Thursday, July 24, 2025
By Laura Kuntz, CPA/PFS, MBT, Chief Investment Officer
A quick video overview for you. Further explanation below.
You likely have heard that the S&P 500 Index1 (which tracks the largest 500 stocks in the U.S.) has achieved an all-time high. So have international stocks2 (as represented by the MSCI EAFE). We believe the following is driving this optimism:
- Some trade deals are getting negotiated and the tariffs are coming in around 15%. This is lower than the first threatened tariffs and has resulted in a “relief rally.” We believe that markets are making an assumption that new tariff agreements will also come in at about this level.
- Importers have been getting around tariffs. In many cases, they stocked up on inventory before tariffs were put in place, and now, in some cases, are re routing goods through lower-tariff countries or choosing new suppliers.
- Only a few countries are combatting U.S. tariffs through jacking up their own tariffs. This helps moderate the situation, especially as compared to what the U.S. experienced in the 1930’s with suddenly new higher tariffs.
Of course, the built-up inventories won’t last forever, and the U.S. will try to clamp down on goods re-routing if it is done to avoid U.S. tariffs. Over time, we’ll be able to gauge the impact of tariffs on inflation and the economy. To get a starting sense of this, let’s look at General Motors Company (GM) as an example.
While GM is headquartered in Detroit, Michigan, it produces vehicles in 30 countries, under 10 different brands including Chevrolet, Buick, GMC and Cadillac, and sources supplies from all over the world. While we can all imagine the tariff head ache GM is dealing with, as of July 23, 2025, it has retained its positive free cash flow projection for 2025. But, while it surpassed revenue and earnings expectations during the first half of the year, it has announced that it expects a drop in profits during the second half of 2025 due to the $4 to $5 billion per year tariff burden it faces. Of course, GM adds that they are quickly working to mitigate tariffs where they can, including on-shoring some production and cost cutting. They have not ruled out raising prices and indicate that they will stay competitive.
The impact of tariffs to the U.S. economy has thus far been moderate. Inflation rose to 2.7% in June, and the Federal Reserve (FED) expects it to end the year at or over 3%, but not at an extreme high. Economic growth from Jan – March was negative, but the FED projects that it may end the year on a positive note, up an anemic 1.4%.
Our outlook has been that the economy started 2025 in good shape and could accept some volatility and risk. And, that tariffs would be a drag on growth but that any recession, if one materialized, would be shallow. This is still our outlook. That said, we do think that current markets have not priced in the full impact of tariffs. An increase from the past average tariff rate of under 2.5% to an average of 15% is a substantial change. For that reason, we are not over weighting stocks (as suitable) for our clients, and, as always, stand ready to buy as opportunities materialize, which we did, as suitable on April 7. Of course, our key focus is to fit your investment strategy to your situation and preferences. Please let us know any updates to either.
Tax Planning. The recent tax law update has brought a host of mostly modest tax changes, and we are already incorporating these into our meetings with clients. For example, in a client meeting earlier this week, the new tax changes informed both our recommendations for 2025 and 2026. We stay ahead of tax changes two ways: Mallory Kretman, CFP, Wealth Manager/Shareholder attends regular (generally monthly) webinars on new tax planning strategies and I recently attended the American Institute of CPA’s national Engage conference with approximately 5000 other CPA’s in Las Vegas. As always, please let us know your questions and comments. We appreciate hearing from you.
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FOOTNOTES AND DEFINITIONS:
1U.S. stocks are measured by the S&P 500 index. This is an index of the 500 largest stocks in the U.S. It is subject to substantial price fluctuation.
2International Stocks are represented by the iShares MSCI EAFE ETF, which seeks to track the investment results, before fees and expenses, of an index composed of large- and mid-capitalization developed market equities, excluding the U.S. and Canada, measured by the MSCI EAFE. It includes a broad range of companies in Europe, Australia, Asia, and the Far East. International stocks are subject to company, currency, and price risks.Data from yahoofinance.com and Envestnet Tamarac.
