Dear Clients and Friends,

Happy 4th of July from Colorado! We are wishing you a celebration filled with joy, fireworks, and good company.

This month's newsletter comes with the broad stock market indices back at all time highs to kick off the second half of 2025. From our perspective, the markets are navigating a delicate balance of fiscal policy developments (Tax & Spending Bill and ongoing trade negotiations) as well as potential monetary policy signals from the Federal Reserve. Corporate earnings have largely been better than expected coming into the year and recent economic data around GDP and inflation has been mixed.

Market Overview

As of June 30th, the main stock indices are as follows:

S&P 500: 5.5%

Nasdaq 100: 5.5%

Russell 2,000: -2.5%

As of June 30th the main bond indices are as follows:

Aggregate Bond Index: 2%

Long Term Treasuries: 1%

Short Term Index: 1%

The short recovery timeframe and outperformance from the stock market combined with a much stabler Volatility Index (VIX) suggests the initial uncertainty around trade policy has largely been digested by the market. The following chart shows the S&P 500 compared to the VIX and how panic drove prices lower over the April/May timeframe, but has since returned to normal levels.

That said, underlying corporate earnings do need to continue to beat expectations to justify the current valuation of the market. The price to earnings ratio of the S&P 500 is approximately 25, where the historical average is closer to 16.  

This just means the price you pay for a share of the S&P 500 is expensive relative to the underlying previous 12 months of earnings generated. This ratio can normalize if earnings continue to outperform, but if they do not, another pullback would be justified.

Not much has changed in the bond market since last month's newsletter and as we said then, our bond portfolios are well positioned to take advantage of the current asymmetry in that market and we remain vigilant to find yield through structured notes and outperformance through private markets. The Federal Reserve remains cautious with their language but have not changed their stance on expecting two rate cuts to happen in 2025.

Planning Spotlight

As we have been speaking with many of you about estate and legacy planning we wanted to reflect on what matters most. Wealth has the ability to reflect your values across generations and with the current estate tax exemption as one of the key components to the Big Beautiful Bill, we wanted to highlight a few strategies that can be used to bring your family together under a shared vision. Charitable remainder or charitable lead trusts as well as private family foundations can connect your financial plan with the philanthropic aims of your family.

These structures can shield wealth from the estate and generation skipping tax, but also put resources towards causes you care about. We believe one of the key markers of our success is to support your families over multiple generations. And while we are not licensed attorneys, we have some amazing partnerships with leading law firms across the country and can bring those professionals to the table when needed.

As we celebrate Independence Day, we're grateful for the trust you place in us as we seek to preserve or build your financial independence. Over the months of July and August we will be performing stress tests of your financial plan to see what vulnerabilities, if any, are flagging as well as checking in on goals set at the beginning of the year.

We invite you to schedule a consultation to review your portfolio and discuss these items. Thank you for your continued trust in us as your wealth management partner.

Warm regards,

The Bauer Heitzmann Team

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