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A podcast designed to help retirees and those nearing retirement navigate finances and life planning with expert insights from financial advisor Trevor Lawson. Tune in for practical strategies and inspiring ideas to ensure your retirement years are purposeful, fulfilling, and truly your best chapter yet.
*Securities and investment advisory services offered through Osaic Wealth, Inc. member FINRA/SIPC. Osaic Wealth is separately owned and other entities and/or marketing names, products or services referenced here are independent of Osaic Wealth. Branch phone: 919-546-0400.
Today's topic was influenced by the recent crossing over of the mid-year point in the year, so now that over half of the year is behind us, I thought it could be a good time to reflect on the mid-year outlook for the market and the economy. And today's discussion will be heavily influenced by a recent publication from the Capital Group, their 2025 midyear outlook.
So I'll be [00:01:00] referencing their outlook and kind of shaping our conversation today. The Capital Group is one of the longest standing investment companies and um, does a very good job. With timely insights and educational pieces on, um, their expectations for what lies ahead and ties in, you know, historical data to help those decisions.
So we'll be using this. In no way does this necessarily reflect my own beliefs, but I think they raise a lot of, of good. Data points worth our consideration and reflection. So let's jump in. One of their, uh, vice chairs. Jody Johnson at the Capital Group, uh, was largely responsible for, for this article, so I'll be quoting her quite a bit today.
She notes we are in the middle of a fundamental restructuring of the geopolitical order that we've known since the end of World War ii, politically, militarily, and economically. At the [00:02:00] moment, investors don't know how these events will play out, and that's why the financial markets are having a difficult time finding a clear direction.
Volatility's really been the theme this year. If you think back to April, it felt like the bottom was falling out with the market going down. But then since then, you know, we, we've seen a, a run up in the market. So volatility rose sharply in the first half of the year. She notes as tariff induced trade wars and real wars dampen the global outlook.
This lack of clarity is affecting the decision of investors and company management alike. It's become much harder to determine where to invest over what period and what types of returns to expect. So where does that leave us? So we'll see, um, over the course of the next few minutes, kind of how the capital group is processing these events and how it's shaping their predictions for the rest of the year.
So the economic outlook, higher uncertainty, lower growth. So [00:03:00] the growth projections have been revised downward for a lot of the world. The GDP for the capital Group, they initially had projected it to be around 3.2 for 2025. They've revised that down to 2.8. And in the US they expected the US to grow, the US' economy to grow by 2.2 uh percent.
From A GDP perspective, they've revised that down to 1.8. What's driving that uncertainty? So many companies are hitting the pause button because they don't know what the rules are going to be a week, a month, or a year from now. Capital Group economists, Darrell Spence, explains, there's just so much uncertainty right now, again driven by the tariff talk and, um.
Yeah, a lot of back and forth with the comp, the, the current administration on what they are, um, going to prioritize maybe what, what, what they're not going to prioritize. And so a lot of companies are just hitting pause and that that pause button is going to [00:04:00] potentially, um, lead to, to a slower growth rate over the rest of the year according to the capital group.
So there's really four scenarios they project for a changing global landscape and I'll, I'll go through these at a very high level and then you're welcome to reference the article for more insights. So, one a trade battlefront. So global trade and tariff measures spike in response to US policy. But alliances remain intact.
So that trade battlefront is one option. If that happens, then there's certain sectors such as defense, domestic businesses, automation that could, could benefit, um, grand bargains they call it. So opening positions prove flexible. Diplomacy prevails and alliances survive. That's another potential outcome from these tariffs and the changing global landscape.
If that happens, you could see consumer discretionary financials, global trade. Those sectors tend to benefit. A [00:05:00] third outcome could be what they're what? They're dubbing, assertive nationalism. So governments pursue nationalistic priorities in trade and security. If that happens, defense, consumer staples, real estate and gold, um, those are all sectors that could hypothetically benefit.
And then finally, great powers is a, a fourth outcome or fourth scenario. Large economies recognize spheres of influence and build competing trade box. This again, could benefit defense cyber and drone manufacturing, semi semiconductors. So in this article, they're painting a, a, a picture and laying out four different scenarios that could unfold as a result of this changing global landscape that we're encountering.
So the good news is the markets recovered from trade uncertainty in Trump's first term. So if we go back to 2018, tariffs in China, slow down, hit markets. In 2018, the s and p 500 was [00:06:00] down 4.4%. 2019 though stocks were covered and reached new highs. The s and p 500 that year was up 31.5%. So while history is no indication of future performance, if we look back at Trump's first, first go round in office, the same sort of thing may have unfolded around tariffs and the market kind of reacted, but then rebounded.
We'll see if that proves to be true this time around, but. It worked out, um, during the first, first go round in terms of the markets rebounding from that temporary pullback. A lot of people were, are really wondering when the fed's gonna rush in. So a lot of analysts are still projecting two interest rate cuts at some point this year.
We'll see. Um, as long as the labor markets, you know, don't, don't materially weaken, then. You could see that the feds continue to hold strong on, on not lowering rates, but [00:07:00] as this article has, has alluded to, many companies are pressing pause and slowing down their hiring, which could in turn affect the job report coming out later, later this year.
And that could spur the Feds to start lowering rates to kind of ignite economic activity. Again, we'll see. A couple other things here. When volatility is high, dividends can cushion the below. So dividend growers have outpaced the broader market this year as a result of all the volatility. So, um, now could be a time to revisit your, the, the dividends in your portfolio and, and see how, if at all, um, your portfolio is, is benefiting or, or lacking exposure to dividends, which are.
I have proven to be helpful at cushioning the below during volatile times. Another positive is sharp market sell offs can put leading companies on sale. [00:08:00] So we saw a sharp market sell off, um, during COVID, and we saw another one in April this year. But if we look at the consumer finance sector as an example, so the pre COVID peak for consumer finance sector was January 22nd, 2020.
The trough as a result of COVID was March 23rd, 2020 from peak to trough, the consumer finance sector dropped just shy of 55%. But one year from that bottom, it was up 145.6%, and then five years from that bottom it is now up almost 300%. Companies like Discover Capital One American Express are all, uh, beneficiaries of this rebound in the consumer finance space.
So sometimes these sharp market sales can put companies that are otherwise treating at very high valuations at a discount and make them much more attractive. As a potential entry point in, in starting to, to own [00:09:00] shares of that, that company. A couple other themes, um, international, the international kind of sector is, is having a moment.
Um, and it's been long overdue. The, the US kind of domestic markets have significantly outperformed international markets for the past couple years, but Europe is showing new catalysts and surprising innovation according to the capital group. And then Japan's forging a path as free trade as a free trade powerhouse.
So now's a time to again reevaluate your portfolio and see how, if at all, a rebalance or tilt towards more international exposure could benefit this changing global landscape, and ultimately, perhaps minimize the volatility in your portfolio by having a more diversified. Approach. Lastly, the other kind of asset class that's having a moment and that, um, looks to be promising [00:10:00] according to the capital group, corporate bonds.
So corporate bonds, bonds offered by very highly rated companies are showing continued resilience. So far this year, the international sector. Corporate bonds are, are both performing better than they may have in years past, and are helping an investor who maintains a diversified position and has exposure to these sectors.
It's really helping, again, cushion their portfolio from the volatility that we've seen and and squeeze out some yield and growth where possible. So I think one of the overarching takeaways. For me when I read this, and I hope I I can pass along to you, is the global landscape is, without, ke, without question, are going a, a pretty significant change.
And that change and its impact is still yet to be determined. But there are sectors of the market that are directly benefiting right now from this, this changing [00:11:00] landscape, which is another reason why we preach on this podcast and why we will continue to preach. The importance of maintaining a diversified portfolio.
Over the past two years, the s and p 500 has really kind of had a, had its moment, and you've seen the US and large cap sector really drive the market's performance, but that is changing. Again, international corporate bonds are, are regaining favor and, and doing well as of late. So it's important not to fall victim to the biases that we've talked about in previous episodes.
Recency bias, as an example. Try not to let these things affect our portfolio positioning. Maintaining a diversified portfolio can really help cushion any future volatility we may see unfold as a result of a lot of the uncertainty still folding out there with Trump and his administration. And really help us be positioned for growth in sectors that [00:12:00] may benefit from the changing global landscape.
I hope you find this valuable for more information. You're welcome to read the full midyear outlook in the show notes. And until next time, stay well and I'll look forward to being with you again soon. Take care.