Managing Alternative Assets in Today's Market Environment

Sean Gross, CFP®, AIF®

Co-Founder & CEO

Investors constantly face the challenge of maintaining long-term focus while navigating short-term market volatility. This challenge becomes particularly pronounced during periods of market rallies, when various asset classes capture headlines and create momentum that can tempt investors to abandon their strategic approach. Recent surges in digital currencies, industrial metals, and precious metals exemplify how market enthusiasm can create pressure to react impulsively.

Historical market cycles have consistently demonstrated that sustainable investment success requires discipline and diversification rather than speculation. Traditional asset classes like stocks and bonds remain portfolio cornerstones because they provide the risk-return characteristics necessary to achieve long-term financial objectives. Market euphoria, whether focused on technology stocks or digital assets, can reverse rapidly and unexpectedly.

The foundation of effective investing involves flexible portfolio construction that leverages diverse asset characteristics while maintaining alignment with long-term objectives. Success is measured not by whether a portfolio contains this week's trending investment, but by its ability to support retirement security, family financial needs, homeownership goals, or philanthropic aspirations.

Recent record highs in Bitcoin, copper price surges, and rallying precious metals present investors with complex allocation decisions. These movements reflect both broad market optimism and specific policy developments from Washington, along with increased institutional participation. The challenge lies in evaluating these assets through a portfolio lens rather than as isolated investment opportunities.

Digital currencies exhibit significant volatility characteristics

Bitcoin's recent surge coincides with Congressional consideration of multiple cryptocurrency regulations during what observers call "Crypto Week." The House of Representatives is examining the GENIUS Act for stablecoin regulation, the CLARITY Act for comprehensive digital currency frameworks, and the Anti-CBDC Surveillance State Act to prevent Federal Reserve digital currency creation.

Digital currencies attract attention through extreme price movements, institutional adoption, new investment vehicles like ETFs, and monetary policy concerns. These factors involve complex and speculative elements. For long-term investors, the critical question centers on whether cryptocurrencies can serve meaningful portfolio functions.

Bitcoin's portfolio appropriateness depends on individual goals and risk capacity. The reality involves price volatility multiple times greater than equity markets. The 2022 bear market illustrated this dynamic, with Bitcoin declining over 75% compared to approximately 25% for the S&P 500. This demonstrates how digital currencies can magnify portfolio risk during market stress periods. While Bitcoin subsequently rebounded more strongly, the chart illustrates similar performance patterns to the S&P 500 since 2018, despite different trajectories.

Important distinctions exist among cryptocurrencies regarding price behavior. Ethereum, another prominent digital currency, shows negative performance this year and has declined roughly 25% from December highs. Numerous other cryptocurrencies and "meme coins" have followed divergent paths. Careful portfolio context evaluation remains essential rather than reacting to media coverage.

Industrial metal performance reflects economic and policy dynamics

Copper's surge to record levels followed White House announcements of 50% import tariffs on this essential industrial metal.

As a critical component in construction, electrical infrastructure, electronics, and renewable energy development, copper serves vital economic functions. Market participants often reference copper as "Dr. Copper" due to its price movements potentially indicating broader economic trends.

Currently, the United States imports 45% of its copper consumption, primarily from Chile, Canada, Mexico, and Peru. Tariff policies may encourage domestic production over time while affecting short-term pricing and supply chain dynamics. China's significant copper consumption also creates sensitivity to global economic conditions and trade relationships.

For investors, distinguishing between dramatic price movements and portfolio fit remains crucial. Attempting to predict copper's next direction resembles forecasting precise economic and trade policy outcomes. Instead, focus should center on whether copper and similar assets enhance portfolio characteristics alongside other economically-sensitive holdings like equities.

Precious metals present unique portfolio considerations

Gold and silver have recently benefited from their traditional roles as potential hedges against currency volatility, inflation concerns, geopolitical tensions, and central bank purchasing activity. Theoretically, these metals can provide value storage during economic uncertainty, though they face limitations including the absence of income generation.

The accompanying chart demonstrates gold's performance during events like the global financial crisis. However, over extended periods, equity markets have surpassed gold performance despite recent rallies. During the 2010s, many anticipated continued gold appreciation amid low Federal Reserve interest rates. The failure of this expectation illustrates the difficulty and counterintuitive nature of predicting precious metal directions.

For long-term investors, portfolio alignment with financial objectives remains paramount. Assets including Bitcoin, copper, gold, and silver highlight both potential advantages and the necessity of thoughtful allocation decisions. These assets should enhance rather than substitute for diversified holdings in stocks, bonds, and other foundational asset classes.

The bottom line? While various assets gain attention through recent rallies, investors should resist chasing short-term performance. Understanding each asset's distinctive characteristics provides the optimal approach for aligning portfolios with long-term financial objectives.
 
Telos Wealth Management, LLC, is a registered investment adviser in the state of Washington. The Adviser may not transact business in states where it is not appropriately registered or exempt from registration. Individualized responses to persons that involve either the effecting of transactions in securities or the rendering of personalized investment advice for compensation will not be made without registration or exemption.

Guest Article: What prevents Trump from implementing the “Chainsaw” approach like Milei?

We are delighted to share, with permission, the following article from highly esteemed economist Daniel Lacalle, PhD.1

Why Can't Trump Apply the "Chainsaw" Like Milei? A Detailed Analysis

July 4, 2025

In recent months, many libertarians have criticised Donald Trump’s economic policies, arguing that he is not implementing drastic public spending cuts like Javier Milei has done in Argentina.

However, this comparison ignores key structural and contextual differences between the two countries and their governments. Below is a detailed explanation of why the situation in the United States under Trump is different from that of Argentina under Milei and why criticisms of Trump’s strategy are unfounded.

1. The Committed Budget: Biden’s Legacy

It is hard to understand why European libertarians fail to grasp such a basic concept as the “fiscal year”. The U.S. fiscal year begins on October 1, and the Biden administration took advantage of this to ramp up spending.

When Trump took office in January 2025, 97% of the federal budget for that year was already committed or spent. This was due to the Biden administration’s approval of several “Full Year Continuing Resolutions”, which left most funds and expenditures locked in for fiscal year 2025. Thus, Trump had no room to make immediate and drastic cuts, as most of the budget was untouchable until the next fiscal cycle.

Despite this, in 2025, discretionary spending reductions equivalent to $541 billion were carried out, and the accumulated deficit between April and May 2025 was 97% lower than in the same period of 2024.

2. Mandatory and Discretionary Spending

Mandatory spending (which includes programs like Social Security and Medicare) had already been increased by the Biden administration, and this increase took effect between February and December 2025. The U.S. fiscal year starts in October, and Biden implemented most of these increases through Continuing Resolutions (CRs) and the extension of existing programs, consolidating and, in many cases, increasing federal spending in key areas.

These resolutions included over $100 billion in funds for federal disaster assistance programmes, $29 billion for FEMA’s Disaster Relief Fund, and $10 billion in economic assistance for agricultural producers.

At the end of 2024, Biden approved a $54 billion (8%) increase in major mandatory spending programmes such as Social Security, Medicare, and Medicaid, as well as the extension of Obamacare, all applicable to 2025.

The Environmental Protection Agency (EPA) budget grew by $21 billion (700%), and the Trump administration was only able to act on $14 billion that was discretionary.

It is essential to remember that Biden did all this without a new budget law, simply by maintaining and extending existing allocations.

Biden’s proposed 2025 budget included additional increases, but these were blocked because they did not receive congressional approval.

Trump needs congressional approval to reverse these increases and reduce spending. That is what the “Big Beautiful Bill” includes. On the other hand, discretionary spending, especially in defence, was also committed, further limiting the new government’s immediate room for action.

The Big Beautiful Bill includes the first reduction in mandatory spending in the last sixty years—$1.6 trillion—and $2.4 trillion in discretionary spending.

3. Initial Fiscal Results

Despite these restrictions, the Trump administration achieved certain advances: in April, the second-largest fiscal surplus in history was recorded, and although a deficit reappeared in May, the deficit between March and May has been slashed compared to 2024. This indicates that measures were already being taken to improve the fiscal situation, mainly through higher revenues from trade agreements and private sector growth.

4. The “Big Beautiful Bill” and Deficit Reduction

It is astonishing that some libertarians and Austrians criticise the Big Beautiful Bill by buying into the Keynesian narrative that there will be no improvement in revenues, growth, employment, or investment from deregulation, trade agreements, and tax cuts.

That some libertarians deny the Laffer curve and the boost from deregulation surprises me. The Big Beautiful Bill incorporates $7 trillion in committed investments from trade negotiations, which also attract $4 trillion in tax revenues over the legislative period and a stimulus effect on the economy that results in an increase in tax revenues in the baseline scenario of $1.2 trillion.

Contrary to what some critics claim, the “Big Beautiful Bill” will not increase the deficit but will significantly reduce it.

A reduction of $1.6 trillion in mandatory spending and $2.4 trillion in discretionary spending is expected between 2026 and 2027. Additionally, an increase in tax revenues is anticipated thanks to deregulation, tax cuts, and new trade agreements, which will strengthen economic growth and employment.

We liberals, libertarians, and Austrians should be less critical of the greatest effort in reducing the State, liberalisation, deregulation, spending cuts, and tax reduction since 1990, but above all, some should not buy into the narrative that denies the positive effect on revenues and growth from deregulation, tax cuts, and trade negotiations.

5. Comparison with Milei: Similarities and Differences

Milei was able to implement immediate cuts because he inherited an open budget and extremely high inflation, which allowed him to reduce public spending in real terms by not adjusting it for inflation. Argentina’s budget does not include the provisions that the Biden administration incorporated, so President Milei was able to carry out a 30% reduction in public spending immediately and with unquestionable success, especially by eliminating subsidies, public works, and non-automatic transfers.

In contrast, Trump inherited a budget that was already committed and much lower inflation (less than 2.5%), limiting the impact of not adjusting spending for inflation.

If we compare both administrations, a very similar effort has been made. Trump has reduced public spending by 5% in the first quarter, and savings exceed $540 billion. By the end of his term, President Trump will have carried out a reduction in public spending equivalent to Milei’s.

Both leaders have promoted policies of tax reduction, deregulation, and the promotion of investment and employment. However, Trump’s tools and room for manoeuvre have been conditioned by the U.S. institutional structure and the decisions of the previous administration.

6. Conclusion

The policies of Trump and Milei share the goal of reducing public spending, fostering growth, and improving employment, but the starting circumstances are radically different. Criticising Trump for not applying an immediate “chainsaw” ignores the budgetary and legal constraints he faces in the United States. What matters is recognising that, within his constraints, Trump is implementing historic cuts and pro-growth policies that will positively impact the U.S. economy in the medium term.

My messages to those who attack the Trump administration for not being liberal enough are as follows:

• Name a single U.S. administration that has successfully implemented a comparable approach to deregulation, tax cuts, and spending reduction while also passing a significant reduction in mandatory spending through both Congress and the Senate.
• Buying into the Keynesian estimates of fiscal impact is curious. Denying the positive impact of reducing imports, increasing exports, and collecting more from trade agreements is surprising. Denying the economic and fiscal boost from deregulation and tax cuts is unforgivable.

1Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Author of bestsellers "Life In The Financial Markets" and "The Energy World Is Flat" as well as "Escape From the Central Bank Trap". Daniel Lacalle (Madrid, 1967). PhD Economist and Fund Manager. Frequent collaborator with CNBC, Bloomberg, CNN, Hedgeye, Epoch Times, Mises Institute, BBN Times, Wall Street Journal, El Español, A3 Media and 13TV. Holds the CIIA (Certified International Investment Analyst) and masters in Economic Investigation and IESE.

What the "One Big Beautiful Bill" Means for Investors

Sean Gross, CFP®, AIF® | Co-Founder & CEO

After months of negotiations, a new tax and spending bill was approved by Congress and signed into law by President Trump on July 4. This new budget is far-reaching, including making many parts of the Tax Cuts and Jobs Act permanent, raising state and local tax exemptions, extending the estate tax limits, and much more. It attempts to offset some of these provisions with spending cuts in key areas such as Medicaid.

This bill matters because, while trade policy has been at the forefront over the past several months, tax and spending policy in Washington has been a growing source of uncertainty for many years. While there is political disagreement with the direction of this new budget, it does take the possibility of a “tax cliff” off the table - a situation where tax policy could have changed dramatically if provisions expired at the end of this year.

On an individual level, taxes directly affect many aspects of financial planning, and the specific provisions in this tax bill have immediate implications for household finances. From an economic perspective, many investors also worry about the level of government spending, the growing national debt, and other factors that have weighed on markets over the past two decades.

Thus, there are many angles from which to view the recently passed budget. What do investors need to know when it comes to their own financial plans and what it means for markets in the years to come?

The Tax Cuts and Jobs Act rates are now permanent

The new tax bill, dubbed the “One Big Beautiful Bill” by the administration, extends and expands several key aspects from the 2017 Tax Cuts and Jobs Act (TCJA) that were set to expire. It also introduces new measures that provide other benefits to taxpayers, which are only partially offset by spending cuts in other areas. Here are just some of the major provisions that may affect households:

• Current TCJA tax rates and brackets are now permanent. They were originally set to expire at the end of 2025.   
•  The standard deduction increases to $15,750 for single filers and $31,500 for joint filers in 2025.
• There is an additional $6,000 deduction for qualifying seniors (sometimes referred to as a “senior bonus”) that phases out for gross incomes exceeding $75,000. The provision expires in 2028.
• The alternative minimum tax exemption is now permanent. It also increases phaseout thresholds to $500,000 for single filers, which will be indexed for inflation in the future.
• The child tax credit rises from $2,000 to $2,200 per child, with future adjustments indexed to inflation to maintain purchasing power over time.
• The state and local tax (SALT) deduction cap increases to $40,000 from a $10,000 limit with annual increases of 1% through 2029. It is then scheduled to revert to $10,000 in 2030.
• A deduction for tip income capped at $25,000 annually for workers earning less than $150,000, effective through 2028.
• Some green energy tax credits are repealed, including electric vehicles and residential energy efficiency credits.
• The federal debt limit increases by $5 trillion. This will prevent Congress from having to debate and approve debt limit increases for some time, reducing political uncertainty.
• For businesses, the bill expands tax breaks designed to encourage domestic investment and job creation.

These and many other changes maintain the relatively low tax environment that has characterized the past several decades. As the accompanying chart shows, current tax rates remain well below the peaks experienced during much of the 20th century, when top marginal rates exceeded 70% and sometimes reached above 90% during wartime periods.

Growing concerns over fiscal deficits

Tax policy and government deficits are two sides of the same coin. This is because tax cuts reduce government revenues which then need to be offset by either lower spending or increased borrowing. However, most government spending is for entitlement and defense programs which are politically difficult to change. According to the Department of the Treasury, in 2025 21% of government spending is for Social Security, 14% for Medicare, 13% is for National Defense, and 14% is to pay interest costs on the existing national debt.

It's no surprise then that government borrowing has increased persistently over the past century and will likely continue to do so. The Congressional Budget Office (CBO), a non-partisan agency that supports Congress, estimates that this new tax and spending bill will add $3.4 trillion to the national debt over the next decade. This is against the backdrop of a federal debt that already exceeds 120% of GDP, or $36.2 trillion, which amounts to about $106,000 per American. However, it should be noted that the CBO has a well-documented history of issuing wildly inaccurate forecasts which tend to overestimate the cost of tax cuts and underestimate the cost of spending programs.1

Unfortunately, there are no easy solutions to this challenge, especially because this is a contentious political topic. On the one hand, tax cuts can stimulate economic growth, which may help to offset revenue losses through increased economic activity. On the other hand, Washington has a poor track record of balancing budgets even when the economy is strong. The last balanced budgets occurred 25 years ago during the Clinton years, and 56 years before that during the Johnson administration.

It’s also important to remember that there has not always been an income tax in the United States. The modern income tax system began with the 16th Amendment in 1913 which applied modest rates to relatively few Americans. The system expanded dramatically during the Great Depression and World War II, with top rates reaching 94% by 1944. The post-war period brought various reforms, including President Reagan’s Tax Reform Act of 1986 that simplified the tax code and lowered rates.

The situation has changed significantly in the intervening years. As the accompanying chart above shows, individual income taxes now represent the primary source of federal revenue. Social insurance taxes, also known as payroll taxes, are withheld from wages and help to pay for Social Security, Medicare, unemployment insurance, and other programs. Other sources of revenue are much smaller in proportion and include corporate taxes, which were reduced by the TCJA, and excise taxes, such as tariffs.

For investors, tax policies can certainly have direct implications on financial plans and portfolios. From a macroeconomic perspective, however, fiscal implications have more limited effects. Over longer periods, higher debt levels can influence interest rates and inflation expectations. While these factors have been relatively high in recent years, many of the worst-case scenarios have not yet occurred. The key for long-term investors is to maintain flexible, diversified portfolios that can perform across different fiscal and economic environments, rather than reacting to policy changes alone.

The bill continues the higher estate tax exemption limit

One set of provisions that would have been at the center of a tax cliff is the estate tax exemption. The TCJA doubled these limits which were scheduled to revert to previous levels this year. However, the passage of the new tax bill makes these higher exemptions permanent, further increasing the threshold to $15 million for individuals and $30 million for couples in 2026.

While it may seem like estate taxes only apply to higher net worth households, the reality is that all families must consider how assets can be passed to future generations. This requires a holistic approach that integrates estate planning, tax efficiency, philanthropy, and long-term family wealth preservation goals. It’s also important to keep in mind that individual states can also impose estate taxes with exemption thresholds that are less favorable than the federal level.

The bottom line? The new spending and tax bill extends and expands the current low-tax environment. For investors, a properly constructed financial plan should be designed or updated with these tax provisions in mind. When it comes to the possibility of growing deficits and the national debt, only time will tell if the CBO estimates are as inaccurate as they have been in the past.

---

1 Dublois, H., & Carlsen, T. (2024, August 19). Scoring CBO’s Scores: Ten of the Worst CBO Blunders of the  21st Century So Far. Foundation for Government Accountability™. https://thefga.org/research/scoring-  cbos-scores-ten-of-the-worst-cbo-blunders/

Quarterly Market Update for Q2 2025: Tariffs, Geopolitics, and All-Time Highs

Sean Gross, CFP®, AIF® | Co-Founder & CEO

Market Environment Indicator (MEI): The MEI remains Positive, with the weight of evidence continuing to suggest favorable conditions for stocks.

The second quarter of 2025 showcased both the resilience of financial markets and their sensitivity to policy uncertainty. From the White House's tariff announcements in April to escalating tensions between Israel and Iran in June, investors faced many challenges. Yet, the stock market went on to stage one of the fastest rebounds in history and finished the quarter at new all-time highs.

Overall, it was a strong quarter for stocks, while bonds also delivered positive outcomes. For long-term investors, these events are a reminder that while headlines can drive short-term swings, maintaining perspective and staying focused on fundamental trends remains the key to achieving financial goals.

Key Market and Economic Drivers in Q2

• The S&P 500 and the Nasdaq both ended the quarter at record highs, gaining 10.6% and 17.7% over the three months, respectively. The Dow Jones Industrial Average rose 5.0% and is 2% below its record level.
• The Bloomberg U.S. Aggregate Bond Index gained 1.2% in the second quarter. The 10-year Treasury yield ended the quarter at 4.2% after reaching as high as 4.6% in May.
• Developed market international stocks (MSCI EAFE) rose 10.6% and emerging market stocks (MSCI EM) increased 11.0% in the quarter.
• Gold rallied to a new record level of $3,431 per ounce, before settling at $3,308 to end the quarter.
• Bitcoin reached a high of $111,092 in May and hovered around $107,000 at the end of June.
• The U.S. Dollar Index continued to fall over the quarter, ending the quarter at 96.88. It started the year at 108.49.
• The Consumer Price Index rose 2.4% year-over-year in May, while core inflation, which excludes food and energy, came in at 2.8%.
• The University of Michigan Consumer Sentiment Index improved in May to 60.7, its first increase in six months. Consumers expect an inflation rate of 5.0% over the next year, down from 6.6% in the previous survey.
• At its June meeting, the Federal Reserve kept rates unchanged within a range of 4.25 to 4.5%.

Markets rebounded to new all-time highs

Despite significant volatility, the stock market recovered quickly once the worst-case scenarios for tariffs and geopolitical tensions did not materialize. The quarter began with heightened uncertainty following the announcement of new tariffs on April 2, which were more far-reaching than many investors had anticipated. However, as the administration engaged in negotiations and reached preliminary trade agreements with several partners, market sentiment improved. The Middle East conflict created a similar outcome, although markets were broadly resilient and went on to new highs after the ceasefire between Israel and Iran was announced. 

The equity market rebound was widespread, with many sectors, styles, and regions delivering positive outcomes. International stocks continue to lead the way in 2025, especially with the dollar weakening. Small cap stocks have lagged other parts of the market due to their greater sensitivity to tariffs and domestic trends, and the Russell 2000 index is still down -2.5% this year.

At a sector level within the S&P 500, Information Technology stocks experienced a strong recovery and contributed to new market highs. Many other sectors are supporting markets too, including Industrials which are now up 11.4% on the year, Communications which have gained 10.2%, and Financials up 7.5%. On the other end, Healthcare and Energy saw weakness.

Bond markets are also quietly contributing to portfolio outcomes, with relatively strong yields and falling credit spreads contributing during the quarter. Treasury securities and corporate bonds also experienced volatility during the tariff-induced drawdown, although the quarter ended in positive territory.

The dollar continued to weaken

The U.S. dollar weakened through the second quarter despite tariff pressures. While a weaker dollar can be negative for consumers, it can be positive for U.S. businesses and exporters, since it becomes cheaper for those using foreign currencies to buy our goods. While the dollar has declined this year and is near the low end of its range since 2022, its value is still high compared to the past decade.

When it comes to monetary policy, the Federal Reserve held interest rates steady at 4.25% to 4.5% throughout the quarter, reflecting a measured approach to monetary policy in an evolving economic environment. Fed Chair Jerome Powell emphasized the Fed’s focus on price stability even as other factors complicate the economic outlook.

Specifically, the Fed's updated economic projections reveal the challenges policymakers face. Officials now expect inflation to reach 3% in 2025 before moderating to 2.1% by 2027, marking an upward revision from earlier forecasts. They also expect real GDP growth to slow this year to 1.4%, a downgrade from a 1.7% projection in March. These adjustments reflect concerns that tariffs could spur inflation and slow growth.

The conflict between Israel and Iran added another layer of complexity to an already challenging environment. Israeli strikes on Iranian nuclear facilities and military targets beginning June 13 created immediate concerns about regional stability and potential escalation. However, the two countries agreed to a ceasefire after 12 days of fighting.

Bonds helped to provide portfolio balance

While the stock market has ended the quarter at new all-time highs, the decline and rebound was challenging for many investors. Fortunately, bonds helped to support balanced portfolios during the quarter. High yield, corporate, and Treasury bonds all provided balance and are positive year-to-date. Interest rates have remained higher than many had expected, and short-lived concerns in April about a flight from U.S. Treasury securities did not occur.

Budget discussions in Washington have brought renewed attention to America's fiscal trajectory. The national debt now exceeds $36 trillion, or approximately $106,000 per American. According to the Congressional Budget Office, the latest budget proposal could add an estimated $3.3 trillion in deficits over the next decade. While the proposal includes spending reductions, these are outweighed by tax cuts and spending increases elsewhere.

Moody's downgraded the U.S. credit rating in May, citing concerns about successive administrations and Congress failing to address "large annual fiscal deficits and growing interest costs." This echoes similar challenges raised during previous budget standoffs in 2011, 2013, and from 2018 to 2019. However, in each instance, agreements were eventually reached, markets stabilized, and economic growth resumed.

For long-term investors, these fiscal debates underscore the importance of maintaining flexible, diversified portfolios that can weather various policy outcomes. While deficit levels deserve attention, history suggests that the U.S. economy's fundamental strengths and adaptability remain intact.

The bottom line? The second quarter demonstrated both market volatility and resilience as investors navigated policy changes and global tensions. For investors, maintaining perspective and focusing on long-term outcomes remains the most effective way to achieve long-term goals.

Monthly Market Update for May 2025: A Positive Month Despite U.S. Debt Downgrade

Sean Gross, CFP®, AIF® | Co-Founder & CEO

Financial markets rebounded in May with the S&P 500 recovering its year-to-date losses. This positive month occurred against a backdrop of new trade agreements, mixed economic signals, and ongoing concerns about U.S. fiscal health. While many reports continued to show that the economy is strong, consumers remained pessimistic about the future. Treasury yields fluctuated throughout the month due to concerns around federal spending and debt. For long-term investors, May serves as a reminder that markets can adapt to changing conditions, even when there is significant uncertainty around economic and fiscal policy.

Key Market and Economic Drivers¹

• The S&P 500 gained 6.2% in May, its best month since 2023, the Dow Jones Industrial Average was up 3.9%, and the Nasdaq rose 9.6%. Year-to-date, the S&P 500 is up 0.5%, the Dow is down 0.6%, and the Nasdaq is down 1.0%.
• The Bloomberg U.S. Aggregate Bond index declined 0.7% in May but is up 2.4% year-to-date. The 10-year Treasury yield ended the month at 4.4%.
• International stocks also performed well with the MSCI EAFE index of developed markets and the MSCI EM index of emerging markets both climbing 4.0%.
• The U.S. dollar index fell further to end the month at 99.3, near a three-year low.
• Bitcoin hit a new record high of $111,092 before ending the month at $104,834.
• Gold also hit a new record high of $3,422 before closing the month at $3,288, a 24% year-to-date gain.
• The Consumer Price Index report released in May showed that consumer prices rose 2.3% in April from a year earlier, the lowest 12-month increase since February 2021.
• The economy added 177,000 new jobs in April while the unemployment rate remained low at 4.2%.

Markets continued to recover despite new concerns

May's market rebound underscores the importance of staying the course during periods of market volatility. After a challenging April, markets demonstrated resilience by recovering most of their losses and returning to positive territory in May. This illustrates how quickly market sentiment can shift when conditions begin to stabilize, a pattern that investors have experienced many times over the past decade. Of course, the past is no guarantee of the future, and markets will continue to worry about trade deals, the U.S. debt, and the health of the economy in the coming months.

Moody's downgraded the U.S. credit rating

One of the biggest surprises in May was Moody's downgrade of the U.S. credit rating from Aaa to Aa1. This followed previous downgrades by Fitch in 2023 and Standard & Poor's in 2011 which all reflect concerns about the nation's growing debt and spending. The accompanying chart shows that the U.S. total debt grew to 122% of GDP in 2024. Net debt, which excludes debt the government owes itself, has risen to 97%.

Despite the historic nature of the U.S. debt downgrade, markets hardly reacted. This is because the downgrade is mostly backward-looking, and investors are already familiar with the nation's fiscal challenges. The muted response also reflects lessons from the 2011 Standard & Poor’s downgrade, when Treasury securities continued to be viewed as safe haven assets.

Perhaps it was not a coincidence that this downgrade occurred as the House of Representatives was passing a comprehensive tax and spending bill. The approved bill would extend the individual tax cuts from the Tax Cuts and Jobs Act. This includes a 37% top rate, child tax credits, higher State and Local Tax deduction caps, and exemptions for tips and overtime pay, among other measures. According to the Penn Wharton Budget Model, the legislation could increase deficits by $2.8 trillion over the next 10 years.² The bill will now be debated and potentially modified in the Senate.

While many would agree that these fiscal challenges require long-term solutions, the U.S. dollar remains the world's primary reserve currency and there will continue to be demand for Treasurys for the foreseeable future.

Trade negotiations show progress

There was also progress on trade negotiations in May, taking many of the worst-case scenarios off the table. The administration reached agreements with both the U.K. and China, while negotiations continued with other major trading partners. The U.S.-China trade agreement included a 90-day period of reduced U.S. tariffs on Chinese goods.

Despite these deals, there will likely continue to be uncertainty around trade. More recently, China and the U.S. have both accused each other of violating the trade truce, and the administration wants higher tariffs on steel and aluminum. At the same time, negotiations with the European Union produced optimism when the White House delayed its scheduled 50% EU tariff after positive discussions. This suggests that diplomatic solutions remain possible, even when initial positions appear far apart.

The administration is also facing legal challenges to its tariffs. In May, the U.S. Court of International Trade struck down many of the newly enacted tariffs, ruling that they exceed presidential power under the International Economic Emergency Powers Act. While a federal appeals court paused the ruling, allowing tariffs to remain in place for now, this legal challenge adds another layer of uncertainty to the trade landscape.

It is important to remember that trade policy typically unfolds over months and years rather than days or weeks. The recovery in May is a reminder that investors should not overreact to trade headlines, especially now that the worst-case scenarios are less likely to occur.

Steady earnings growth supports market

First quarter corporate earnings reports presented another reason for optimism. S&P 500 companies delivered positive earnings per share surprises and 64% reported positive revenue surprises, according to FactSet.³ This strong earnings performance highlighted the underlying health of corporate profitability, with technology companies showing resilience as they navigate trade uncertainty.

In contrast, consumers have been pessimistic this year due to tariffs and inflation concerns. However, recent sentiment indicators began showing signs of improvement that align more closely with positive earnings and economic data. The University of Michigan's most recent survey for May showed inflation expectations decreasing slightly and sentiment stabilizing. While it's important not to read too much into a single month's data, this improvement represents an encouraging development. A strong economy and improving sentiment could help to support markets.

The bottom line? May was a positive month for investors. While the U.S. debt downgrade and fiscal concerns created new challenges, progress on trade deals helped to boost markets. For long-term investors, these developments underscore the importance of maintaining perspective and staying focused on fundamental trends rather than short-term policy headlines.

1Standard & Poor’s, Nasdaq, Bloomberg. All month end figures are as of May 30, 2025.

2https://budgetmodel.wharton.upenn.edu/issues/2025/5/23/house-reconciliation-bill-budget-economic-and-distributional-effects-may-22-2025

3FactSet Earnings Insight May 30, 2025

Telos Wealth Management, LLC, is a registered investment adviser in the state of Washington. The Adviser may not transact business in states where it is not appropriately registered or exempt from registration. Individualized responses to persons that involve either the effecting of transactions in securities or the rendering of personalized investment advice for compensation will not be made without registration or exemption.