Diversification Paying Off So Far in a Bumpy 2025 

Six Things You Should Know

1. Equity Markets – were up this week with U.S. stocks (S&P 500) gaining +2.48% and international stocks (EAFE) increasing +3.53%.
2. Fixed Income Markets – were mixed this week with investment grade bonds (AGG) declining -0.22% and high yield bonds (JNK) increasing +0.37%.
3. Tariffs Now Live – President Trump’s sweeping tariffs on over 90 countries took effect this week, with import rates beginning at a baseline of 15%. In the most notable move taxes on India jumped to 25% with threats to push to 50% if they do not sever oil relationships with Russia, a rate already applied to Brazil for the same reason. Both countries have expressed willingness to meet with White House officials to negotiate more favorable terms. 
4. Oil Slides – Oil prices hit an 8-week low this week amidst optimism from the White House that further constructive conversations with Russia may be had and there could be a resolution on the Ukraine conflict in sight. A barrel of WTI Crude has dipped below $64 from its July peak north of $70. 
5. Cybersecurity Reminder- Scammers are increasingly using Remote Access Tools (RATs) along with phishing emails or texts to take control of devices like phones, tablets, and computers. Once installed, these tools can give cybercriminals access to sensitive information, including your Schwab accounts. These attacks can be hard to spot, so if something doesn’t feel right- like unusual account activity or suspicious messages- trust your instincts. If you sense suspicious activity, please call us immediately or report any concerns to Schwab at 800-515-2157. 
6. Key Insight – [VIDEO & ARTICLE] In what has been a volatile start to the year, both downward AND upwards, for markets in 2025 investors who came into the year properly diversified have fared relatively well. We take a look at a number of asset classes so far this year, as well as the setup heading into the end of 2025.

Insights for Investors

By Tim Mitrovich

Diversification Paying Off So Far in a Bumpy 2025 

Current Market Drivers & Concerns 

I hope everyone is having a wonderful summer, especially after the drama filled spring. Markets have, of course, rebounded sharply, virtually across the board, from their lows in April – something that remains a surprise to many. And while tariff related drama is not over, it has abated, including a number of important agreements with key trade partners. 

In its place, however, is a significant uptick in “drama” around the Fed and the Fed funds rate. While few thought they would cut in July, many suggested they should, an opinion that was strengthened by much of the data that came out subsequently from last week’s shocking labor data that not only showed job creation of 73,000 vs. expectations of 103,000 but significant downward revisions to prior months (Bloomberg, 8/1/2025), and then this week came the report that the most recent ISM Non-Manufacturing Index reading came in just above contraction levels at 50.1 below expectations for a reading of 51.5, indicating weakening in the all-important service sector. (Bloomberg, 8/5/2025) 

As a result, expectations for cuts to the Fed rate heading into the fall have increased, as stated by the team at TrendMacro after the jobs report “A very weak jobs report, with very large downward revisions to the prior two months. Expectations for two rate cuts by year-end come fully back into the market. Is this what dissenting Fed Governors Waller and Bowman meant in their statements this morning when they worried about “stall speed”? Markets have now gotten back in line with our post-FOMC view: still two rate cuts this year, no matter how angry Powell is with Trump.” (TrendMacro, 8/1/2025) 

Furthermore, many analysts are now signaling caution for markets in what is already a historically weak season in August/September (see here).   

Before Anyone Panics… 

Such calls are largely ever-present, but also not a surprise after such a big run off the April lows. Calling for a correction or two each year, which historically happens even during bull markets, is like saying someday it’ll rain. The bigger concern is whether we sit on the edge of a recession. On that front, I would agree for now with the take from Gavekal’s Tan Kai Xian who stated this week, “Led by Friday’s weak payroll report and Tuesday’s soft PMI release from the Institute of Supply Management, growth fears in the United States are again on the rise. The sum of these economic readings duly raises a question, but does not yet point to a recession. On this basis, it is worth asking what factors could spur countervailing growth to offset the current soft patch. One such candidate is business capital expenditure.” (Gavekal, 8/5/25) 

The Path Forward 

As we cover in the video above in greater detail, the good news for prudent investors is that diversification is doing its job here in 2025, from general downside protection to upside capture in many asset classes besides US core equity. 

As to the latter, heading into 2025, we warned investors to take a look at their allocations given the extreme concentration and valuations of the US stock market (see 10/18/24 and 12/6/24 for examples). Those that heeded the warnings to reduce over-allocations and/or diversify were rewarded this spring as at the 4/8 lows with US indices down approximately 15-20% for the year at that point, international stocks (e.g. EAFE) were down less than 4% and the bond index (AGG) was up 0.39 and alternatives such as Bloomberg US Credit index down only 0.30 (Source: Ycharts 1/1 to 4/8/25). 

However, after the subsequent rebound US equity investors arguably find themselves back in a similar spot to Q4 last year according to Apollo Chief Economist Torsten Slok, who recently pointed out that “If you had invested $1 million in the S&P 500 on January 1, 2021, your return today would be $660,000, of which more than half would have come from the top 10 biggest companies in the index, see chart below. The bottom line is that returns in the S&P 500 are not diversified but instead remain extremely concentrated in a small group of tech stocks. 

AI will continue to have a dramatic impact on all our lives, but the question remains whether the Magnificent 7 are correctly priced and if they will even be the best AI investments over the next five to ten years. 

Of course, investors are not limited to just considering US stocks, and there are arguably still good opportunities outside the US. As noted by Goldman Sachs, “The strong year-to-date performance of developed markets outside of the US is not just a short-term trade, but representative of a building longer-term trend, in our view. Ex-US markets are more cyclical, less concentrated, and may offer better equity income potential. Moreover, they also trade at a 33% discount today relative to the US – a wide discount even when accounting for growth effects. However, with trade uncertainty and growth concerns still top of mind for many, our highest conviction remains in select companies over countries.” See accompanying chart. (Source: Goldman Sachs, 5/26/25) 

In Summary 

It would not surprise us to see equity markets pull back a bit given both the recent run, the necessity of such pullbacks to keep markets “healthy”, as well as the view of seasonal weakness in Aug/Sept by pundits which often leads to some self-fulfilling prophecy led pullbacks in past years. 

However, as we discuss in the video above, and often caution, you don’t need to time markets to be effective you need to be diversified, disciplined and led by process. Such portfolios can weather the market’s “storms” well, but are also positioned to rebalance into weakness from a position of strength somewhere else in their portfolio. Turning what many fear into something you can embrace with confidence. There remain many attractive asset classes, depending on one’s needs, across taxable and tax-free municipals, international equities or alternative asset classes such as credit and real estate. 

Furthermore, if 2025 should have reminded us all of anything, especially after the turbulence of this spring, it is that both corporations and markets are very resilient. For a nice take on this, please check out the most recent piece from Stephanie Link below on not only the market’s resilience but also a solid overview of both equity and fixed income markets in general.  

Have a wonderful weekend, 

Tim and the team at TEN Capital 

Resilient Markets and Rising Tech  
Recap of the Week of August 4, 2025  
Stephanie Link 

1. Slowing in the Labor Market.  

Labor market figures for July fell short of previous expectations, with only 73,000 jobs added. But the surprise came from the revisions, which showed just 19,000 new jobs in May and 14,000 in June. The unemployment rate inched up to 4.2%, while the long-term unemployed grew from 1.65 million in June to 1.83 million. Not surprisingly, much of the softness came from the Federal Government segment as the administration continues to pare back this area of the labor market. Initially, Federal Government jobs showed 63,500 jobs for June, but the revision came in at 7,500. 

We emphasize that the NFP report is backward-looking and the revisions are always volatile. We pay closer attention to the weekly initial jobless claims – and use a 4-week moving average to smooth out the results. Last week showed improvement with the 4-week moving average now at 221K. While this figure has been moving higher post-COVID, it is still quite healthy – recall that during recessions, that figure averages 350-370K. If we see claims rise above 260K, that would be more of a yellow flag for us.  

2. Fed Holds Rates Steady.  

As expected, the Federal Reserve kept the federal funds rate within a range of 4.25%–4.5% for the fifth consecutive meeting. Federal Reserve Chair Jerome Powell reaffirmed the strength of the U.S. economy, citing sustained consumer demand as a reason to maintain a modestly restrictive stance. He emphasized the Fed’s continued focus on its dual mandate: stable inflation and maximum employment. What’s remarkable this time around is dissent within the Fed itself; two board governors, Christopher Waller and Michelle Bowman, voted against holding rates steady – the first time since 1993.  

Despite elevated policy rates, the economy is displaying classic “Goldilocks” behavior, not too hot, not too cold. Second-quarter GDP rose by 3%, Personal Consumption Expenditures (PCE) sits at 2.1%, and Core PCE remains close behind at 2.5%. Personal consumption grew by a solid 1.4%, reaffirming the strength and resilience of the American consumer. With inflation largely under control and growth picking up, the Fed may soon be compelled to ease rates. After the labor market report, the odds of a September cut rose to 89% from 38% the day before. We believe the Fed should cut, as Fed Chair Powell is quoted as saying they would have been cutting by now, if not for the uncertainties over what tariffs will do to inflation.  

3. Tariff Turbulence.  

Trump’s revamped tariff plan triggered turbulence across markets, with tech-heavy indexes and the dollar slipping amid fears of trade tensions. Yet behind the volatility lies a strategic recalibration of global commerce. New levies, ranging from 10% to 39%, signal a push for fairer agreements and a shift toward domestic resilience. Countries like Switzerland and Taiwan have already begun negotiating for adjustments, supporting tariffs’ role as leverage rather than a long-term barrier. While major indexes and yields dipped following a softer-than-expected jobs report, the increased pressure from tariffs could accelerate central bank accommodation, potentially leading to rate cuts that support equity valuations. In the face of short-term uncertainty, businesses and investors may find new growth channels as global supply chains evolve and monetary policy turns more supportive. At the end of the day, the tariff “unknowns” will become “knowns,” and investors can then focus on the pro-growth objectives of lower taxes and deregulation.  

4. Tech Excels in Reporting Season Meta Leads with an AI Strategy.  

By far, Meta’s report has been the best of the Mag 7 – so far. Meta’s second-quarter performance exceeded expectations, largely due to a 21% year-over-year increase in its advertising business, which was driven by success around their generative AI strategy. Both ad impressions and average price per ad showed solid growth, up 11% and 9% respectively. AI recommendation algorithms helped lift user engagement, with Instagram seeing a 5% increase in time spent, and Facebook rising 3%. WhatsApp’s revenue also jumped 50% from the previous year, driven by growing traction in business messaging, although Meta noted WhatsApp ads will remain a relatively minor contributor in the near term.  

On the earnings call, CEO Mark Zuckerberg outlined a vision for superintelligence and the future of AI integration through wearable tech, highlighting the growing popularity of Meta’s RayBan smart glasses. Demand for the glasses continues to outpace supply, and updates are expected in September. Meta also plans further CapEx expansion in 2026, while exploring external investment in data centers with firms like Apollo. The company’s global user base rose 6% year-over-year to 3.48 billion, and it repurchased $9.76 billion in shares during the quarter. The tone of Meta’s update was strongly optimistic, sending the stock 12% higher after hours.  

Microsoft also exceeded expectations, with Azure revenue rising 39% year-over-year, comfortably beating expectations of 34.23%. The company continued gaining traction across its business lines, including Dynamics 365, where strength in CRM (Customer Relationship Management) and ERP (Enterprise Resource Planning) raises competitive pressure. Cybersecurity also saw momentum, with Microsoft now serving 1.5 million security customers and gaining market share across all categories. A major highlight was Microsoft’s ability to conduct seamless data migrations to Azure, a trend that has now contributed meaningfully for two straight quarters. CEO Satya Nadella emphasized that the industry is entering the “middle innings” of cloud migration, with substantial upside remaining. He also introduced the concept of AI agents and pointed to growing commercial applications for these agents, including early monetization paths for software providers.  

While CapEx hit a record $24.2 billion for the quarter, up 27% year-over-year, Microsoft maintained its operating margin, a rare feat during periods of infrastructure expansion. The company reported strong commercial bookings and remaining performance obligations, both up 37% year-over-year. Cloud revenue grew by 27%, though cloud gross margins dipped to 68% due to AI infrastructure scaling. Microsoft returned $9.4 billion to shareholders and reported a $368 billion backlog. First quarter FY26 CapEx is projected to exceed $30 billion, though total spending should moderate across the fiscal year. Investor sentiment was upbeat, driving a 9% after-hours gain in the stock.  

Apple’s third-quarter results showcased robust growth and strategic momentum, driven primarily by surging iPhone sales and a strengthened Chinese economy. EPS rose 12% year-over-year to $1.57, while revenue jumped 9.6% to $94.04 billion, exceeding estimates by more than 5%. Most of the beat came from iPhone revenue, which surged 13%, more than 11% above expectations. This marked a record quarter for iPhone switchers in mainland China and a rebound in regional revenue after eight consecutive quarters of decline. Apple planned strategic production shifts to India, committed $500 billion to U.S. manufacturing, and continued investing heavily in AI and semiconductors. Services revenue grew 13% to $27.42 billion, driven by double-digit gains in App Store and TV+ engagement, and the company shipped its 3 billionth iPhone. R&D spending rose 11% to $8.87 billion, reflecting Apple’s push into smart technologies and AI-powered experiences. 

Importantly, AI CapEx spend is alive and well – collectively GOOGL, MSFT, AMZN, and META will spend $400B in 2025, which, interestingly, is close to what the entire EU will spend on defense at $410B. We’ve been big supporters of AI, the Data Center, the Grid upgrade, and Power. After these new CapEx numbers were released, we are even more bullish.  

5. Fixed Income.  

Last week, U.S. Treasury yields fell sharply across the curve, driven by a substantial downside surprise in the July Nonfarm Payrolls report and material downward revisions to the prior month’s data. In response, markets swiftly recalibrated expectations for near-term monetary policy, with the probability of a September rate cut surging to 88%, up from 40% earlier in the week. By Friday’s close, the 2-, 10-, & 30-year yields were lower by 24, 17, & 11 basis points, respectively.  

The sharp decline in U.S. Treasury yields and the aggressive repricing of Federal Reserve rate cut expectations contributed to wider credit spreads last week. Investment-grade spreads widened by 4 basis points to +123, while high-yield spreads expanded by 31 basis points to +356. Concurrently, U.S. credit quality weakened as the main rating agencies issued 49 downgrades and 26 upgrades. The Financial sector accounted for the majority of the downgrades, while Real Estate led with the most upgrades. Investment-grade spreads remain 13 basis points above their year-to-date lows, while high-yield spreads are currently 59 basis points wider. In the context of relatively tight credit spreads, there remains a compelling opportunity to enhance portfolio quality without materially sacrificing yield—an approach we have been methodically implementing across our corporate portfolios for some time.  

Tax-exempt yields followed Treasuries, falling 10-14 basis points across the curve. On Friday, Aug. 1, approximately $29 billion in principal was redeemed from maturing and called securities—marking the largest principal redemption day of the year and the second-largest when accounting for combined principal and interest payments. The large redemptions have been met with a similarly large amount of issuance, as July supply was 43% more than last July, and YTD issuance is 21% ahead of last year’s record-setting pace. $17 billion of new issuance is expected this week, which is 61% more than the 1-year weekly average. This supply mix has skewed longer than historical, which has led to the mid-to-long end of the municipal curve to provide strong investment opportunities with 5% coupons nearing par. Longterm municipal bonds are now offering yields on par with Treasury bonds of similar maturity—a rare occurrence. With Muni-to-Treasury yield ratios nearing 100%, investors are effectively getting the benefit of tax exemption without a yield penalty. In plain terms: tax-free income at taxable yields. To take advantage of this unusual pricing dynamic, we plan to extend duration by up to one year in our Intermediate Municipal strategies. This modest shift allows us to allocate up to 20% of portfolios—or 2– 4 positions—into long-dated Munis, capturing the value while maintaining prudent risk management. 

Disclosure Investment Solutions is a group comprised of investment professionals registered with Hightower Advisors, LLC, an SEC registered investment adviser. Some investment professionals may also be registered with Hightower Securities, LLC, as a member FINRA and SIPC. Advisory services are offered through Hightower Advisors, LLC. Securities are offered through Hightower Securities, LLC. This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is neither indicative nor a guarantee of future results. The investment opportunities referenced herein may not be suitable for all investors. All data or other information referenced herein is from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other data or information contained in this presentation is provided as general market commentary and does not constitute investment advice. Investment Solutions and Hightower Advisors, LLC or any of its affiliates make no representations or warranties express or implied as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Investment Solutions and Hightower Advisors, LLC assume no liability for any action made or taken in reliance on or relating in any way to this information. The information is provided as of the date referenced in the document. Such data and other information are subject to change without notice. This document was created for informational purposes only; the opinions expressed herein are solely those of the author(s) and do not represent those of Hightower Advisors, LLC, or any of its affiliates.  

1 Source: Bloomberg. As of July 18, 2025. 

Data, Just the Data

• U.S. Jobless Claims – initial claims rose by 7,000 last week despite expectations for a softening. Outstanding claims also jumped up by 38,000 to 1,974,000, marking the highest claims level since November 2021.  

• Eurozone Retail Sales – rose 3.1% year-over-year in June for the highest reading since September 2024 and beating expectations for a 2.6% gain. For the month sales were up 0.3%.  

• U.K. Manufacturing PMI – rose slightly in July to 48 but remained in contractionary territory. However, this does mark the 4th consecutive month of improvement. 

• Japan Household Spending – saw a sharp decline to +1.3% year-over-year in June compared to +4.7% in May. The slowdown reflects the impact of inflation and tariffs.