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“May you live in interesting times.”
In researching the above phrase’s origins, one scholarly interpretation is a Chinese curse, and another asserts English roots with more genuine wishes for varied experiences and travels. Irrespective of the phrase’s etymology, and no matter where one sits on the political spectrum, this year’s first half has been interesting, to say the least. A new domestic administration, changes in Congress, global conflicts, tariff announcements and retracements, a surge in corporate deal activity and bursts of significant capital market volatility surrounded the year’s first six months. Markets have tested investors throughout 2025, not just with respect to their risk tolerance with a February 19 U.S. equity market all-time high to a nearly 20% drop only 48 calendar days later, but also with respect to diversification within their portfolio. Those investors narrowly allocated to domestic large-capitalization stocks, which had been significant winners the prior two calendar years, felt much of the equity market drawdown relative to others who held international stocks, diversified bond exposures and real assets.
We retain a glass half-full forward perspective for investors. At the time of this writing, while we are close to or above all-time high prices in major market indices (the MSCI All Country World Stock Index reclaimed record highs in June after its February swoon), we continue to encourage investors to broaden out their portfolio exposures. The economic factors we track, ranging from consumer delinquencies to employment data to credit card swipes and airport travel, point in aggregate to a consumer and business climate demonstrating a measured slowdown but within expectations. Considerable policy uncertainty, including tariffs, interest rate decisions, regulatory measures and other factors coupled with geopolitical tensions offer several potential outcomes. A portfolio offering multiple income and return sources, combining, where appropriate, public and private market assets and retaining a global view will help patient investors endure what may be more interesting times ahead.
Our team remains committed to a data-driven, apolitical and team-based approach. We like to say that we are in the “working thesis” business, considering many scenarios and angles to help inform decisioning with our clients’ best interests in mind. What follows is our team’s current thoughts across asset classes and geographies. While the below represents our current thinking, our research output is considerably more detailed and, as always, whatever we can delve deeper into on your behalf, that is what we are here for. Our best to you and yours as we embark on 2025’s second half together.
― Eric Freedman, Chief Investment Officer, U.S. Bank
Quick take: Lingering tariff uncertainty weighed on economic forecasts and consumer sentiment in the second quarter, but a mosaic of economic data reflected constructive activity across most global economies, including the U.S. Trade negotiations remain key for growth and inflation prospects, while tax cuts and potential Federal Reserve (Fed) rate cuts could provide additional policy support in 2025’s second half.
Quick take: As we begin the third quarter, the fundamental backdrop remains constructive for equities despite lingering headwinds. Interest rates and earnings remain directionally consistent with a risk-on (more aggressive) bias while geopolitical conflicts, tariffs and economic deceleration risks weigh on sentiment. Elevated U.S. large-company valuations can stay extended for a prolonged period absent ramping inflation.
Quick take: Bonds remain an important source of steady portfolio income. Municipal bonds retain attractive yields for taxable investors while those with non-taxable accounts can find income-boosting opportunities in non-agency mortgages, collateralized loan obligations and reinsurance where appropriate.
Quick take: Publicly traded real estate investment trust (REIT) prices declined slightly in the second quarter. Elevated Treasury yields keep developers’ borrowing costs high while increasing competition for income-producing real estate. However, including REITs in portfolios can provide important inflation protection through income that grows alongside economic activity. REIT prices could also benefit if anticipated Fed interest rate cuts contribute to lower financing costs and falling bond yields.
Quick take: Hedge funds are navigating the rapidly evolving capital markets landscape for opportunities amid heightened volatility. Discretionary macroeconomic strategies present opportunities, but manager selection remains paramount. Divergencies and fluctuations in monetary policy, interest rates and currency markets create both opportunities and risks.
Quick take: Tariff pauses and falling capital market volatility led to renewed private market activity in the second quarter. Pro-growth regulatory and tax policy changes could provide an additional tailwind in the second half of the year, pending tariff outcomes. Middle market private credit retains attractive investment characteristics.
This commentary was prepared June 2025 and represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are not intended to be a forecast of future events or guarantee of future results and are not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. Any organizations mentioned in this commentary are not affiliated or associated with U.S. Bank in any way.
U.S. Bank and its representatives do not provide tax or legal advice. Your tax and financial situation is unique. You should consult your tax and/or legal advisor for advice and information concerning your particular situation.
Diversification and asset allocation do not guarantee returns or protect against losses. Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio.
Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for investment. The S&P 500 Index is an unmanaged, capitalization-weighted index of 500 widely traded stocks that are considered to represent the performance of the stock market in general. The MSCI All Country World Index (MSCI ACWI) is designed to measure the equity market performance of developed and emerging markets.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible difference in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities is subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Investments in debt securities typically decrease in value when interest rates rise. The risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer’s ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults). Hedge funds are speculative and involve a high degree of risk. An investment in a hedge fund involves a substantially more complicated set of risk factors than traditional investments in stocks or bonds, including the risks of using derivatives, leverage and short sales, which can magnify potential losses or gains. Restrictions exist on the ability to redeem or transfer interests in a fund. Private capital investment funds are speculative and involve a higher degree of risk. These investments usually involve a substantially more complicated set of investment strategies than traditional investments in stocks or bonds, including the risks of using derivatives, leverage, and short sales, which can magnify potential losses or gains. Always refer to a Fund’s most current offering documents for a more thorough discussion of risks and other specific characteristics associated with investing in private capital and impact investment funds. Reinsurance allocations made to insurance-linked securities (ILS) are financial instruments whose performance is determined by insurance loss events primarily driven by weather-related and other natural catastrophes (such as hurricanes and earthquakes). These events are typically low-frequency but high-severity occurrences. Private equity investments provide investors and funds the potential to invest directly into private companies or participate in buyouts of public companies that result in a delisting of the public equity. Investors considering an investment in private equity must be fully aware that these investments are illiquid by nature, typically represent a long-term binding commitment and are not readily marketable. The valuation procedures for these holdings are often subjective in nature. Private debt investments may be either direct or indirect and are subject to significant risks, including the possibility of default, limited liquidity and the infrequent availability of independent credit ratings for private companies.
©2025 U.S. Bancorp
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