Update on the Markets:

Index	2nd Quarter 2025	Full Year 2025
S & P 500 (Large US Stocks)	10.94%	6.20%
Russell 2000 (Small US Stocks)	8.50%	(1.79%)
FTSE All-World ex-US (International Stocks)	12.10%	17.76%
Barclays US Aggregate (Bonds)	1.21%	4.02%

July 2025

Key takeaways

► Stocks survive “Tariff Tantrum”
► Yes, No, Maybe on Tariffs
► Oil takes center stage
► Inflation still lingers
► Focus on the “big, beautiful bill”

Stocks bounce back

If you fell asleep the last time I wrote a quarterly letter and woke up today, you’d think nothing happened. How wrong you would be! We just survived one of the most volatile periods in market history.

The year started with high expectations, but uncertainty and volatility are what we got. President Trump’s second term was expected to usher in a new, business-friendly environment with fewer regulations and lower taxes. Unfortunately, it also brought tariffs—the President’s favorite tool for extracting more from the global economy, making trade more favorable, and generating revenue.

Investors expected tariffs, but the sheer size and magnitude were surprising. On April 2, Liberation Day, President Trump announced a new round of tariffs he called “reciprocal tariffs.” These tariffs included a universal 10% on virtually all US imports, regardless of country of origin. Furthermore, the President imposed additional tariffs on various countries. A few examples:

• 10% on EU
• 24% on Japan
• 26% on India
• 34% on China (totaling 145% all in)

Global markets crashed. The S&P 500 index eventually dropped 19% (a 20% drop would have been a bear market). Nasdaq fell into bear market territory, declining 23.4% year-to-date. By April 11, Trump began to relax tariffs on electronics, automobiles, and other goods. On May 12, China and the US agreed to roll back all tariffs and declared a 90-day truce on new tariffs. Several trade agreements were signed, notably with the United Kingdom. On May 23, Trump announced a delay on EU tariffs until July 9. And here we are. Tariffs haven’t ended. They’ve been delayed. As we move forward, Trump’s tariff strategy remains unclear, but for now…

The market loved it!

2025 Index lows vs. June 30 finish

Nasdaq composite	-23%	5.5%
S&P 500	-19%	5.5%
Dow Jones	-14%	3.6%
Russel 2000	-22%	-2.5%

Stocks roared back, recovering all losses and ending at records. Recent good news on the conflict between Israel and Iran (namely, relief that oil prices haven’t skyrocketed) has added to gains.

Watch oil

The relationship between the price of oil and stock prices is complex. Most of the time, higher oil prices are bad for stocks. Higher oil prices lead to inflation, which hurts consumer spending and ultimately affects stock prices. Hence, investors breathed a sigh of relief when oil did not spike after the US struck three nuclear facilities in Iran on Saturday, June 21. Oil rose $3-5/barrel initially, reaching $81/barrel for Brent crude. However, after Iran’s mild retaliatory strike on a US base in Qatar on Monday, June 23, oil dropped over 7% to the $60s. Very bullish for stocks.

Back where we started

We saw a V-shaped stock market in the first half of the year. Due to economic concerns, tariffs, and geopolitical risks, stocks fell quickly. They then dramatically reversed, although many of the concerns remain. In July, we are where we were in February: the S&P 500 at around 6100. Those who stuck to their plan and didn’t panic (and maybe even added) are on course to meet their financial goals. Others are worse off.

The impact of all of these concerns may eventually appear later in the year. The focus now is on the “one, big, beautiful bill.” Unsustainable federal spending is the elephant in the room. Interest on our federal debt is now one of our most significant outlays, crowding out other prerogatives. According to US Treasury Fiscal Data, as of May 2025, it costs $776 billion to maintain the debt, which is 16% of the total federal spending in fiscal year 2025, just behind social security and Medicare.

U.S. Government Spending, FYTD 2025
Top 10 Spending by Category and Agency

21 % Social Security
14 % Medicare
14 % Net Interest
13 % Health
13 % National Defense
11 % Income Security
5 % Veterans Benefits and Services
2 % Education, Training, Employment, and Social Services
2 % Transportation
1 % Natural Resources and Environment
3 % Other

Higher interest rates will also affect the private sector, pressuring corporate borrowing and mortgage rates. Once we know the provisions in the final tax bill, we can assess its impact on the deficit. As we enjoy the summer, we can be thankful for the stock market’s relief rally, as the worst-case scenarios did not unfold. Though stocks are printing new highs, it doesn’t feel especially euphoric – a good thing! Let’s hope corporations continue to deliver strong earnings despite uncertainties. On the other hand, if the economy weakens significantly, the Fed may cut sooner and more often.

Diversification is more important than ever!

Given the current market conditions, diversification is more critical than ever. It’s not about predicting the future but about being prepared for it. So many scenarios are possible.

Looking out to the rest of this year:

Positives	Negatives
● Solid US economy ● Strong, stable labor market ● Peace in the Middle East? ● Fed rate cuts later this year ● Lower oil prices	● Sticky inflation ● Tariff uncertainty ● US stocks not cheap ● Consumer pessimism ● Federal deficit

What to do

I’m overweight in stocks because I believe in the potential for growth. The “big, beautiful bill” should stimulate the US economy. Businesses will have certainty in making long-term investment decisions and enjoy various tax breaks, like immediate expensing of research and development. Lower taxes from 2017 will remain, especially for high-income consumers. According to Moody Analytics, the top earners (specifically the top 10%) account for almost half of consumer spending. Consumer spending constitutes approximately 70% of the U.S. economy. As the stock market continues to broaden, I especially like small and micro-cap stocks. I have a full allocation to international stocks. I’m staying high-quality in bonds, selling all long junk bonds. Lastly, I’m still concerned about inflation, adding more inflation protection with real-return bond funds and alternative investments such as multi-strategy hedge funds.

Enjoy the summer. Try not to get caught up in short-term volatility. Stick to your investment strategy and remain focused on your long-term financial goals.

Thank you for your trust and confidence. Please let me know if you have any questions or comments.

Sincerely, 
Henry 

Henry Gorecki, CFP® 
HG Wealth Management LLC 
401 N Michigan Ave, Suite 1200
Chicago, IL  60611
312-723-5116