By Akemi Kondo Dalvi, CPA/PFS, CFP
What a year 2025 has been so far! We started the year with the economy contracting in the first quarter by -0.5% GDP (gross domestic product). Given President Trump’s announcement of future tariffs, businesses purchased mass quantities of overseas products, expanding their inventory to bulk up supply prior to tariff implementation. However, imported goods do not support GDP figures given the indicator is a measure of domestically produced goods.
The first-quarter contraction was offset by a very choppy second quarter. The market was digesting tariff updates, policy changes by our current administration, and global uncertainty overseas. However, by the end of July, corporate earnings came in strong with the S&P 500 Index surging to 10 new highs before pulling back at the end of the month.
We entered August awaiting more clarity on tariffs, U.S. inflation and the job market. Fed Chairman Jerome Powell held steady on the federal funds rate, punting the decision to the September meeting. However, there has been increasing pressure to lower interest rates, perhaps by 25 to 50 basis points at the next Fed meeting.
Meanwhile, the European Central Bank also held rates steady in July, although they had cut rates eight times over the past year. In the end, the U.S. closed the first half of the year with a forecasted (not yet finalized) GDP growth rate of 2.6% in Q2 2025.
In August, the Bureau of Labor Statistics (BLS) reported that hiring rates in June were at a low of 3.3%, a rate below the pre-COVID average of 3.9%, for reference. The rate was lower than expected.
However, despite the disappointing news, corporate earnings in 2025 remained strong. Year-to-date, approximately 83% of U.S. corporations have exceeded market analysts expectations for profit, a rate unseen since Q2 2021.
Looking forward, uncertainty around trade policy will likely cause the U.S. stock market to remain volatile throughout the rest of 2025. Trade negotiations continue to unfold weekly with tariff carve-outs for sectors of the market that may provide temporary relief until a new negotiation can be reached.
Over the long-term, the widening U.S. fiscal deficit and inflation risk likely pose the biggest danger to the economy. Despite these concerns, the U.S. economy remains resilient and is expected to avoid a recession, according to the Federal Reserve Bank Philadelphia.
Although policy change will probably affect economic output in the near future, investors should hesitate to make dramatic shifts to their investment portfolio allocations. Short-term economic news doesn’t traditionally exhibit a strong link to long-term market returns. In fact, history has shown that staying steadfast with a sound investment strategy that can withstand short-term volatility can deliver positive outcomes for disciplined investors.
If you want a second opinion on your investment strategy for the long-term, consult with your Certified Financial Planner or CPA Personal Financial Specialist. Whether you are exploring charitable gifting strategies, preparing for retirement, or navigating new policy change, we’re here to help you make sense of it all.
The opinions expressed above are solely those of Kondo Wealth Advisors, Inc. (626-449-7783, info@kondowealthadvisors.com), a Registered Investment Advisor in the state of California. Neither Kondo Wealth Advisors, Inc. nor its representatives provide legal, tax or accounting advice.