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Q2 2025 – Conflicts Abound
Half of 2025 is already in the books! Time is definitely flying by and after almost six months of Trump’s 2nd term, the market has grown somewhat accustomed to Trumpian volatility and largely expect tariff and other announcements to ultimately lead to de-escalation and negotiation. We obviously have no crystal ball as it relates to the mercurial nature of the Trump administration's ongoing policies, but businesses have proven time and again they can be nimble and adjust to policy changes. The rub in this era is that there is little sense of the playing field—or even the rules of the game—on which companies are operating. And it’s not just Trump announcing this tariff or that tariff that the market has become used to; we’ve had a war break out in the Middle East and while concerning, sparked only a modest reaction. A far cry from the volatility such events triggered in past decades. This reflects Iran’s significantly diminished power and the USA's energy independence. Furthermore, the prospect of a regime shift to a non-nuclear Iran and greater Mideast stability, is enticing to the markets.
While the headlines are dominated by geopolitics, investors also need to focus on what I view as the more meaningful development: the continued softening of inflation data. The chart below shows where inflation is and isn’t (and if there was a line item for California homeowner’s insurance, that would be at the top with a 75-100% increase reading)
For four months many economists have predicted that US inflation would reignite, but the inflation picture continues to improve. Although Powell and the Fed elected to hold rates steady on Wednesday, the inflation picture added to the case that rates should be falling – I would expect rates to come down in the later part of the year which should boost all parts of the economy.
The market’s resilience, despite noise on tariffs, inflation, and politics, tells me that strong productivity, solid consumer spending, and stabilizing inflation should continue. That said, the US economy faces a convergence of challenges in the latter half of 2025. Fiscal imbalances and signs of labor market cooling could contribute to an environment of heightened uncertainty and instability. Investors should continue to embrace diversification across regions and within asset classes. If you’ve been stuck in a 100% US centric portfolio, you’ve been missing out in 2025.
Everyone wants to own something “unique” or “special”. But are Alternatives worth it? According to investment consultant Richard Ennis, they are a “costly delusion.” He argues that “alts” like hedge funds and private equity drain billions of dollars from portfolios and will eventually come undone.
A couple more links as you prep for your vacations: Are cold plunges all they’re cracked up to be? Are you for or against International Students taking up scholarships at universities (especially public universities)? Can Trump just stick to being President until his term is up?
If you wouldn’t mind spending 2 minutes answering some questions, I’d really appreciate some feedback.
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Nick