The stock market rarely takes a straight path and 2025 has been no exception. Through July 31, the year has already seen dramatic swings, surprising leaders, and valuable reminders about patience.
International Stocks in the Spotlight
Year-to-date, international markets (developed and emerging) have outpaced U.S. large caps, both returning around 18% versus 8.6% for the S&P 500. For years, U.S. stocks have dominated, fueled by tech, Mag 7, and AI growth, but history shows long stretches where international stocks come out ahead. This year, owning them has been additive to diversified portfolios.
Munis Lag… For Now
California and national municipal bonds have trailed core taxable bonds, hurt by heavy new issuance and seasonal tax-related selling. Add in some tariff and credit uncertainty, and muni performance has lagged. But the tax-equivalent yields, 7.91% for a 3.63% Intermediate term California muni fund, remain highly attractive for high-income investors. I expect the gap with taxable bonds to narrow throughout the remainder of the year, especially if rates move lower.
April’s Steep Decline and Rapid Recovery
From January through early April, the S&P 500 fell nearly 19%, while a 60/40 stock-bond mix was down almost 10%. Yet from the April 8 low, the S&P rebounded almost 28% by the end of July, reminding us that the best market days often follow the worst. Investors who stayed the course benefited greatly.
Economic Trends to Watch
Our 12-indicator economic model has softened in recent months, partly due to tariff uncertainty. August data will help determine whether this was a short-term dip or a longer-term slowdown which could influence portfolio risk adjustments.
Bottom Line
2025’s first seven months have reinforced the value of diversification, patience, and sticking with a data-driven plan. Markets will continue to test resolve, but disciplined investing remains the best path forward.
Watch the full mid-year recap video here: