The stock market is a device for transferring money from the impatient to the patient
Warren Buffet
It seems we’ve come full circle. Markets initially recoiled at the uncertainty surrounding the “Liberation Day” tariffs, which sparked fears of rising inflation and supply chain disruptions. As the quarter progressed, however, sentiment began to stabilize. President Trump walked back several of his most aggressive tariff threats, major trading partners held off on retaliatory measures, and the underlying strength of the U.S. economy offered reassurance. The result was a recalibration of expectations and a strong market rebound.
The S&P 500 rose 10.9% during the quarter, bringing its year-to-date gain to 6.2%. International equities fared even better, with the MSCI World ex US Index rising 12.3% for the quarter and 19.5% for the year, aided by strong European growth and a weakening U.S. dollar. Bonds also posted positive results, with the Bloomberg U.S. Aggregate Bond Index up 1.2% for the quarter and 4% for the year.
Despite the recent rally, the story of tariffs is far from over. Earlier this year, American businesses rushed to import goods ahead of new tariffs. Those inventories are now mostly depleted, forcing firms back to the import market just as tariffs have come into effect. This leaves companies with an uncomfortable choice: absorb the higher costs or pass them on to consumers. Thus far, many have opted to shoulder the burden, wary of political backlash and hopeful that tensions will eventually ease.
Complicating matters, President Trump has broadened his tariff agenda, invoking trade as a tool not just for economic rebalancing but also to pressure foreign governments on a wide range of issues. Amid this volatile backdrop, the patient, diversified investor has been rewarded. Those who resisted the temptation to chase headlines and instead maintained disciplined exposure to key long-term themes such as international equities and alternative strategies have fared well.
The Big Beautiful Bill and Rising Deficit Concerns
Congress recently passed the “Big Beautiful Bill,” extending tax cuts from the Tax Cuts and Jobs Act of 2017. While this legislation has been well received by markets, it also presents longer-term fiscal challenges. The bill adds trillions in new borrowing, with projections showing the budget deficit remaining at crisis levels of around 7% of GDP. Historically, such high deficits are rare outside recessionary periods, and persistently elevated borrowing risks eroding fiscal stability, leading to higher interest rates.
While deficits can be sustained for long periods, they carry costs. Interest payments to service the federal debt now exceed the entire defense budget for the US military. As borrowing expands, the Treasury will need to issue ever-larger volumes of debt, and the willingness of global investors to absorb this supply at low yields has its limits.
Markets have thus far responded to these developments with remarkable tolerance. Yields remain anchored in a range that, while higher than pre-pandemic levels, is still historically moderate. However, we believe this period of complacency won’t last forever. Sustained deficits amid a tightening labor market and the lingering potential for inflation leave policymakers with less room to maneuver in the event of a downturn. For investors, this is a reminder of the importance of diversification and the potential role of alternatives and international exposures as partial buffers against fiscal and currency risks.
The Long-Term Outlook for the Dollar
One of the most significant undercurrents this year has been the weakening of the U.S. dollar. After years of dominance, the dollar has recently declined by double digits due to structural shifts in the global monetary system.
Multiple converging factors are affecting the dollar: rival economic blocs are increasingly seeking alternatives to dollar settlement; and central banks are diversifying currency reserves. Although the dollar remains the preeminent reserve currency and is likely to do so for years, its share of global transactions is gradually slipping. A slow decline in dollar dominance carries multiple implications. Over time, it could translate into higher borrowing costs for the United States and increased volatility in US markets.
For investors with portfolios anchored exclusively in U.S. assets, these shifts represent both a risk and an opportunity. On the one hand, dollar weakness can erode purchasing power and reduce real returns. On the other, it provides a tailwind for international investments, which have lagged the U.S. for much of the past decade and provide an attractive entry point. A more balanced allocation, one that includes non-dollar assets, can help reduce risk and position portfolios to benefit from changing capital flows.
Looking Ahead
This quarter has shown how quickly sentiment can change. Just a few months ago, aggressive tariffs were poised to derail the bull market. Instead, markets have once again demonstrated that long-term optimism can coexist with near-term uncertainty.
We continue to believe that diversification and an openness to global opportunities are the best solutions to today’s uncertainty. While no strategy can insulate portfolios from every shock, a balanced approach remains the most reliable path to sustainable growth. Periods of volatility can tempt even seasoned investors to abandon discipline in favor of short-term impulses. History teaches that patience and adherence to a well-crafted plan are often the most powerful advantages.
As always, we are here to help you navigate these complexities thoughtfully. Should you wish to discuss your plan or review your allocation in light of recent developments, please do not hesitate to reach out.
Thank you for your continued trust.
Razmig Der-Tavitian, CFA, CAIA
Chief Investment Officer & Managing Partner
Evolve Private Wealth
Please let your financial advisor know if there have been any changes to your financial situation.
Evolve Private Wealth, LLC (“Evolve”) is a Registered Investment Adviser. The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. This content is intended to provide general information about Evolve. It is not intended to offer or deliver investment advice in any way. Advisory services are only offered to clients or prospective clients where Evolve and its representatives are properly licensed or exempt from licensure. Information regarding investment services are provided solely to gain an understanding of our investment philosophy, our strategies and to be able to contact us for further information. All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such. The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
