2nd Quarter, 2025
Capricious intervention adds to market volatility.
As we reflect on the second quarter of 2025, our message remains grounded in a long-term perspective and a steady-handed approach. While markets and headlines may continue to stir anxiety, our investment strategy remains focused on preserving and growing your wealth through prudent stewardship, discipline, and clarity of purpose.
The Markets: Navigating Choppy Waters
Global equity markets continued their recent pattern of volatility during the quarter. The primary drivers remain geopolitical disruptions, shifting monetary policies, and the continued easing of COVID-era inflationary pressures. Amid the noise, the broader market ended the quarter modestly higher than the peaks seen in February, having rebounded from a near 15% decline following the tariff-induced swoon. For the trailing twelve months, the market delivered a total return of 15.1%, with a year-to-date gain of 6.2%—a reminder that markets often climb walls of worry.
Valuations remain elevated, with the S&P 500’s forward price-to-earnings ratio reaching 23.7x at quarter-end, and dividend yields hovering at a modest 1.25%. These figures suggest that investors continue to place faith in the durability of the U.S. economy, despite increasing political drama and global uncertainty.
Meanwhile, the U.S. dollar has weakened, down 10.7% year to date, which is a meaningful indicator of sentiment as international confidence in the long-term value of the dollar has wavered in response to domestic policy missteps. The most striking indicator of this shift is the resurgence of gold as a core central bank holding. Gold now trades near $3,500 per ounce, making it the second largest reserve asset among central banks—a milestone not seen since the dollar’s decoupling from gold in 1971.
The Economy: Resilient Yet Strained
While the U.S. economy continues to show resilience, signs of strain are becoming increasingly evident. GDP growth expectations have softened from the post-COVID recovery trajectory, reflecting the lingering effects of tighter monetary policy and a cooling labor market. Inflation remains above the Federal Reserve's 2% target, and the impact of the Administration’s new tariffs—particularly April’s “Liberation Day” tariffs—has added further downward pressure on both consumer confidence and business activity.
The International Monetary Fund (IMF) recently lowered its 2025 U.S. growth forecast from 2.7% to 1.8%, citing both systemic slowing and the added burden of higher tariffs. Compounding this, US inflation forecasts have been revised upward, while other major G6 economies continue to see disinflation. At the same time, a shift in global trade patterns—driven in part by erratic U.S. policy interventions—has weakened trust in dollar-based trade systems.
Of growing importance is the pending tax reform bill, which could materially impact the national deficit and future debt service obligations. While the re-arming of Europe through NATO may provide a future economic boost across the Atlantic, it does so via borrowed funds, raising long-term questions about fiscal sustainability on both sides of the Atlantic.
Investment Strategy: Staying the Course with Discipline
In this climate of volatility and uncertainty, we remain grounded in our core investment philosophy: to preserve and enhance the long-term purchasing power of your capital through thoughtful and disciplined portfolio construction.
We are carefully evaluating the challenges that lie ahead, from geopolitical risks and inflationary pressures to shifting consumer dynamics and supply chain realignments. Yet, we continue to believe in the strength of the U.S. economy as a driver of global growth. That said, political caprice can cloud visibility, and we are prepared for near-term disruptions even as we look toward long-term opportunity.
Our equity portfolios remain focused on high-quality businesses with durable competitive advantages and resilient cash flows. We are prepared to prune holdings as valuations become stretched and will opportunistically harvest gains when appropriate, always with a view toward each client’s individual risk profile.
On the fixed income side, we continue to favor short duration U.S. Treasuries, which offer attractive real yields, liquidity, and flexibility in this uncertain rate environment. While corporate credit spreads have widened slightly, they do not yet offer compelling compensation for rising risks and lessened liquidity. With tariff-driven inflation and slowing growth raising the specter of credit downgrades, we remain vigilant for opportunities that may arise in the corporate sector.
Points of Interest: Understanding the Broader Landscape
As long-term investors, it is critical that we stay attuned not only to immediate risks, but also to the underlying currents shaping our future.
A key area of global focus remains China, where the Communist Party’s doctrine of continuous revolution and absolute control stands in stark contrast to the West’s shorter-term democratic cycles. As articulated in Joseph Torigian’s recent work, “The Party’s Interests Come First”, China’s leadership views its rise not merely as progress, but as a correction of historic wrongs.
This long-view nationalism, unshaken by economic pain or international condemnation, guides China’s actions on the world stage and should not be underestimated. In a world where Western governments wrestle with short-term populism and policy volatility, China’s strategic patience represents a different kind of challenge: one that will shape global markets for decades to come.
Final Thoughts
Despite the many challenges we face—economic, political, and geopolitical—we remain guided by conviction, not by headlines. Volatility is the price we pay for long-term returns, and thoughtful investors must distinguish between noise and signal.
We thank you for the continued trust you place in us. Our commitment to you is unwavering: to help you navigate complexity with clarity, manage risk with discipline, and pursue long-term growth with purpose.