July 12, 2025

Commentary Highlights

The first half of 2025 has ended with U.S. equities on an upswing, which may seem hard to believe after a six-month period during which we experienced AI-related volatility after the DeepSeek announcement, wildfires in California, DOGE, Liberation Day tariffs, the subsequent pause, and bunker buster bombs in Iran. But it’s true – in fact, both the S&P 500 and the Nasdaq 100 have breached their previous all-time highs.

Market Perspective

With the recent passage of the One Big Beautiful Bill and the associated fiscal stimulus, economists appear to already be looking ahead to a rosier 2026. We don’t disagree that fiscal stimulus could boost growth in the future, but we’re paying closer attention to what’s happening in the here and now. Notably, for the first time in years, we are witnessing international markets leading the charge in terms of returns. The MSCI ACWI has returned 17.9% so far this year, compared to just 6.2% for the S&P 500.

Inside This Conversation

As far as the U.S. is concerned, high valuations, oncoming tariff impacts, and continued economic uncertainty are all things to watch in the near-term.

• Stocks are Expensive Again: The forward 12-month price-to-earnings (P/E) ratio for the S&P 500 is 22.0x— a metric only previously reached during the 2021 meme stock frenzy and the 2000s tech boom.
• Tariffs Are Likely To Be Punitive, But Effects Aren’t Evident Yet: Although the market frenzy around the initial April 2nd announcements has subsided, the United States’ current effective tariff rate still ranks as the highest levy in effect since 1938. We are only just starting to see the impact of tariffs on supply chain data, and it will take much more time for the tariffs to really bite.
• Economy Remains Resilient, So Far: In the absence of clear evidence that tariffs have damaged the consumer’s position, forecasters estimate a 1.5% growth rate for the second quarter – not as healthy as it might have been, but still a strong print.
• However, outside of these factors, it’s also becoming more important for investors to keep tabs on currency moves. The DXY (an index that tracks the relative strength of the dollar against a basket of select currencies) has declined 11.9% since its January 14 peak. That’s the largest YTD decline for the dollar since the dissolution of the Bretton-Woods system in 1973, and accounts for almost half of international outperformance year-to-date.

A Closer Look

Why, with all this uncertainty, why are stocks still so richly valued? Well, markets are forward-looking. Much about 2026 indicates that it could be a very strong calendar year; stimulus from the One Big Beautiful Bill that just passed into law, the potential impacts of deregulation, stronger EPS growth from fading of tariff effects, and U.S. multinational companies benefiting from weaker dollar, could all support sustained growth. When you bundle all that up with the optimism around AI, there are enough tailwinds to justify current valuations – for now.

Looking Ahead

We may be in the thick of the summer slowdown right now, but choppier waters may lie ahead. As policy shifts hit the data, we’re here to offer clarity, not just commentary. Dive in deeper at our Wealth Summit this fall with insights on AI, the economy, and the market forces shaping the second half of the year into 2026.

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COMMENTARY CONTRIBUTORS

Eric Gerster, CFA®

Chief Investment Officer

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Johann Lee, CFA®

Director of Research

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Edward J. Durica, III, CFA®

Senior Wealth Advisor

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Madeline Hume, CFA®

Senior Research Analyst

[email protected]

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