Recapping This Year So Far in the Markets and Looking Ahead

Hi everyone. Thanks for joining us on another episode of Building Your Wealth Bridge. Today, Zach and I wanted to recap the first half year in the markets. It's about the midway point. We're filming this on July 9th. Talk about investment performance. There's been plenty of news driving markets the first half of this year and then look at some things that we're going to expect in the second half of the year. So, got a chart here on your screen if you're watching, showing the major indexes with the S&P 500, the MSCI EA, which is the international developed market index, the emerging markets index, and the US aggregate bond index, which is the green line.

And for the first time in, you know, what feels like a long time, we're seeing the international index, both and emerging markets, outperforming the S&P. And I think there's a number of reasons for that, but it highlights the importance of being diversified. You know especially in a year where you're getting 20% out of you know Europe, Japan, countries like that and the US you know is at a new all-time high but suffered a 20% draw down earlier this year and yeah it's kind of been a tail of two quarters the first half of this year.

Yeah, I think it's funny too like if you look at this chart, some people check their portfolios on a day-to-day basis, some you know maybe just get their quarterly statements and that's all they see and they see oh you know US stocks outperformed bonds and you know international outperformed all that and you know kind of people overlook you know what happened in April. But and see that the bonds returned 4% the lowest of anything there and think of you know why did I hold bonds and you know didn't make as much money as everything else but you know bonds really held in good during that that volatility that Will was talking about in April you know where the you know the max draw down for bonds was you know about 1% where like we'll set the US stock market was down about 20% you know the international markets were down you know 12 to 13% So being diversified and holding some bonds you know really you know lessened the draw down during that period.

Yeah the preservation aspect of bonds is one of the best pieces but now where we are today you're also getting a good yield. So looking at the A which is you know think of the S&P 500 of bonds just the investment grade bond index it has a yield around 5%. So your coupons in a year, what you're receiving in interest payments is around 5%. Has a duration of around six. So your average bond maturity is 6 years. So just doing some simple math. You can expect a 5% compound annual return over the next six years.

That's, you know, nothing to scoff at. Not as attractive as what the US stock market has done over the last five years, but there's no guarantee that the stock market will continue to do as well. So diversification is a good strategy, preserves your portfolio, provides some nice income, and then also gives you the opportunity to rebalance when stocks do go down. And you know, some of our clients got to take advantage of that in the first quarter when there was a very sharp rapid selloff about 20%.

And bonds were up at that point. You can, you know, buy the dip in those situations. Another thing kind of building on this, I think we want to talk about, you know, we said international was outperforming, but in this next chart we could see, kind of country by country, in oh you know, in terms of the EPHA versus the emerging markets index. So like Will said, Epha stands for Europe, Asia and Far East whereas emerging markets is more of your countries like you know China, Taiwan, Brazil kind of more up and coming and Poland as well as part of that.

But you know you can see over the last year Greece has been the best performing country followed by you know Israel which is you know surprising considering everything that's going on in Israel over the last year. And like I said, Poland, is up about 59% so far this year, you know, over the last one year. About what we'll say 30%. But, you know, a lot of the companies that make up these indexes are companies that people, you know, you would you would recognize. Things like Nestle or Nova Nordis or Astroenica or you know Shell or you know ASML is a big you know I think it is Norwegian technology company so there's great companies all around the world and we want to make sure you know we own pieces of them all yeah prior to this year I think the big story about investing internationally was the low valuations and that's still the case you know valuations are cheap compared to the US.

But there's some pretty major macro themes that are developing around the world of why you want to be invested internationally. Germany announced a large stimulus program. If you remember back in the first quarter, Chinese AI giant, deepseek totally disrupted US tech and Chinese large tech is actually outperforming US tech this year. And you know, their EVs are also with a company like BYD outperforming Tesla, especially with the tax bill, you know, kind of discouraging some of the what renewable and the and cleaner energy investments here in the US.

It's not companies aren't as incentivized to do that anymore. And then another factor that's kind of driven the international outperformance is would be the dollar depreciated. I think the dollar is down 10% relative to a basket of outside US currencies and a falling dollar you know means an appreciating foreign currency and that helps us investors in international stocks. So it's a good way to hedge against a weaker dollar.

Yeah, absolutely. I think that's a great point and you know you can see the US on this chart as well kind of just to the right of the green global bar. And I don't think any of us would say, you know, we don't want to invest in the US. I'd say that the majority of portfolios are based in US investments. And I heard something today that I thought was really interesting saying the US, you know, innovates, China imitates, and the UK or Europe regulates. And there's I thought it was kind of funny, but I do think we think the US has, you know, some of the most innovative companies in the world, and we want to, you know, make sure we remained invested in them.

And some people see, oh, you know, the US sold off a good amount in April and recovered back to an all-time high. And I thought this chart was really interesting, just showing the number of all-time highs hit every year in the S&P 500 going back to 1929. So you can see the bottom right there in 2025 so far, we hit five all-time highs. So, you know, some people see that and say, "Oh, I don't want to, you know, put new money to work in the US.

Let's you know invest elsewhere or you know wait for a selloff. But all-time highs tend to kind of cluster together. You know just last year there was 57 new all-time highs hitting the S&P 500. And you know if you look at from 2013 to 2022 I don't know what we average 30 new all-time highs each one of these years. So they kind of tend to come together. And one other kind of chart here that we wanted to show is just showing the returns associated with investing at all-time highs.

So this the dark blue column shows you know your one year, your three year and your 5year returns if you invest on the day of those old all-time highs which you know in your head you think oh if I'm buying things at the highest price you know you probably don't do as well but that's not the case. The gray bar shows if you invest on just any other day in the S&P 500 and your returns end up being slightly better if you buy on the all-time highs which I was kind of surprised to see.

So we want to, you know, remain globally diversified. And make sure that we're, you know, probably if you have the ability to, you know, dollar cost average and just always be buying into, you know, US and international stocks, I think we think that's, you know, one of the best ways to invest money.

Yeah, absolutely. And just thinking about some of the you know biggest events in the US that I mean obviously the tariffs which we covered in our last call which is still an ongoing situation but we just had a recent tax bill that you know could really impact markets and I think we'll probably have a separate call on some of the individual investor like you and I and our clients implications and changes in the tax law but from a business perspective some things that could be exciting for investing in the US market.

Companies can expense investments in new equipment and R&D which can you know really lower their taxable income along with this 100% depreciation write offs for new facilities. So these are big deals. You know, I think companies are that were, you know, maybe on the fence about building out some manufacturing here. You know, now there's a real hard dollar figure that they can assign to, new projects. So, you know, the US economy is in a good place. I think the Atlanta Fed does a GDP now calculation trying to anticipate this quarter's GDP growth and is at like 2.6% this quarter at the most recent reading.

And the economy I think what declined like a half a percent in the first quarter and the market was down. A lot of that what front running the tariffs was a big story like companies building up inventory trying to get ahead of you know potential higher costs but going forward you know this tax bill you know should really I think be a positive for markets and yeah we'll see but Zach did you have any thoughts on like the next six months you know going into the end of the year?

Yeah. No, I that's a really good point. I think you know around, you know, the liberation day and all the tariff you know talk that was happening in April, I think a lot of companies were you know kind of in a wait and see wait and see what happens with tariffs before spending on you know different you know new equipment or building a new facility or really any sort of capex and you know now that you know tariffs are we're kind of get some more clarity over what those will be.

Granted that that could change by the day and, you know, with the stuff that you had mentioned in this new bill. Maybe we'll see some more, you know, companies, you know, spending money, which, you know, will ultimately lead to hopefully higher margins and revenues for companies because at the end of the day, you know, we talk about these different indexes, the S&P 500, but, you know, those are made up of companies that are out there, you know, working to, you know, increase their revenues and make more money.

So, yeah, I think there's a lot of potential, you know, tailwinds, things that could be good for the market for the rest of the year, but, you know, we'll kind of just take it one week, one month at a time, and, you know, there's something that could happen tomorrow that really could change the narrative of the rest of the year.

Yeah. I think one other thing I'll add to that is and something we didn't cover on the last the small cap index. It's kind of often overlooked. Hasn't been one of the strongest performers in the most recent years compared to the S&P and the large caps. But, you know, looking at year end, I think the market's anticipating two rate cuts. And, you know, from what we're viewing, you know, it doesn't look like there's an in imminent recession anytime soon. You know, the economy seems to be in a pretty healthy place.

A no recession rate cut environment, you know, I think could be a huge deal for small caps. And talk about like lower valuations internationally. Same thing with small caps. Like they're very inexpensive compared to some of the large cap like technology companies.

Yeah, I think that's something we're all excited about here at Mccaper for the rest of the year.

That's right. Yeah, I think that's kind of about everything that we have. For you today. Is that right, Will? Anything else?

No, I think that'll be I'll just keep talking about it, but All right. No, that's it.

Yeah, thank you all for your time. And if you have any questions about what we covered here today or, you know, anything about in the markets at all, please contact your adviser. And yeah, have a good rest of your summer and we will be back to you soon with another episode.

This transcript was generated from the episode audio and may contain errors.