Ducks on water

If you ever watch ducks floating in a pond it looks like they are doing just that – floating.  In reality, their little webbed feet could be churning like crazy under the water.  You simply can’t tell from looking at them.  Similarly, the US economy seems to be gliding peacefully along this year, hitting fresh stock market highs for the S&P 500 and NASDAQ indices this week.  It appears effortless!  

Underneath the surface, the US consumer continues to power this economy forward.  We continue to spend money.  We continue to travel, both domestically and abroad.  The unemployment rate is steady at 4.1%, where it has been pretty much since May of 2024.  The Federal Reserve Board hasn’t changed interest rates since September 2024, when it dropped the rate by 0.50%.  That fact has created some political headlines but it signals that the Fed is confident that the economy is strong.  The Fed maintains that lowering rates could reignite inflation, which is fairly steady at 2.7%.  Their goal is an inflation target rate of 2.0%.

There may be some dangers lurking under the waters, though.  The fear of tariffs triggering inflation has not yet come to pass, but taxes and tariffs don’t have an immediate impact, and the ‘due date’ for tariffs has become a moving target.  There are wars on multiple continents, which could potentially disrupt supply lines and impact alliances.  And then there are those two big technology-based factors that seem to influence everything, yet seem to be basically invisible to most of us – AI and cryptocurrency.  They offer the promise of increased productivity on the one hand and an unbound system of financial efficiency on the other.  Yet, they have a combined thirst for energy that is forcing us to rethink and rebuild the power grid.    

We hold firm in our belief that diversification is the best strategy to mitigate risk in the markets.  Gold continues to outperform.  Small and Mid-Cap stocks, as measured by the Russell 2000 index, seem to have found some footing with robust returns this past quarter.  International stocks outperformed domestic stocks for the trailing 3-month, 6-month and 12-month periods.  The bond markets are providing steady growth along with their relative stability compared to stocks.

 ^{*The index returns are drawn from Morningstar Advisor Workstation.  Indexes are unmanaged and cannot be invested in directly by investors.  MSCI EAFE NR USD-This Europe, Australasia, and Far East index is a market-capitalization-weighted index of 21 non-U.S., industrialized country indexes.  S&P 500 TR USD – A market capitalization-weighted index composed of the 500 most widely held stocks whose assets and/or revenues are based in the US; it’s often used as a proxy for the stock market. TR (Total Return) indexes include daily reinvestment of dividends. Bloomberg US Agg Bond TR USD This index is composed of the BarCap Government/Credit Index, the Mortgage Backed Securities Index, and the Asset-Backed Securities Index. The returns we publish for the index are total returns, which includes the daily reinvestment of dividends. The constituents displayed for this index are from the following proxy: iShares Core US Aggregate Bond ETF. MSCI Emerging Markets IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. Russell 2000 – Consists of the smallest 2000 companies in the Russell 3000 Index, representing approximately 7% of the Russell 3000 total market capitalization. The returns we publish for the index are total returns, which include reinvestment of dividends.  The MSCI Emerging Markets (EM) IndexSM is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. As of May 2005 the MSCI Emerging Markets Index consisted of the following 26 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Hungary, India, Indonesia, Israel, Jordan, Korea, Malaysia, Mexico, Morocco, Pakistan, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, Turkey and Venezuela.. The FTSE NAREIT Equity REITs Index is an index of publicly traded REITs that own commercial property. All tax-qualifies REITs with common shares traded on the NYSE, AMSE or NASDAQ National Market List will be eligible. Additionally, each company must be valued at more than $100MM USD at the date of the annual review. Equity REITs include Diversified, Health Care, Self Storage, Industrial/Office, Residential, Retail, Lodging/Resorts and Specialty. They do not include Hybrid REITs, Mortgage Home Financing or Mortgage Commercial Financing REITs. Bloomberg Sub Gold TR USD Description unavailable. Formerly known as Dow Jones-UBS Gold Subindex (DJUBSGC), the index is a commodity group sub-index of the Bloomberg CI composed of futures contracts on Gold. It reflects the return of underlying commodity futures price movements only and is quoted in USD.}