Q2 Capital Market Highlights

“In the short run, the market is a voting machine, but in the long run it’s a weighing machine.” — Benjamin Graham

Q2 Market— A wild ride so far, no matter how you tell it

It’s been an eventful year thus far, marked by headlines and short-term sentiment—lots of voting without much weighing. If you only tuned in at the halfway mark of 2025, you’d see that the widely followed S&P 500 had a total return of just over 6% from January through June. On its own, a slightly better pace than the 10% annualized return the U.S. markets have enjoyed on average over the past century.

But that tells so little of the real story. To quote Charles Dickens in reverse, the second quarter was “the worst of times, it was the best of times.” Foreign stocks led, until they no longer did. Stocks were strong, and then they weren’t anymore. Tariffs were going to end global trade as we knew it; then, well, you know what happened—they didn’t seem to be doing so anymore. So, the midyear snapshot says “quiet strength,” but the path to get here was rather noisy and dramatic along the way.

While stocks cycled from excitement to despair to doubt and finally belief, the US Dollar took a more direct path from bulletproof to easy target.

Amidst the worries about the impact of changing policy on the dollar, other currencies and quasi-currencies took turns capturing dollar outflows. At times, it was the Euro, Gold, and Bitcoin seeing prices appreciate through the rotation out of the US Dollar.

As shared in recent pieces, we see the opportunity in Bitcoin, and increased our allocations a little higher earlier this year. Our conviction is tempered by its price swings in times of volatility. A typical trait for an emerging investment like this, but a major factor in appropriately sizing an allocation. As an example, our Balanced model has kept our allocation to just under 1% of the model as a whole.

We remain confident in the long-term opportunity and finite supply, while adding what we think is a layer of diversified purchasing power against endless government spending.

Q2 Actions— Intentional Commitment to the Long-term

We had no major changes to model allocations in the quarter. While there was a window in which more growth with less defense was becoming a consideration, the opening became a challenging one when stocks rallied 10% in just under 30 minutes on April 9. That took place in the middle of our standing Investment Committee meeting and will not be soon forgotten for its re-time impact on our discussion. The reward-to-risk opportunity passed too quickly for us to prudently act. As we are learning again and again, our portfolios are constructed in a way that meets a high standard for long-term growth, married to a short-term defensive resiliency.

Tax Changes— A Closer Look

The budget and tax debate was robust to say the least. Our take is that the tax changes are largely favorable. Coverage of the full bill warrants its own piece, but here is a good summary of key updates for taxpayers:

Q3 Outlook—

With U.S. consumers (and businesses) generally in good shape, there are three key areas on our minds as we look to the rest of the year:

• Tariffs
• Earnings
• Rates

Tariffs— clarity here will be our friend

Despite how much we may all want to, we still can’t seem to escape this topic. It’s complex, and by no means final at this time. But investors have now generally discounted the news, even with what looks to be a sharp rise in overall tariff rates.

Someone must ultimately pay the tariff cost, in some combination of producers, wholesalers, and consumers. We can’t fully forecast the impact, but markets have generally accepted that tariffs are coming and they will indeed hit different industries in various ways.

As you’ve likely seen, the April tariffs were pushed out to July 9. And as of this week, it has been delayed once again to August 1st. In the meantime, $20-30 billion in tariffs are being collected every month across a number of industries. Any sort of “final” tariff rates will be welcomed by the markets as they are unveiled. Like many, we find it difficult to really know how long all of this will take to work itself out.

Corporate Profits— amidst all the market drama, earnings should remain center stage

We’re just starting an important earnings season, one that should reveal how well companies are adjusting to the new normal. Q1 earnings were a major help in reminding investors that US companies are strong and adapting quickly to the uncertainty around trade. To this point, the appetite to invest in artificial intelligence (AI) shows no sign of slowing down, providing a tailwind to earnings in industries from technology to financial services and beyond.

There have been some estimated cuts during the tariff period, but US companies have also learned to under promise and so somehow, still deliver. Judging from recent history, 4% growth may prove to be a low target. And 2026 earnings will soon become the numbers to watch, with double-digit growth expected.

Rates— and the debate on when they will come down

Federal Reserve policy has moved from a market issue to a political one. After hiking rates sharply in the 2022-23 cycle, the Federal Open Market Committee (FOMC) took back three of the hikes but has been holding steady since December.

President Trump has been very vocal in his belief that rates should be much lower, but the FOMC has ignored those calls, and markets are currently expecting just two small rate cuts before the end of 2025.

The next meeting is July 30th. Although no action is expected, the release of the minutes may be enlightening to see if the range of opinions has expanded across the committee.

Chairman Powell’s term ends in May 2026. He’s had good support within the FOMC, but as the end of his term approaches, the focus may shift to what the market believes will be done by the next Chairman. As we know, the administration would like to accomplish two things with lower rates:

• Reduce government interest expense
• Stimulate housing activity

Borrowing money is becoming a growing burden for the US government, with no end in sight to the need, given spending forecasts.
And everyone knows the difference between a 3% mortgage and a 7% mortgage. Many prospective buyers are locked out due to cost, and many prospective sellers are reluctant to give up their well-timed, cheap mortgages. It’s a stalemate that may not go away even if (short-term) rates are cut, but it hasn’t impacted the overall economy to date.

Conclusion— and some healthy historical perspective
After the sharp tariff tantrum and recovery, we remain confident in the positioning of both our growth and defensive sleeves, and the balance between the two. The February-April selloff was a reminder of the benefit of the defensive sleeve as well as our intentional use of international exposures to offset the concentrated downside of US markets in that period.

Just as market lows can trigger fear for some and opportunity for others, market highs can do the same. We understand the emotions, but encourage you to join us as we carefully consider the facts. We found the chart below to be helpful on this front.

We’ll continue to monitor conditions and remain vigilant on your behalf. As always, we appreciate your continued trust and welcome your questions as you digest this content, as well as ongoing headlines.

*The views expressed represent the opinions of Compass Ion Advisors, LLC, as of the date noted and are subject to change. These views are not intended as a forecast, a guarantee of future results, an investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial, or legal advice or service to any person. The information contained has been compiled from sources deemed reliable, yet accuracy is not guaranteed.

Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website here. Past performance is not a guarantee of future results.