Key Highlights to Keep You Informed

Markets Rebound Despite Trade Tensions

‍Markets saw a sharp selloff in early April after tariff announcements but rebounded quickly as the U.S. paused new tariffs for 90 days to allow time for trade negotiations. By quarter-end, the S&P 500 reached new highs, supported by a temporary resolution with China and trade deals signed with the U.K., Vietnam, and China. With few permanent deals in place, markets will stay focused on tariff updates heading into Q3

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One Big Beautiful Bill Act Signed into Law

‍On July 4, a tax and spending bill was signed, extending the 2017 tax cuts beyond 2025 and adding new benefits through 2028.Key provisions include:Corporate tax rate permanently locked at 21%.

Key provisions include:

• Corporate tax rate permanently locked at 21%.
• Permanent extension of the current individual tax rates introduced
  in the Tax Cuts and Jobs Act of 2017.
• Lifetime Estate & Generation Skipping Transfer Tax exemptions permanently raised to $15 million per individual and indexed for inflation.
• State and Local Tax deduction (SALT) cap temporarily increased for certain taxpayers from $10,000 to $40,000 for tax years 2025 - 2029.
• Federal income tax deduction added for certain taxpayers in select industries on tips and overtime pay for t⁸ax years 2025 – 2028.

To offset costs, the bill reduces Medicaid and SNAP funding, ends some green energy credits, and raises taxes on private universities. Cost estimates vary from $441 billion to $3 trillion over 10 years.

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Economic Growth Slows but Outlook Remains Positive‍

Gross Domestic Product declined by 0.5% in the first quarter, largely due to a spike in imports ahead of potential tariffs. The Atlanta Fed expects second-quarter growth of 2.6%. The labor market remains strong, with 147,000 jobs added in June and unemployment falling to 4.1%. Manufacturing activity weakened throughout the quarter, while the services sector returned to growth. Inflation eased, with the Consumer Price Index up 2.4% and the PCE Price Index up 2.3% compared to a year ago. This moderation in inflation has increased expectations for a potential Fed rate cut later this year, though officials remain cautious as they assess the ongoing impact of tariffs.
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Geopolitical Tensions Drive Oil Volatility

‍In June, Israel launched airstrikes targeting Iran’s nuclear facilities, killing key military commanders. The two countries exchanged air attacks until June 21, when the U.S. entered the war, firing missiles at Iran’s nuclear facilities. The biggest impact to financial markets was rising oil prices, as speculation that Iran would retaliate for the U.S. entering the war by closing the Strait of Hormuz, which carries around 20% of the world’s oil and gas shipments. Although Reuters reported that Iran was preparing to deploy mines in the strait, a much more muted response with a missile attack on a U.S. military base in Qatar eased concerns of a larger response.

^{Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio.‍Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net dividends]), Emerging Markets (MSCI Emerging Markets Index [net dividends]), Global Real Estate (S&P Global REIT Index [net dividends]), US Bond Market (Bloomberg US Aggregate Bond Index), and Global Bond Market ex US (Bloomberg Global Aggregate ex-USD Bond Index [hedged to USD]). S&P data © 2025 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2025, all rights reserved. Bloomberg data provided by Bloomberg.}

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Notable Events in Q2:

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April

April was dominated by tariff news. Although President Trump had made his intention regarding tariffs known, the market was blindsided by the levels announced on April 2. The order imposed 10% baseline tariffs on imports from nearly all countries beginning April 5, with higher rates applied to countries which the U.S. carried the largest trade deficits. Financial markets responded quickly, with the S&P 500 losing over 13% of its value in one week and global equity markets following. Interest rates jumped quickly, with the yield on the benchmark 10-year treasury rising from 4.0% to almost 4.5% within the week. As a result of the market chaos, particularly concerns about instability in the bond market, the administration announced a 90-day pause to tariff increases while trade agreements were negotiated, leading to a historic rally, including a 9.5% increase in the S&P 500 in a single day.

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May

Economic events included a 90-day pause on tariffs with China with significant tariff reductions implemented by both countries. Moody’s also downgraded the U.S. sovereign credit rating on May 16 in expectation that deficits will persist for years to come. This downgrade was somewhat ignored, as the other agencies, Standard & Poor’s and Fitch, both downgraded the U.S. in 2011 and 2023, respectively. In addition, the three-judge panel on the U.S. Court of International Trade ruled that President Trump exceeded his authority to justify his "Liberation Day" tariffs which was followed by the administration appealing

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June

June was a test of market resilience as global headlines were dominated by escalating conflict in the Middle East. Despite the U.S. entering the Israel-Iran conflict mid-month, equity markets looked past geopolitical risk and rallied into month-end. Investors appeared more focused on domestic economic signals and potential policy shifts than on short-term global volatility. Oil markets initially spiked on fears of disruption to the Strait of Hormuz, a vital artery for global energy shipments. However, prices reversed sharply once Iran responded with restraint, calming fears of a prolonged energy crisis. Brent crude ended the month lower, after a brief 12% run-up early in June. Meanwhile, the S&P 500 gained 3.4% in the week of June 23, bolstered by softer-than-expected inflation and stable jobless claims. The Fed held rates steady, emphasizing its data-dependent approach. With tariff negotiations ongoing and the impact of trade policy still uncertain, markets are closely watching how inflation evolves through the summer.

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Economic Indicators

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As in the first quarter, second-quarter economic data remains at odds with broader market sentiment, highlighting the ongoing tension between fundamentals and investor expectations. This pervasive concern showed up once again in the Consumer Confidence^I and Consumer Sentiment^II surveys. For reference, both reports are at levels that are lower than what we saw during the COVID-19 lows. Negativity has not been driven by geopolitical issues, but by ongoing concerns about tariff related pain that has yet to be felt. Despite the negative sentiment, manufacturing reports ^III show that the sector is still avoiding outright contraction, if not slightly growing. The employment market data can be interpreted in different ways, as unemployment fell to 4.1%, but that could be potentially due to people giving up on finding a job and leaving the labor force^IV. Importantly, the service sector continues to expand, though there are continued concerns about tariffs ^v.

Market Impact

^{I. 2025 U.S. Economic Events & Analysis – Consumer Confidence, Econoday, 6/24/2025  
II. 2025 U.S. Economic Events & Analysis – Consumer Sentiment, Econoday, 6/27/2025  
III. 2025 U.S. Economic Events & Analysis – PMI Manufacturing Final, Econoday, 7/1/2025  
III. 2025 U.S. Economic Events & Analysis – ISM Manufacturing Index, Econoday, 7/1/2025}

^{IV. 2025 U.S. Economic Events & Analysis – Employment Situation, Econoday, 7/4/2025  
V. 2025 U.S. Economic Events & Analysis – PMI Composite Final, Econoday, 7/3/2025  
V. 2025 U.S. Economic Events & Analysis – ISM Services Index, Econoday, 7/3/2025}

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As before, market participants continue to see tariffs as the key risk to continued growth. It seems that many are aware that effects of tariffs have not been felt yet, as companies have shown some restraint with raising prices, and that we have not seen shortages of goods. Given the historical track record of tariffs, consumers keep waiting for the economy to deteriorate. However, it remains true that the economy has remained stronger than feared. The Fed remains in a tough spot, as they have admitted that if tariffs were not in place, they likely would have cut interest rates already but remain trapped by the risk of higher inflation.

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Market Impact on Major Asset Classes

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Impact on Equities:

Continued tariff uncertainty was punctuated by the President’s “Liberation Day” announcement, which sent the S&P 500 falling 21% from its February high. However, like many recent declines, the fall was short-lived as a pause provided perceived respite, and the market rallied to a new all-time high and is now up 6.2% on the year. During the recovery, growth-oriented stocks in the Nasdaq 100 rallied even stronger. Small cap stocks recovered as well but remain down for the year.

Outside of the U.S., lower starting valuations, improved earnings, and dollar weakness have continued the strong run for international stocks. Developed international markets, measured by MSCI EAFE, were up 12.1% for the quarter. Europe is leading the global market, up 23.7% on the year.Increased defense spending, Germany’s fiscal reforms, and lower interest rates in the Eurozone have been important catalysts.

The MSCI Japan return accelerated and overtook the U.S., as inflation is healthy and higher wages may be driving consumers to spend. Traditionally, Japanese citizens have been conservative and focused on saving, with little exposure to stocks. However, there are growing signs that cash is being spent, and the appetite for investing is growing.

MSCI Emerging Markets were strong with a 12.2% return and was driven by South Korea’s 34% quarterly return. China had a weaker quarter, as they have been the main target of the U.S. tariffs. China still has some headwinds given the tariff fight, but it seems they have found ways to circumvent tariffs, and the property market has shown some stabilization.

Looking ahead, market performance will continue to be influenced by ongoing trade tensions as there is an expectation for renewed tariff debate in July, and the fact that the expected pain has yet to materialize in the economic data.

Given the strong run for international markets and due to heightened risk due to tariffs, we continue to believe that diversification and avoiding excessive risk will benefit investors. As we look ahead, our team is remaining disciplined. We must remain prepared for the possibility that the past drivers of returns may not be the same ones going forward. Importantly, we expect periods of volatility, so it remains vital to stick to a well-thought-out plan that accounts for potential risks in the market.

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Major World Equity Market Performance for Q2 2025

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Impact on Fixed Income:

The Bloomberg Barclay’s Aggregate index posted a modest gain in the second quarter as investors contended with April’s tariff deluge and June’s geopolitical upheaval. Market volatility continues but as seen below, starting yield-to-worst is a good indicator of overall returns for fixed income as the income generated drives a substantial portion of total return if held to maturity.

^{Source: Bloomberg, FactSet, J.P. Morgan Asset Management. Returns are 60-month annualized total returns, measured monthly, beginning 1/31/1976. R² represents the percent of total variation in total returns that can be explained by yields at the start of each period.Guide to the Markets – U.S. Data are as of June 30, 2025.}

Corporate bonds lagged their high yield counterparts, but performance is closer YTD. High yield spreads remain tight, offering little additional value for the added risk in the sector. Treasuries eked out a 0.8% gain for the quarter amid ongoing trade uncertainty, projected growth of the national debt, and weak dollar.
The 10Yr yield was just 7bps higher at the end of the quarter vs. the beginning following a selloff towards the end of May due to a disappointing auction and Moody’s downgrade of U.S. debt from Aaa to Aa1.

Municipal bonds were the worst performer in the fixed income space largely due to record issuance outpacing demand. Despite weak performance, the underlying fundamentals remain strong and historically high yields across the curve offer an attractive entry point for investors in high tax brackets. The One Big Beautiful Bill maintained the municipal tax exemption as we expected and raised the State and Local Tax (SALT) deduction from $10,000 to $40,000 for incomes up to $500k. This easing will benefit municipal investors within the income limit, but we do not expect it to have a material impact on demand. Finally, a larger portion of Medicaid costs will need to be covered by states as federal funding is reduced.

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Major Fixed Income Index Returns for Q2 2025

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Impact on Alternatives:

The recently signed tax and spending bill that increases taxes on private universities along with reduced federal funding for all universities has impacted private markets as university endowments seek increased liquidity to manage increased expenses. Yale University recently announced its first ever sale of private equity funds on the secondary market with an offering of $2.5 billion^VI. Harvard University allocates roughly 40% of its assets to private equity and is in the process of selling a $1 billion stake^VII. Given the typically heavy allocations to private markets found in university endowments, more sales will likely continue as they rebalance to accommodate higher withdrawal rates.

This creates opportunities for buyers in the market for buying quality funds in the secondary market, which is a meaningful part of private equity allocations for TMG clients. Your TMG Wealth Advisor can help determine if alternatives are a fit and an appropriate allocation and balance of funds to align with your individual risk tolerance.

^{Cambridge Associates Horizon Index Data through September 30, 2024VI
Bloomberg: “Yale Nears Deal to Sell $2.5 Billion of Private Equity Stakes”VII
Bloomberg: “Harvard in Talks to Sell $1 Billion of Private Equity Stakes”}

^{Alternative Investments carry a higher degree of risk related to illiquidity, valuation, and lack of a public market where they can be bought and sold. Investing in Alternative Investments carries the risk of loss to some or all of your principal investment. Alternative Investments that fall under Rule 506 Regulation D of the Investment Company Act of 1940 (“the Act”) are considered unregistered funds, and therefore, are not regulated in the same way as a registered fund under the Act. Depending on the type of investment, a prospective investor must prequalify as an Accredited Investor or Qualified Purchaser under Rule 506 or Qualified Client defined under Rule 205-3 of the Investment Advisers Act of 1940 before investing. Please carefully review the investment’s Private Placement Memorandum (PPM) and/or other Offering Documents and Disclosures before investing in an Alternative Investment.}

Looking Ahead

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With the S&P 500 rebounding since April, valuations have climbed back near the record highs we saw in 2021 and again in 2023. While valuations are not a reliable guide for predicting short-term market moves, they tend to be more meaningful over longer time horizons. At today’s price-to-earnings ratio of 22, the next year could bring a wide range of outcomes, but over the next five years, expectations point toward more modest, low single-digit returns.

This outlook underscores the importance of global diversification. International equities have had a strong start to the year, outperforming the S&P 500 by more than 12%. Even with that outperformance, their valuations remain in line with long-term averages. In U.S. markets, value stocks and small-cap companies offer more compelling valuations than the concentrated large-cap growth names that have driven recent gains. Beyond equities, fixed income is contributing again, with income levels not seen in nearly two decades. Private credit, real assets, and other alternative investments can also enhance diversification and add income potential.
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As always, we are here to help ensure your portfolio is aligned with your goals and positioned for the future. If you have questions or would like to review your strategy, we are here whenever you need us.

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^{Source: FactSet, Refinitiv Datastream, Standard & Poor’s, J.P. Morgan Asset Management.‍Returns are 12-month and 60-month annualized total returns, measured monthly, beginning 5/31/1999. R² represents the percent of total variation in total return that can be explained by forward P/E ratios. The forward P/E ratio is the most recent S&P 500 Index price divided by consensus analyst estimates for earnings in the next 12 months, provided by IBES since May 1999 and FactSet since January 2022. Guide to the Markets – U.S. Data are as of June 30, 2025.}‍
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