Summary:

In this episode, Will and Adam unpack political drama in D.C. and the economic implications of the proposed “Big, Beautiful Bill,” focusing on its effects on taxes, spending, and rising deficits. They highlight the imbalance between public and private sector job growth and examine the market’s sharp rebound from April lows. Despite strong global returns, U.S. valuations remain elevated, with most gains concentrated in large-cap tech. The hosts argue that active management and diversification may finally have their moment after years of U.S. market dominance.

In This Episode:

In the first half, we examine the (rumored) literal fisticuffs in D.C., and the implications of the proposed "Big, Beautiful Bill" on taxes, spending, the deficit, interest rates, and the dollar. We discuss the timing of tax cuts versus spending cuts, especially in light of the employment data we have seen since 2022, wherein:

  • Private sector job growth -> a little over 1% cumulatively.
  • Public sector job growth -> over 7% cumulatively.

In the second half, we discuss the market's rapid rebound from its April nadir and juxtapose returns (and valuations) for different parts of the equity market. Is it finally time for diversification to help after a 15-year run for the U.S.?

  • U.S. large caps +3% YTD
  • U.S. small caps -2% YTD
  • Developed non-U.S. +17% YTD
  • Emerging markets +11% YTD

While the collapse in the volatility index and the huge rally from the lows normally portend further gains, valuations for the S&P 500 are historically high on any number of measures. While the so-called Magnificent Seven are more elevated, the other 493 are also expensive, and have grown earnings a lot more slowly than the tech titans. Contrary to our forecast entering 2025, fewer than one in three stocks are outperforming this year, putting a premium on stock selection. While multiples are high, we think active managers willing to go further afield can find values.

Disclaimer:

The proceeding content is informational only and based on information available when created. It is not an offer or a solicitation nor is it tax or legal advice. It does not consider your financial circumstances and objectives and may not be suitable for you.

Tea & Crumpets is also available on Apple Podcasts and Spotify.