Imagine driving through a dense fog; the road ahead is enveloped in mist, blocking your vision and making it impossible to see what’s ahead. You know you cannot drive too fast, for fear of veering off a cliff. Yet, you cannot afford to stop or slow down too much, in case the cars behind you catch up and a semi-truck slams into you.
This, my friends, is the essence of today’s economy. Much like navigating through fog, we find ourselves in uncertain times (uncertainty is the new certainty — see Growth of $1 chart) where we tread cautiously. We cannot rush ahead recklessly, nor can we stand still and risk the consequences of inaction. It is a delicate balance of moving forward, while adjusting to the unseen challenges that lie before us.
There are plenty of reasons to look for an exit. Apollo’s chief economist lays it out graphically. We have tariffs and retaliatory tariffs, geopolitical issues, eroding confidence and increases in debt delinquencies. Yet despite the headwinds the market continues to “climb the wall of worry.” This could be that investors are too optimistic or maybe the market is just overcoming the obstacles.
Past performance is not a guarantee of future results.
In USD. Source: MSCI World Index (net div.). MSCI data © MSCI 2025, all rights reserved. Indices are not available for direct investment: therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.
You might not have heard much about the Strait of Hormuz until a few weeks ago – this was seen as the latest headwind. The big fear was that Iran would shut it down and oil would spike which would stoke inflation, yada yada. But when you looked deeper you realized that the US only imports 7% from the strait, while China is the main benefactor. Iran does not have many friends right now, so they would not want to disturb one of their only friends, China. With 20% of the world’s oil passing through the strait, that could throw the global markets in turmoil. But with the US being the largest oil producer now and China buying 89% of Iran’s oil…the Strait should remain operational. A bit of the fog lifted.
Stocks just wrapped up the first half of 2025 at fresh all-time highs, marking a major difference from the start of the quarter. It is not just time that moves faster, but it seems markets are on the same track. What once took months for recovery, this one – like the Covid recovery – was completed in weeks. Markets looked forward and saw the administration using the tariffs as a negotiation play. Unfortunately, the dollar has not recovered, continuing its slide to settle down over 10%, the worst start since 1973. Congress is set to pass the “Big Beautiful Bill,” while the Congressional Budget Office estimates this bill will add $3.3 Trillion to the national debt over the next decade. Most likely why Chairman Powell stated, “Every outside forecaster and the Fed is saying we expect a meaningful amount of inflation to arrive in coming months, and we have to take that into account.”
The New York Times did the math on $3.3 trillion.
Returns for the month of June were back-end loaded, as the middle of the month saw a consolidation after investors digested the Federal Reserve’s policy outlook and inflation views. June witnessed continued inflows into equity markets, particularly in funds focused on technology (A1 is a wonderful thing) and growth-oriented companies. However, there was also evidence of increased risk aversion later in the month, with some investors reallocating to bonds and defensive sectors. International indices mirrored U.S. trends, with European and Asian markets addressing their own inflationary pressures and central bank decisions. Emerging markets exhibited mixed results, influenced by commodity prices and foreign exchange fluctuations.
The month began with Treasury yields elevated relative to early 2025 levels, the 10-year U.S. Treasury note hovering in the 4.2% to 4.5% range as investors digested economic data and the Federal Reserve’s evolving guidance. Short-term yields remained particularly sensitive to expectations for Fed action, with the 2-year note hovering in the 4% range. Bond prices, inversely correlated with yields, experienced modest volatility as markets oscillated between risk appetite and risk aversion.
Throughout June, the bond market was marked by a push-and-pull between inflationary pressures and signs of moderating economic growth. Early in the month, a stronger-than-anticipated inflation print briefly boosted yields, reflecting expectations that the Fed might delay rate cuts. However, subsequent data indicated slackening consumer demand and softer job growth, prompting a late-month rally in bonds and a modest decline in yields
June saw the yield curve remain modestly inverted—short-term rates above longer-term rates—a persistent signal historically associated with caution about future growth. The inversion, while less pronounced than in previous quarters, reflected uncertainty: while inflation concerns lingered, markets were clearly pricing in the possibility of a slowdown.
Not since my first son was born and Lance Armstrong won his fourth consecutive Tour de France has there been so much interest in gold, partially due to its strong performance—gold increased by roughly 28% year-to-date. Many investors typically view gold as a safe haven to stabilize portfolios amid volatile equity markets.
However, historical data shows that gold is not always immune to downturns. Since 1970, gold has only been positive in 60% of calendar years, compared to the S&P 500 Index which has been positive in 80%. Therefore, investors looking for stability may not necessarily find it in gold. Thank you to Dimensional funds for the chart and commentary.
We are now entering the second half of the year, and we could see less headline risk, but we will have headwinds. Forecasts are showing rising inflation and lower GDP, which is stagflation. The federal deficit is rising, and interest on our debt as a percentage outlay is now higher than defense spending which can be seen as weakening of our global standing. Social Security, Medicare and Medicaid make up 70% of mandatory spending, so the debt issue will not be addressed any time soon. Consumer sentiment has soured despite stocks moving higher.
As the administration wraps up efforts on tax and trade, it will free up time in the latter half of the year to focus on deregulation, which should also be a boon for the markets. Investors are still leaning bullish, as the market continues to shrug off bad news. Investors seem to be careful but optimistic. The upside of higher rates is that we finally are earning on our cash. As the money market chart shows, we have gone from essentially zero interest to around $500 billion in dividends, that is about 2.5% of annual consumer spending. There are also fundamental reasons for stocks as earnings have been mostly on track. Current momentum supports a case for continued strength, unless a new negative catalyst emerges, such as a spike in inflation.
In summary, the interplay between economic indicators, central bank policy, White House policy, and shifting global priorities will continue to generate both uncertainty and opportunity across markets. We intend to keep a level foot on the gas but also capitalize on bonds and other assets that generate income so as not to push the portfolio beyond what the fog allows.
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