The World Keeps Changing…..The Market Does Not….
It seems to feel like there has been a year’s worth of an exciting news cycle and we are only halfway through 2025. Let’s recap the first half of 2025.
Election of a new administration with one party taking over full control of the Legislative and Executive Branch.
If you are interested in seeing how markets perform under different make ups of government, refer to the March 2024: All that Matters: Elections and Your Money
April 2nd was the formal policy of the announcement of “Liberation Day”, which announced baseline tariffs across multiple countries that continue to be implemented and changed. Here is a chart from a Wall Street Journal Article showing duties collected from US Imports monthly.
The ongoing conflicts in Russia, Ukraine, Israel and Gaza continued and even expanded into Iran. The escalation ultimately involved direct US involvement as military bombers engaged nuclear targets initially creating concern for further involvement by the US in the Middle East. Which as of this time, Israel and Iran implemented a ceasefire, however unrest continues in other parts of the Middle East and a resolution to the Russia/Ukraine conflict doesn’t seems to be coming anytime soon.
The US Debt crossed $37 Trillion Dollars with little sign of slowing down. (https://www.bairdwealth.com/insights/market-insights/baird-market-strategy/2024/02/all-that-matters-the-national-debt-or-does-it/)
All these new headlines can make any investor nervous, but at the end of the day, does it matter to the market? We see time and time again, these things haven’t moved markets. The market continues to climb with the S&P 500 up 6.58% through July 7th, 2025, the Dow Jones up 4.93% and Nasdaq up 5.74%. Many of our clients have asked us WHY with so much going on can the market do so well. In simple terms, we feel there are these factors that result in an upward trend in the market.
The market is made up of companies who change and adapt to generate value for their shareholders, and these short-term events rarely change the long-term trajectory of equity markets. These companies adjust prices, manage costs, shift policies and the best companies thrive in nearly any environment. (See our interview with John Watkins III, Baird Trust's Large Cap Portfolio Manager).
Interest rates, while higher than 2020, are not more attractive than equities over the long term. Why lock in a 4.3% yield on a 10-year Treasury when historically stocks have nearly double that return on average. For long-term investors, stocks are more attractive than fixed income.
Jobs continue to be added to the economy and the job market is still strong with nearly 163M employed civilians (up from 161M in June 2024), unemployment rate has stayed steady at 4.1%
Wages continue to increase at a higher pace than inflation. 2025 the three-month average wage growth has been in the range of 4.1% - 4.3%, down from its peak in 2022, but up from a 2009 low of 1.9%
Inflation continues to stay below the 3% rate, at 2.4% on all items over the past 12 months through May 2025.
According to FactSet as of July 3rd, 2Q25 estimated earnings growth is expected to be 5%. While lower than the March 31st estimated earnings growth of 9.1% year over year, a positive 2Q growth in earnings would result in eight consecutive quarters of year-over-year earnings growth for the S&P 500 Index Companies.
If these core economic factors are still strong into the second half of the year, we see little reason for a longer-term correction in the market.
The “One Big Beautiful Bill” – Unpacking the Bill
Attached to this email and available upon request is a copy of Baird’s full detailed analysis of the OBBA, however the bill creates a number of changes and opportunities for our clients. Here is a short list of major changes.
It makes the Tax Cuts and Jobs Act of 2017 permanent, which means we no longer worry about changing tax rates, changes to the lifetime gift and estate tax exemption. This could always be changed by another Congress, but that is not likely to happen soon.
Increased State and Local Tax (SALT) deduction. For those that itemize deductions, the cap for state and local tax is increased from $10,000 to $40,000 for those with AGI under $500k, subject to phaseout between $500k and $600k of AGI.
Seniors over the age of 65 receive a new $6,000 deduction per person. The deduction is subject to a reduction of over $150k of MAGI for joint filers and fully phased out for those who have over $250k of MAGI. This deduction is for 2025-2028 only.
New Trump Savings Accounts for minors, which essentially creates an IRA for minors with no earned income.
Deduction for Auto Loan Interest
Deductions for Overtime Income and Tip Income
This is just a short list and there any many other changes that will create different and unique planning opportunities for IRAs, charitable giving and tax planning opportunities.
How We Invest – A look and interview with John Watkins III
Rick had the opportunity to sit down with John Watkins III, Portfolio Manager with Baird Trust. The BVB Group has an investment strategy in which we create custom investment portfolios by trying to use the best investment managers in the industry. Baird Trust, in our opinion, hits the mark for most of our clients.
In this 11-minute video, Rick gets a chance to walk you through their investment process, how they look at companies, what makes their strategy different, and why we use them for our core-large cap strategy.