Disclosure
00:00
The following presentation by Monument Capital Management LLC is intended for general information purposes only. No portion of the presentation serves as the receipt of or as a substitute for, personalized investment advice from Monument or any other investment professional of your choosing. Please see additional information disclosure at the end of this presentation, A copy of Monument’s current written disclosure brochure discussing our advisory services and fees is available upon request or at wwwmonumentwealthmanagementcom.
David B. Armstong, CFA
00:42
Okay, welcome back to Off the Wall. I’m Dave Armstrong, and this is our quarterly market review, where we break down what’s happened in the markets and the economy in the second quarter of 2025. And, unsurprisingly, there’s a lot to talk about. However, I do want to note that we’re recording this episode on July 1st, so things may have changed by the time you listen to this. Another update we thought, instead of talking about what we thought was important over the past quarter, which I’m going to hit some highlights here but we also wanted to cover topics that we have gotten from listeners and clients over the past three months. So, drum roll, we are introducing the Ask Monument Anything, which is a play on the Ask Me Anything segment, but we’re going to call it the Ask Monument Anything segment. So, going forward, we’re going to have this Ask Monument Anything segment as a reoccurring part of the show. So if you want your questions answered in our next AMA, you can submit your questions to us anytime by emailing a new email box that we have which is offthewallatmonumentwmcom, so that’s offthewallatmonumentwmcom, and if you have a question, just email it. There. It’s a special email box just for this kind of stuff. We’ve been pulling these questions off of conversations that we’ve been having with people, questions that we’ve had emailed in and some social media questions, because people have actually made some comments on our social media posts and sent some DMs there too. But we set up this special email box for you to use, which is a better way to do it. So before we get into the first question, just real quick, I do want to talk about a little bit of what happened in the second quarter, because it has been kind of interesting to see what’s happened and just to set some context for what we’re going to talk about. So first of all, second quarter 2025, the S&P 500, and I’m just going to use the S&P 500 ETF, the SPY, the SPY, Okay. Second quarter return just for the second quarter 10.8%. That is a big number when you think back to all of the volatility and having an almost 20% downturn in the market, and then to come back and finish the quarter up 10.78%, 10.8% and that puts the S&P 500 at the end of the quarter up 6.05%. So let’s just call it 6%. And the equal weight ETF kind of interesting was up only and I say only 5.4% for the quarter and put it at 4.6% positive for 2025. So the disparity between the S&P 500 year-to-date return and the equal weight year-to-date return is only about 150 basis points, but it was a 2x on the quarter return, which was kind of interesting.
03:35
And then, just real quick, some interesting highlights from the international side of things. I’m just going to use the two ETFs that track the IFA index for developed countries and the EEM for the emerging markets or the developing countries, and for the quarter, each one of those, the IFA and the EEM respectively, were up 11.3% and 11.4%. So pretty close, but their year-to-date numbers are quite interesting relative to our domestic S&P 500 index, whereas the IFA in the developed countries year-to-date return up 20.3%. That’s a pretty big difference there compared to the 6.05% that we’ve seen year-to-date in the S&P 500. And then the developing, as benchmarked with the EEM ETF, is up 16.45 year to date. So pretty interesting disparity between the international community. I think just very quietly on the DL, as the kids say these days some pretty significant outperformance in the international markets relative to the domestic markets here in the US.
04:47
So with that quick recap of what happened in the second quarter I’m going to kick us off. The first question that came in and this one actually came in to Nate. So Nate, stand by. I’m going to ask you to answer this question. But the question was, Nate, should or will the Fed start cutting rates in July? So go ahead and take it away.
Nathan Tonsager, CIPM
05:05
Honestly a great question. I think, if I had to give an answer, it’s no, I don’t think the Fed needs to start cutting rates, especially as early as July. I think, as Chairman Powell has said in his testimony over the past couple of days as a reminder, recording this on July 1st they’re in a great position to remain data dependent and kind of patient. First, they’re in a great position to remain data dependent and kind of patient and I think you know to use a line that he said recently you know, for the time being the Fed is well positioned to wait and learn more about the likely course of the economy before considering any adjustments and you know to follow up on that. You know, without the tariff uncertainty and he kind of said this most recently I think the Fed would have already started cutting rates. But it’s that uncertainty about what’s going to happen with tariffs. You know the 90 day pause on Liberation Day is coming up here on July 9th. It doesn’t seem like those pauses are going to be extended, so tariffs could increase. But the uncertainty is really what’s driving the Fed’s hesitancy. Let’s call it to start cutting rates. And you know, when I look at the data and personally I don’t see a reason why they need to.
06:07
The Fed has a dual mandate of stable employment and stable inflation. Not no inflation, just stable. And when you look at it, the job market overall payrolls have remained steady, around their long-term averages. If you look back over the past 10 years, the monthly payroll report comes in at about 150,000 jobs. Last month the most recent report was 139. So below it don’t get me wrong, I’m not going to ignore that but at the same time, not that far off average. I think that’s a common theme. When you look through a couple other things too, the unemployment rate, it’s at 4.2%. We’ve only ever seen an unemployment rate this low three times in history 2018, 2000, in the post-tech bubble, so after some market turmoil and then the next time we saw an unemployment rate this low, 1969. That’s almost 60 years since we’ve had unemployment at the levels that we’re seeing today, and the long-term average is closer to 5.5%. So below average unemployment, right around average amount of jobs growth and wage growth too as well. Same kind of thing it’s come down recently, which I think is a sign that people think the job market is loosening or becoming less tight. But in COVID the job market exploded and really what happened there is we’re just coming down from extreme levels, coming back to maybe a little bit of reality, because the 20-year average from 2020, I’m sorry, from 2000 to 2020, 3.4%. We’re at 4.3%. So wage growth is still elevated compared to the long-term averages that we’ve normally seen. So I think it’s kind of important.
07:50
When you look at the job market, job markets remained healthy enough to support a wait-and-see approach. I think if there was a major recession which we’ll talk about later in some of the predictions or a collapse in the job market, the Fed would have already stuck to cut rates. But we haven’t seen that. Job market has remained solid, while maybe not growing, kind of in a stasis, to use a good word. I think that’s kind of the key thing.
08:15
And then when it comes to inflation, inflation hasn’t been bad. Don’t get me wrong. We’re not seeing high inflation like we did at COVID, similar to the wage growth. Inflation was so high for so long. I think, even though it has come down, it’s still not settled at a level where the Fed is confident that it will never come back.
08:33
And again, speaking to kind of, when you look at the preferred Fed inflation gauge of personal consumption expenditures, or PCE, and if you remove the volatile categories of energy and food, which tend to swing a lot in any given month.
08:47
So really, what we look at is what’s called the core PCE. It is still above the long-term averages of that 2% 2.5% that the Fed is looking for. It’s at 2.7%, let’s call it. If I round up, and I think again, the big elephant in the room is the trade war, the trade wars, the tariffs which could increase prices. You’re hearing a lot of consumer companies start talking about possible price increases Starting this past quarter. When we saw Q1 results come out in April and in May, companies like Nike, like Walmart, all talked about how they’re going to have to start passing on prices in going forward in order to preserve margins. So I think we’re in a little bit of the wait and see approach, especially with inflation, and that’s why the Fed. We aren’t in a recession, we’re not collapsing. Dave, as you said, it was a great market environment, honestly, when you look at the whole quarter.
David B. Armstong, CFA
09:37
Sure volatility along the way, but the strength is there, yeah if you went to sleep on March 1st and woke up on July 1st, wow, I was up 10%. That’s awesome.
Nathan Tonsager, CIPM
09:48
Well and that’s a common theme for the market the more you can sleep, actually, I think, the better you do in the long term. It’s kind of funny. That way you don’t need to maybe be as active as some people think. You know you want to be strategic, but you don’t need to be reactionary to every market event.
David B. Armstong, CFA
10:05
Could be its own podcast topic. Nate, I’ll tell you, I’m just going to jump in here, nate, because you and every listener knows I can’t help myself. Here I go. I’m going to do a press bet here for golfers. You know exactly what I’m talking about. A press bet is when you’re in the middle of a bet and you introduce a whole new bet that runs concurrently. I’m doing a mid-year press bet on the Jimmy John’s sandwich.
10:23
I’m introducing a new bet here, just between you and I, nate, on this inflation thing, because I actually think the recent inflation data now I’m going to talk about CPI. I know you talked about PCE and that’s nuanced and let’s not get too deep into the weeds or everybody will turn this off but the PCE is actually the Fed’s preferred rate, but everybody knows the CPI. So I’m just going to introduce that and I think some of the recent inflation data that came in was actually a beat in my eyes, both from the headline and then the core, where you remove that volatile food and energy stuff out of it. So I feel like if tariffs were really stoking inflation and maybe they will down the road, but right now they were really stoking inflation and maybe they will down the road, but right now they were really stoking inflation. I just don’t think that we would have seen the outright deflation in the goods sector that we saw last month. And when you look at the annualized month over month change, that was a minus 1.48%. So a 0.5, 1.5% reduction in a month over month change Okay, annualized. Now, if you strip out what is referred to as owner equivalent rents OER you’ll hear people like talking heads on CNBC talk about OER, which is essentially costs for shelter, for where people live.
11:43
Both headline and core CPI are now running under 2% year over year. So 1.98 and 1.81 respectively between the headline and the core CPI. So that’s below the Fed’s own target of 2.5%. So I mean, when I looked at it, cpi again, 5%. So I mean, when I looked at it, cpi again. So almost all the inflation in May came from just five line items out of the nearly 200 that are part of the CPI. And anyway, to me that just hints at. You know, maybe this wasn’t such a broad-based pressure. I think it may have been a lot of noise and heading into the next FOMC meeting, there’s no reason the fed shouldn’t be more relaxed. But here’s the thing you know all year. My opinion they’ve been reacting more to the stock market than to the data. So I’m I am pressing the bet, nate, now. You and I have two Jimmy John’s sandwich bets. Now they can cancel out at the end. Okay, like I could owe you one, you could owe me one, and we’re just net even. But that’s where we are right now on the bet.
Nathan Tonsager, CIPM
12:54
And you know, I think, Dave, you actually bring up a really great point. It’s something I didn’t talk about when I said about all the tariffs and what that could cause inflation. Really, I still think the boogeyman around inflation is shelter. I think you nailed it perfectly. It’s if you remove that shelter component you’re not seeing maybe as much inflation. So maybe tariffs could add on to inflation, because I also don’t know if shelter gets fixed. So I’m happy to take this bet and who knows, maybe I’ll have a really giant lunch in one day.
13:20
Or like you said it’ll cancel out, but I think it’s interesting to see because, again, the housing market is still the biggest problem with inflation.
David B. Armstong, CFA
13:27
Yeah.
Nathan Tonsager, CIPM
13:27
There is not enough. Housing Interest rates, while they’re higher, have not damaged housing prices like we thought that they would, or I think the Fed thought that they would. So you know, if you really want to get inflation under control, sometimes higher interest rates are your easiest tool. Well, inflation might be starting to get under control as the housing market stabilizes, and that takes a long time to unfold. So as long as the tariffs don’t add inflation, I think you kind of nailed the really maybe the operative point around inflation is. It’s really a shelter kind of question.
David B. Armstong, CFA
13:59
But I’m still not convinced it’ll get fixed, so I’ll take the bet that the Fed won’t cut in July, and I’ll remind listeners about this at the end again. But, like these, these predictions are just for fun. We we like the intellectual banter, we like that you’re getting listeners are getting a snapshot into what it’s like when we’re at monument. We’re just talking about stuff and none of this really drives our investment thesis or our process or our philosophy or anything. But it is fun to talk about because people hear it on tv. And so here we are, nate, we’re on the record. We’ll see what happens at the end of the year, so, but I am going to move on to the next question that actually came in for Erin, which was um, I think the genesis of the question, Erin remind me, was the podcast that you and I did with George Coyle, which we’ll link in the show notes. But the question was what’s going on with all this talk about private equity and private credit? So why don’t you go ahead and take that one?
Erin M. Hay, CFA
15:01
with George Coyle a few months ago, so we’ll link to that in the show notes and for listeners who may or may not be subscribed to the blog Dave, great blog post this week too, on private equity and private credit. So I wanted to talk quickly because I think this is a pretty timely tweet. So on X or Twitter whatever your preferred name for that is Junk Bond Investor. The handle there is at Junk Bond Invest. But he pulled what appears to be a page from Apollo and I don’t have any reason to doubt this, although I couldn’t find the source data myself. But according to Apollo, private debt is outperforming the S&P across all horizons and in fact the Apollo graphic here says private equity and private credit, or private debt that is, is outperforming the S&P 500 across all horizons and they’ve got a trailing one year, a five-year annualized and a 10-year annualized, and there’s no footnotes for this, which I’m not bashing Apollo here. This is their wheelhouse alternative investments, ie private equity and private credit. So they’re going to talk their book.
16:02
But this claim that private equity and private credit have been outperforming the S&P 500 going back over the last 10 years, it’s ridiculous, because this is a rhetorical question here. But what would you have invested in? Is this investable? The answer, of course, is no. There is no index-like solution for private equity or private credit, at least not one that you could have invested in over this timeframe, so it’s a little disingenuous to make this claim. Since we’re talking about this, though, talking about proxies for investing in this space and we touched a little bit about this in our podcast with George a few months ago but the best proxy for private equity if you’re really looking to sort of mimic it or replicate it and there are studies to back this up but it’s levered small cap value, so think of small stocks that have more of a value, tilt to them and, again, using some leverage on there, because, at the end of the day, that’s generally what private equity and leveraged buyout funds things of that nature are doing. It is ironic, though, because I did ask the question what would you have invested in? Is there a way to replicate this with private credit? And we may have talked about this, too, during our podcast with George, but, believe it or not, apollo shocker right they actually did launch a private credit ETF back in February. The jury’s still out on that, by the way, though I’m not sure how that’s going to work out long-term. You’ve got an inherently illiquid asset class and a liquid, daily liquid ETF wrapper. So TBD on how that’s going to work out.
17:32
But as always, dave Nate, I think we like to talk about these things, but we always want to keep in mind for our listeners hey, what’s the point? What should I be doing with this information? So I would say for this and you’re seeing some of these groups like Apollo or Blackstone, you name it Goldman Sachs the usual suspects just know they’re always going to be talking their book. This is what they do. Alternative investments are in their wheelhouse.
18:00
So if you’re considering illiquid alts like private equity, or if it’s basically private stocks or private credit, think private bonds obviously you’re going to want to do your homework. But I’d say something else to keep in mind, and this is often how these types of investments are pitched. They pitch them as quote unquote diversifiers and I’d caution you against that, because at the end of the day, stocks and bonds are still stocks and bonds, no matter the medium or the delivery mechanism or how they pretty it up. Private equity sounds like a high class way for saying stocks. I mean, it’s just stocks of another feather. So if you are considering these investments, obviously do your homework and just know that they’re really not diversifiers, at least in my opinion. There’s just different flavors of stocks and bonds.
Nathan Tonsager, CIPM
18:47
I really agree with that. I think a lot of people see it as a different asset class. I don’t know if it’s necessarily, in the form that it is in now, a different asset class. And to your point about talking books, I think you know you called out Apollo. You know BlackRock is another big issuer, private equity, private credit. Well, they recently started pairing with 401k providers Vanguard Fidelity, I don’t know which one specifically to add private equity investments into target date funds inside 401ks. So what you’re seeing again is, I think, a broadening out of how this is being offered.
19:20
And, dave, I think your blog post was phenomenal. If anyone hasn’t read it, I highly recommend it because it does lay out, I think, what’s going on in the alternative private credit equity landscape and I’m going to read a quote from it is the fund managers and issuers Apollo, blackrock, whoever they are. They win, no matter how the investment performs. They win by putting people in these investments. So to Erin’s point if you’re going to invest in something like this, you really got to do your due diligence, because if you want to win quote unquote in these kinds of investments, you’re kind of fighting in a little bit of an uphill battle, at least with some of these providers.
David B. Armstong, CFA
19:57
Yeah, my commentary on this is all included in the blog, but I will punctuate it by saying not only do the issuers and the fund managers win, so do the people who are recommending it from the advisory space, Because you’ve got a seven or eight-year illiquid investment that you’re paying a huge fee on as the investor. Some of that is going to the advisor, and they just locked it in for eight years, no matter how the investment does. Some of that is going to the advisor and they just locked it in for eight years, no matter how the investment does. So you know, buyer beware, I guess. But go read the blog.
Nathan Tonsager, CIPM
20:25
It’s got a lot more thought there Well, and I think you kind of nailed it there with the illiquidity Like they can work if you give them time to work. I think you know it’s creating a plan that fits you and your lifestyle really. So for some people that can withstand some of this illiquidity of these investments, it can work. But that’s not for everyone and I think a big thing clients, investors, the media name, whoever you want, whatever group of people really gets caught up on what’s the optimized, the maximized strategy but what’s more important is building something you’re going to stick with over the long term, because if you’re not going to stick to that optimized, maximized strategy, you’re going to probably do damage to yourself over the long term of your portfolio.
Erin M. Hay, CFA
21:07
You know, sometimes it’s the KISS principle Keep it simple, sometimes the private equity, though, if you’re sticking to the plan, like ironically, private equity can potentially help you stick with a plan, because if you’re going to be in a lockup vehicle like that and I know some of the interval funds are offering more liquidity than has historically been realized by investors. So, interval funds aside, if you’re going into the prototypical private equity space as a limited partner an LP as they say, and you’re getting capital calls and you’ve got the J curve and the drawing of your capital like you may have no choice but to stick with the plan. So that’s something to consider as well as the. The act is the liquidity factor.
David B. Armstong, CFA
21:49
Yeah.
Erin M. Hay, CFA
21:49
Yeah.
David B. Armstong, CFA
21:49
So that that wraps up our AMA, ask monument and anything segment of the show. We have some more to talk about, so don’t tune out yet. But that wraps that up. I hope. I hope everybody listening like that. And again, if you want to shoot us a question, whether it’s about what we just talked about or anything else, you can do it anytime by again emailing offthewallatmonumentwmcom, again offthewallatmonumentwmcom.
22:15
So now, since it’s mid-year and we kind of already hit on this Nate when you and I did a little press bet, let’s have a little trip down memory lane. Let’s go back to January of this year, where we did our collective 2025 predictions, and let’s do a little bit of a self-assessment on our own predictions. And first, as a reminder to listeners and as an FYI to all of those new listeners out there that have been subscribing thank you you, by the way, because our subscriptions have really skyrocketed, which has been great. So if you’re uh, if you’re not a subscriber yet, definitely go and subscribe. It would be also awesome if you could just leave us a little review or hit the five stars or whatever it is. I’m not shilling, but I am. So, whatever you do with that, what you want to, but none of this that we’re talking about matters, our predictions. We just like having fun here and it’s just a peek inside of what we discuss and how we discuss and how we banner about things here at Monument, and we just like the intellectual process, and I think people like to hear about our intellectual process and the discussions that these things kind of produce, and we like to look at things through the client lens and then we ask ourselves so, based on what we’re hearing in the news, what are clients asking themselves or what are they being told or what are they hearing about and what do we think about that?
23:34
So, along with the AMA segment, this is like how do I put this? This is this, this is our outlet, right so, but no one has facts about the future and it’s all just a guess, but it’s all in fun and none of this should be used to create portfolios or portfolio strategies and, and as a reminder, our and your investment strategies should be intentional, and that can only happen if you’re living your life intentionally. So, which means, don’t use these predictions for strategy. It’s just some fun and we like to banter back and forth and there’s a lot on the line with these Jimmy John’s sandwiches because, as Nate talked about before, inflation is apparently through the roof the corner here. I think they’ve gone up a whopping 10% from $10 to $11.
24:21
But anyway, with that, I will start off with inflation, because my prediction from January was basically that I suspected that it would remain flattish and at a new neutral level, mostly because the money supply was no longer contracting like it did after post-COVID stimulus. Or, said another way, I didn’t expect that there would be a resurgence of inflation and I suspect that inflation would linger somewhat above the 2025. So my self-grade my high school teachers would love this if I was grading myself. I’m giving myself an A on that prediction so far this year Because back in January I said I didn’t see inflation making a big comeback and my take was that we would settle into this new normal something a little bit above the Fed’s 2% target rate, but not close enough to cause any sort of major disruption and that’s pretty much how it’s played out so far.
25:12
The money supply isn’t shrinking anymore like it did after the post-COVID contraction a post-COVID contraction so I didn’t expect the same sort of deflationary pressure that we saw in 2022 and early 2023. And with supply chain stabilized and wage growth cooling a little bit. It’s been a fairly steady environment. So inflation is lingering, yeah, but it’s not spiking, which was exactly my call. So again I give, again, I give myself, uh, I give myself an A minus. There Again, my, uh, my high school principal. I wish I could do that on my transcripts, but anyway, whatever, probably would have gone to.
25:49
Harvard.
Nathan Tonsager, CIPM
25:50
And if you win the sandwich bet, I’ll give you an A plus.
David B. Armstong, CFA
25:53
Okay, all right, right, then I. Then I had a prediction on equity, on the S and P 500 and equity returns and, um, you know returns, and I felt that there was a supportive backdrop for equities. I didn’t see any reason to think that we would have negative returns this year. But I also suspected that after two years of positive 20% back-to-back returns calendar year returns there was more likely than not that we’d see more limited returns this year. Okay, drum roll for my grade here. I’m giving myself a B plus on this. Okay, because I said I didn’t think that we’d get a negative equity returns this year. So, like I said, depending on if you fell asleep at the beginning of the second quarter and didn’t wake up until July, I looked right. So it was a little bit of a dubious prediction, but we need to see how the year plays out. I certainly wasn’t calling for the near 20% sell-off that we got and a total recovery inside of a 90-day window to print a 10% end-of-the-quarter return. But I wasn’t calling for another 20% run either. So that prediction seems to be aging well and the S&P 500 up around 6% year-to-date, which is healthy, but definitely more muted than the last couple of years and the backdrop to me seems supportive Earnings are holding up, the Fed hasn’t thrown any big surprises in there, and the AI-driven productivity narrative is giving the market some tailwinds. So, yeah, I saw this as a year of okay and not spectacular, and that’s where we are. So I also had a little prediction in there on sector rotation this is where I have to give myself a C plus, which was pretty much any grade I was printing in high school anyway. So there you go, the pendulum’s always swinging back right. So this is one that hasn’t totally played out yet, and I expect some of the underperforming sectors, like small caps, banks and energy, to start catching up this year, especially if we saw regulatory changes in the new political environment, and that rotation just hasn’t kicked in yet, or it may not, but it certainly hasn’t kicked in yet, if it’s going to kick in at all. So large cap tech is still dominating and small caps just haven’t gotten the rate relief that they needed to really run. So banks are a mixed bag and energy has been range bound because oil prices haven’t moved that much. So, with that said, the year’s not over If we get some policy clarity or a rate cut later this year, I still think the rotation could show up so far, c plus.
28:15
And then, finally, the economy. Look, I said we’re in a post-pandemic productivity-led boom, which I suspected was going to continue and accelerate by the advent of consumer accessible artificial intelligence. Give myself an A there. I’m giving myself a grade of an A there because the big call I made, and the one that I’m most confident in, was that we were in the early stages of a productivity-led boom, and I still believe that we’re seeing real signs of it in the data, and non-farm productivity is rising, businesses are investing heavily in AI infrastructure and the labor market is hanging in there without creating any sort of serious wage pressure.
28:56
I said that AI was going to be the next big growth lever, not just in tech but across the entire economy, and I personally think that’s proven to be true and I think it’s a trend that’s going to only continue to accelerate from here. So that’s kind of my self-grading for my predictions from the beginning of the year. I may have taken some liberties, but there we go. Nate, why don’t you go ahead and talk about your predictions for the beginning of the year and then we’ll jump on over to Erin’s?
Nathan Tonsager, CIPM
29:25
Well, and I think, before I dive into mine, I’m just pulling up a quick stat here. I think, dave, you really nailed the AI one. Ai, I think a lot of people think is just a tech story. But it’s not caterpillar like deer. They’re benefiting from AI and not deer specifically. But if you look at the agricultural sector, there is now AI driven tractors that can use lasers to zap 200,000 weeds per hour with millimeter precision. You know, no longer is it someone out in the field spraying the whole field and wasting fertilizer, killing crop yields. So AI is now driving productivity, not just in the tech sector, but in all the sectors around the economy. In every industry those machines work 24-7, in all weather conditions, they are not driven by being tired and they are saving fertilizer to boost crop yields overall. So I think that’s really the big driver of productivity.
30:22
Because I mean kind of pivoting to my predictions in the start of the year. I didn’t think we’re going to see a recession and, just as a reminder for everyone, a recession is technically and I put that in quotes because it’s a very, I think, gray term two quarters of negative GDP. Well, we did see negative GDP in Q1. Now real quickly. Q2 estimates are looking very strong. You know they were just raised, I think, higher to almost 4.6%, if I saw it recently from the Atlanta, fed is estimating a strong quarter of growth, recently revised higher. But really, what drove the negative Q1 GDP I know this is the Q2 podcast, but GDP takes a while to unfold was really a lot of people importing goods in front of tariffs, and if you have more imports into a country than exports, that’s a drag on GDP just by the math. So it’s not necessarily the economy was slowing, it was just the mechanics behind it that I think drove the negative 0.5%. So not giant negative growth, marginally negative growth was really an export-import story. So I don’t think we’re anywhere close to recession. So for that one I’m going to give myself similar to what you were saying, dave.
31:34
I think an A is what I would call it, because the other piece of it then was a strong labor market and, as I laid out we talked about, I do think the labor market is holding up, which is supporting the US economic growth story. It’s not just a productivity boom. People still do have jobs. Ai is not replacing jobs as quickly as I think people thought it would. It’s changing them, not replacing them, you know, and I think because of that.
31:58
My second prediction was because I’m not expecting a significant recession. I thought the Fed, who at the beginning of the year said they were only going to cut rates twice, was going to be able to stick to that plan. No-transcript, but as kind of the Liberation Day tariffs which were, I would say, the highest level of tariffs that we could expect, got peeled back or delayed. The market recovered, it rebounded and the Fed didn’t need to maybe cut as aggressively right away, as we’ve talked about a lot on this podcast during that AMA.
32:40
First question. So right now markets are saying three cuts. There’s still some holdout for two, which is why I give myself a little bit of lower grade here. We’ll see if I’m right in the end, but we got six months to figure it out and if there’s anything that I want to say I can predict, maybe with a high level, certainty is, volatility is not going anywhere. So don’t expect volatility to disappear by any means, and volatility will drive, I think, the Fed decisions in the second half of the year. So overall, I would like to think that I graduated, at least fairly at the mid-term here, but there’s always another semester.
David B. Armstong, CFA
33:15
All right, well, that’s pretty good self-grading there. We’ll see how we do by the end. Let’s jump over to Erin and have him self-grade his beginning of the year predictions here, as we’re halfway through the year.
Erin M. Hay, CFA
33:28
I’m going to be pretty straightforward, take a slightly different tact. I’m going to assign a pass-fail, incomplete grade to my three predictions. So, jumping right in, I said at the beginning of the year I said that cap weight, so think of just traditional S&P 500 or SPY. If you’re looking at a ticker, we continue to outpace equal weight and the ticker there would be RSP, and so I’m going to assign myself a pass grade here. I was correct, but there is a little bit of detail I’d like to put in here. I’m only correct by a small margin, although I was technically correct, but not as correct as I thought I would be. So S&P is up 6% year to date and RSP or equal weights up 4.6%. So only a one and a half percent differential in favor of cap weight or traditional S&P. So just for some historical context, where we were at this point through the last two years so at this point in 2023, cap weight was up close to 17%, where equal weight was up only 7%. So basically a 10% differential. And then same thing last year with cap weight up 15% and equal weight up 5%. So another 10% or so differential. So cap weight’s definitely outperformed equal weight, but that’s definitely slowed down a little bit. So if I had to pivot, I’m not going to come off of my earlier prediction. I still think that cap weight is going to outpace equal weight, just maybe not to the extent it has the last several years. So I’m going to assign myself a pass grade there.
34:53
My second prediction was I said that and I got stock specific on this I said that Amazon would either institute a dividend or spin off Amazon Web Services and then, on the dividend, every other MAG7 stock minus Tesla, by the way now pays a dividend. I have a fail there. Amazon Web Services has not been spun off and Amazon has not instituted a dividend, but we do have earnings coming up here in July, so we’ll see if that changes. So that is going to be a fail grade. And then, lastly, I looked at some sector-specific stuff, dave, kind of like you did. I said that healthcare would be the top-performing sector for 2025 and our dividend and growth single-stock models, which currently, at the beginning of the year, held zero healthcare names, would end up with a 20% combined allocation. So I’m going to give myself a partially correct grade here.
35:49
So healthcare is definitely not trending the direction we want it, at least as a sector. It’s 10 out of 11 sectors. Year to date it’s down 1.2%. Only consumer discretionary is down more down 2.7%. I think we all know the likely headwinds there being tariffs. I am more partially correct, though, on the actual stocks that are in those two individual strategies. We own Cardinal Health in our dividend strategy and then we own a biotech firm, exelixis ticker-L, and then McKesson ticker MCK and our growth strategy. So if you look at the two strategies together 40 stock allocation we have roughly a 7.5% combined allocation to healthcare. It’s not quite at 20, but it’s trending that direction. So with that I’m going to give myself a TBD or an incomplete grade on that final, that final prediction okay, but I’m going to give you an a for effort, as they used to say in the old days I appreciate that on on the on the um cap versus um equal weight, because, yeah, at the middle of the year you’re kind of within 150 basis points.
David B. Armstong, CFA
37:00
But if you just look at the second quarter’s return for 2025, of both the S&P 500 versus the equal weight, it was a two for one. I mean it was the S&P was up 10.8% and the equal weight was up 5.3%. So I say you nailed it for the second quarter, not for the first quarter. Average it out. I give you an a for effort on the cap versus equal weight. So there you go with that. So all right, well, we’re all. We’ve all. We’ve trued up our predictions and we got a new push bet in there so everybody can stay tuned. But this kind of concludes the uh podcast for this quarter and uh for the half year. Thank you, Erin and nate, for a great conversation and thanks everybody for listening.
37:52
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39:01
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39:10
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