Dear Valued Clients and Friends –
The first half of 2025 is complete, markets are up a few percentage points on the year after a ferocious Q2 comeback that followed a ferocious Q2 sell-off, and the “big, beautiful bill” appears headed for a Presidential signature by the end of the week (appears, that is). A public policy-heavy day in the Dividend Cafe awaits…
Dividend Cafe on Friday looked deeper into some of the market lessons of the recent tensions in Iran and a general point of view about the Middle East. The written version is here (my favorite), the video is here, and the podcast is here.
And very happy to present the report of our own equity analyst, Liping Ouyang, from the annual Berkshire Hathaway meeting!
Off we go …
| Subscribe on |
Market Action
- The market opened up about +200 points this morning and zigged and zagged throughout the day before rallying to the high of the day at the close.
- The Dow closed up +275 points (+0.63%) with the S&P 500 up +0.52% and the Nasdaq up +0.47%
*CNBC, DJIA, June 30, 2025
- In 1998, the S&P 500 dropped 15% in late August and took 59 days to make a new high. As of a couple days ago, that record has been broken, with the S&P taking just 55 days to make a new high after a greater than 15% drawdown, the quickest recovery in history (out of 17 times the market has gone down over 15%).
- The ten-year bond yield closed today at 4.24%, down four basis points on the day.
- Top-performing sector for the day: Technology (+0.98%) & Financials (+0.86%)
- Bottom-performing sector for the day: Consumer Discretionary (-0.86%)
Public Policy (“big beautiful bill”)
- It is not 100% done, but all indications are that the Senate clearance is there to put a revised version of the bill across the finish line before the end of the week. The Senate voted 51-49 to advance the bill, avoiding the need for Vice President Vance to break the tie by one vote. There are various procedural delays and games that will be played all day today and into the night, but the expectation is that the Senate will vote on it by tomorrow, and the House will get it back for their vote Wednesday. This will lead to a bill signing with all the fanfare you can imagine on the Fourth of July.
- The current policy baseline was, indeed, used in terms of budget-setting, and that was agreed to by the Senate Parliamentarian (meaning, the budget could work off of what the law is now, and what was expected to be the law next year). Reasonable people can disagree about this, but it is what has been done before with both parties in power.
- The bill contains all sorts of “sunsetting” provisions again, meaning there are various items scored one way to stay within the budget window, but that are, if history is any guide, very unlikely (read: no chance) to actually happen that way. In other words, the practical costs are far, far higher than has been scored because the sunsets don’t actually ever really sunset.
- The Medicaid provisions adjusted to get the needed votes included:
- An increase in federal payments to Alaska and Hawaii
- A $25 billion rural health fund
- A one-year delay in the phase-down of the provider taxes
- Even in these final amendment hours, some are pushing for additional cuts, while others are pushing for additional spending
- The Senate bill somehow managed to bring back the so-called PTET (“pass-through entity loophole”) for the SALT deduction that the House bill was going to get rid of. This allowed service businesses that were S-corps and LLCs to pay state taxes at the entity level and deduct the whole amount from federal income, a workaround for the cap on the SALT deduction.
Public Policy (other)
- The European Union announced today a general willingness to proceed with a 10% base tariff but is looking for exemptions on pharmaceuticals, semiconductors, aircraft, and alcohol. They are also looking for exemptions around the 25% auto tariff. Indications are that a general extension beyond President Trump’s alleged July 9 deadline will happen as a broad framework of a deal appears more likely.
- The Treasury Department announced a deal with the G7 countries that excludes U.S. companies from certain taxes in those countries in exchange for the U.S. removing the so-called “revenge tax” (section 899) from the new tax bill. This provision of the bill had been controversial and was challenging for certain multi-national companies, and the progress made last week by Secretary Bessent with the G7 rendered it obsolete, much to the relief of markets.
- Further, Canada agreed to drop its digital services tax on American tech companies in exchange for the U.S. resuming trade talks with China and avoiding tariff increases.
Economic Front
- I learned a long time ago not to do economics by anecdote. Even someone who travels as much as I do cannot decipher hard data from looking at lines at airports (though I would trust my instincts on these things more than I would trust most others). But TSA’s actual checkpoint data reflects the most U.S. travelers for a rolling seven-day period since COVID in recent weeks.
- Personal Income fell -0.4% in May, when a +0.3% increase had been expected
- The May PCE inflation report was up +0.1% on the month (headline) and +0.2% (core), and now sits at +2.3% year-over-year. Goods prices were dead flat year-over-year.
Housing & Mortgage
- Single-family home sales were down a stunning -13.7% in the month of May, and are down -6.3% versus a year ago. These year-over-year drops are all the more pronounced in that the number from a year ago was, itself, also down from the year before, and the year before. In other words, we are seeing year-over-year drops in activity that are compounding on each other now (in 2022 and into 2023 the numbers were down because the numbers of 2021 and early 2022 had been massive – so-called base effect; but then the numbers dropped, yet the next year dropped again, and again, and now again).
- Another thing I had not caught until the most recent report: While median sales prices have hung in there, the average size of homes sold has increased, meaning that the average “price per square foot” has actually declined year-over-year.
- I can’t focus on this data point enough: Just fifteen years ago (2010) 50% of home purchases were first-time homebuyers; today that number is 24%. It is stunning to even think about.
- National available housing inventory is still 300,000 less than it was in 2019, but it is up 21% year-over-year (albeit from a very low base number).
Federal Reserve
- We are sitting at a 19% chance of a rate cut at the July FOMC meeting, meaning an 81% chance of no change. The September meeting odds for a cut are now very near 100%
- The 2025 stress test results show that the 22 large banks subject to the test this year have sufficient capital to absorb more than $550 billion in losses and continue lending to households and businesses under hypothetical stressful conditions.
Oil and Energy
- WTI Crude closed at $65.08, down a tad on the day
- Oil prices were down -12.6% last week (as discussed in Dividend Cafe) as the U.S. strike on Iran did not result in escalating war-like tensions, as some had predicted, but rather a cease-fire that has held for now.
- MLPs were flat on the week, but the overall midstream sector was actually up +1.5% as LNG companies and midstream corporations did much better.
Ask TBG
| “The big argument about Federal Reserve independence is to keep politics out of Fed monetary policy decisions. It seems that there is some dissonance between actions taken by the Fed when Biden was president and now when Trump is president. Is Fed Chair Powell hurting the case for Fed independence because of the appearance that politics is influencing Fed decisions?” ~ Marty B. |
| What is likely meant in the question is that Chairman Powell cut rates in late 2024 and has not cut rates in 2025, yet. Some have suggested this is due to Chairman Powell trying to help the Democrats last year, and hurt President Trump this year. I’d prefer to take a more sober approach to answering this question. First of all, I am in disagreement with Chair Powell about not cutting rates in the last meeting or two, and while I do not believe it is politically motivated, per se, I believe it is a bad decision to stay in a tightening posture right now versus a more neutral one (i.e. something closer to 3% in the fed funds rate). So nothing I am about to say suggests agreement with Chairman Powell’s decision not to cut in 2025 thus far. Second of all, if there is “politics,” I think it can be called “reverse politics,” whereby the heavy pressure from the White House to force rate cuts has worked against the effort, as Powell has potentially resisted cutting rates to avoid looking like he is succumbing to pressure. So with both of those things said, the idea that Powell was trying to help the Democrats with rate policy before this year is just simply absurd. He hiked rates from 0% to 5.5% in one year in the middle of the Biden term, the most aggressive rate hikes in a timeline like that in modern history. If Powell’s version of playing politics with rate policy was 550bps of rate hikes, he’s not very good at it. |
On Deck
- The Wednesday client Weekly Portfolio Holdings Report will feature a full quarterly summary of portfolio activity (with a video)
- The Dividend Cafe will come on THURSDAY this week instead of Friday due to the Fourth of July holiday.
To all, a good night, especially my daughter, Sadie. Reach out with any questions, any time!
With regards,
David L. Bahnsen
Chief Investment Officer, Managing Partner
The Bahnsen Group
www.thebahnsengroup.com
The Dividend Cafe features research from S&P, Baird, Barclays, Goldman Sachs, and the IRN research platform of FactSet.
