15,750 (single) and $31,500 (joint)

·         State and Local Tax (SALT) Deduction Limit increased from $10,000 to $40,000

·         Seniors over age 65 can claim a new $6,000 deduction

·         Section 199A pass-through deduction made permanent

·         New limits to charitable deductions

·         Estate and gift tax exemption increased to $15 million ($30 million for a couple)

Please do not hesitate to call if you have questions or want to schedule a meeting.