While the meaning of the terms “historic” or “unprecedented” may be somewhat cheapened given how frequently these words are used as of late, they could accurately describe the second quarter of 2025. Perhaps “unique” is a decent descriptor for the quarter bookended by Liberation Day (April 2nd tariff announcements) and the signing of the One Big Beautiful Bill Act on the 4th of July, with plenty of geopolitical developments in between. It would be impossible to cover all the events of the past quarter in a concise format, so in this newsletter, we will focus on the market’s incredible positive reversal after the announcement of tariff negotiations followed by highlighting tax changes relevant to our clients from the 870-page One Big Beautiful Bill Act.
Looking at the returns chart above, it is hard to believe that a good part of this year saw negative returns for U.S. equities. Q1 2025 saw a 5% decline in domestic equities and even further declines in the first weeks of April as the market took President Trump both literally and seriously when he fired the opening salvos of what appeared to be a burgeoning trade war in his April 2nd declaration of “Liberation Day”. As Q2 progressed, the market swung wildly back to the upside as the trade war transitioned into trade negotiations. During all of this, international equity markets did the unthinkable: they materially outperformed the U.S. markets for the first time since 2008. Below is a chart from Vanguard that visualizes the performance of various asset classes this year, in particular the whipsaw-action of the U.S. stock market and the consistently strong gain for international stocks (note that Vanguard uses the CRSP index series, which is similar to but not identical to the benchmarks we use).
These rapid swings in the market bring up an important point: the importance of staying invested. While this is easier said than done, the chart below from Lincoln shows the drastic difference in returns between a hypothetical “calm” investor who made no changes to their allocation during the trade war drama, versus a “nervous” investor who went to cash for quarter.
Capping off this busy quarter was the passage of the One, Big Beautiful Bill Act on July 4th. While there are numerous provisions contained in the bill, we summarized the effects of the bill that are most relevant to our clients. For your individual tax situation, we recommend speaking with your tax advisor who can provide personalized counsel. In closing, the highlights of the bill include:
1. Tax rates will remain the same for individuals. Rates were scheduled to snap back to their higher 2017 levels if legislation did not extend them.
2. For business owners, the 20% Qualified Business Income (QBI) deduction for pass-through entities (like sole proprietorships, partnerships, S corps, and some LLCs) is now permanent. The QBI deduction was set to expire in 2026.
3. Estate Tax exemption is now permanent, increasing to $15 million per person starting in January 2026 and gets adjusted for inflation thereafter.
4. The Standard Deduction has been increased to $31,500 for married-filing-jointly taxpayers and $15,750 for single taxpayers effective for the 2025 tax year.
5. 529 accounts can be disbursed for elementary and secondary school tuition and other qualified expenses up to $20,000/year instead of the previous $10,000/year limit starting in January 2026.
We remain committed to managing your portfolio with the goal of making sure that your financial strategies align with what matters most to you. As always, please let us know if we can answer any questions about current market conditions, or your personal investment portfolio. We are available at 757-351-0741 or we can set up a time to meet.
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Please remember that past performance is no guarantee of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Compton Wealth Advisory Group, LLC [“Compton Wealth]), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Compton Wealth. Compton Wealth is neither a law firm, nor a certified public accounting firm, and no portion of the commentary content should be construed as legal or accounting advice. A copy of Compton Wealth’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or atwww.comptonwealth.com.
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