New All Time Highs as we close out the first half of 2025!

The S&P 500 broke out to a new all-time high on June 27, 2025, as did the Nasdaq 100 (QQQ). They aren’t alone. We track several ETF’s that put in new all-time highs last week. A few examples include:

Capital Group Growth (CGGR), I Shares MSCI Emerging Markets ex-China (EMXC), Global X AI & Tech (AIQ), Global X Cybersecurity (BUG), Capital Group International Focus Equity (CGXU), Tom Lees’ Granny Shots (GRNY), I Shares MSCI USA Momentum Factor ETF (MTUM).

After sliding into correction territory in April, the S&P 500 surged 24% in just 89 trading days, making it the speediest recovery from a 15%+ decline ever, according to Dow Jones Market Data. (Note: The S&P 500 dropped over 21% from mid-February 2025 to April 7, 2025)

We reported to you on June 9, 2025 that several Wall Street firms were revising their price targets upward. That was before the new all-time high was confirmed on June 27th. Here is that table. 

Source: CNBC.com

Despite this apparent optimism, it’s still tough to find real enthusiasm and conviction among professional investors for this rally. On June 26th Tom Lee, one of Wall Street’s most bullish Chief Investment Officer’s posted this comment, “S&P 500 touches all-time high and this remains the most hated V-Shaped Rally.” He went on to report that many professional investment managers remain significantly underinvested. 

Strong evidence of that under investment appeared in a report from ThinkAdvisor.com today. They listed the “10 Fastest Growing ETF’s Among RIA’s” (Registered Investment Advisors). Pacer’s large cap growth ETF (COWG) is the only one that is a pure play stock investment. Four of them are ultra-short bond funds, which don’t own stocks. They own extremely short term bonds that have very little volatility, and essentially no upside. Five of them are buffered ETFs, which protect (or "buffer") investors from a predefined amount of downside risk, such as the first 10%, 15%, or 20% of losses in a given index (like the S&P 500). In exchange for this protection, they limit your upside — there's a cap on how much return you can earn over a defined time period (usually 1 year). If the RIA community was bullish on stocks none of these, except for COWG, would be among the fast growing ETFS! 

On June 25th, Liz Ann Sonders, Chief Investment Strategist for Charles Schwab, posted these comments, “Active retail investors have played an important role in this year's stock market rally, pressuring institutions to take a more positive outlook. You've had this incredibly powerful cohort in the name of retail traders born out of the pandemic that still had that buy-the-dip mentality that really powered the market higher and actually brought institutions along with it. These retail investors forced a more optimistic take on the market by institutions. That's something I think we have to be mindful of in this unique market structure right now.”

There are plenty of reasons to remain skeptical of the markets current momentum and most of us are inclined to worry more about the negatives than we are to embrace the positives. That is why this remains one of the most hated V-shaped recoveries! 

In her mid-year report Sonders says, “As we approach the midpoint of 2025, the U.S. economy faces many uncertainties, including the possibility that tariffs will raise inflation, that the tax and spending bill currently working its way through Congress will increase the federal debt, and signs that the labor market may be cooling.”

In turn, with stocks currently near all-time highs, the bar is relatively high for the market in the second half of the year. It would be beneficial if tariff rates were to decline, the labor market stabilize and inflation remain under control, but predicting those events is extremely difficult. For now, investor sentiment and positive earnings growth remain supportive for stocks, but stretched valuations and the potential that tariff policy will slow economic growth are headwinds.”

Tariffs and increases in federal debt have been potential headwinds all year. Fear of rising rates, related to rising debt has been a major worry for markets. It seems reasonable to us that we will finally get clarity on these issues in Q3 of 2025. If that occurs market results by year-end may be easier to forecast. 

With two-thirds of the U.S. GDP tied to consumer spending, consumer confidence remains key to the outlook. For consumers to continue spending they need to be confident they will be employed in positions that pay them enough to support their lifestyles. Therefore the labor market and consumer confidence remain key factors for the economic outlook.

This letter is focused primarily on U.S. equity markets, but portfolios have benefitted from owning foreign stocks during the first half of 2025. That is likely to remain true in the second half as well. Sonders says, “The first half of 2025 is a case study why investors should consider international diversification as a way to manage market volatility. U.S. stocks have underperformed international stocks so far this year and global investors seem to be reassessing their international allocations amid unpredictable and uncertain policy moves in the U.S., a stable economic and earnings outlook outside the U.S. and a weaker dollar, among other factors. The second half of the year may see continued volatility and international stock market leadership could remain a trend.” International stock performance has helped 5T Wealth’s investment strategies in 2025.

Chris Roth and I recently discussed our “conviction ideas” for the second half of 2025 and into 2026. Two ideas sit at the top of our list. 

1.  Interest rates should be dropping. While we were all worried that long term rates would climb in the second half of 2025, that seems less likely today. Long term treasury yields have fallen despite fears that foreigners would no longer be buying U.S. bonds. Recent bond auctions have gone well. Several Fed governors have been more vocal about lowering rates in the second half of 2025. Trump will be appointing a new Fed Chair that is likely to be much more aligned with his views than Powell has been. Trump is adamant that short term rates should come down. 

2. Defense spending will be on the rise for the next decade. NATO’s recent agreement, to which all members signed on with the exception of Spain, requires each member to raise their defense spending to 5% of GDP per annum by 2035. This includes 3.5% for “core defense” which means traditional military spending on personnel, equipment and operations. It also includes 1.5% for “security related areas” like “cybersecurity, infrastructure, resilience and innovation”. Debate is rampant about whether they can really afford this, whether they will really meet the commitment, and how fast they can do so. Even so, it is clear that NATO intends to ramp up spending over the next decade. 

Stockholm International Peace Research Institute recently wrote, “Based on GDP projections, if all NATO allies met the target in 2035, they would need to allocate around $1.4 trillion more in annual military spending than they did in 2024 in order to reach 3.5 per cent of GDP. This would put total NATO annual military spending at $2.9 trillion. Spending 5 per cent of GDP in 2035 would require an additional almost $2.7 trillion, putting the allies’ total NATO spending in that year at roughly $4.2 trillion." 

$4.2 trillion a year for the next 10 years is a total of $42 trillion in defense spending. Current defense spending for all 32 members of NATO is estimated to be $1.5 trillion, or $15 trillion projected over 10 years. The new pledges almost triple that number. There are lots of hurdles for NATO to get over if this is actually to happen. Whether or not the 5% goal is ever realized its quite clear that military spending will be going up significantly. Trump has made this a core issue since his first term in office. He is likely to remain steadfast in seeing this goal realized. European NATO members have clearly changed their view in the face of Russian aggression. It’s clear that many of them intend to make a good effort. Therefore “defense” is likely to be one of the growth industries of the next decade. 

In the meantime our strategic partner, JP Morgan, recently increased their year-end price target for the S&P 500 from 5200 to 6000. Fundstrat.com (Tom Lee) has remained steadfast in calling for 6600. BMO’s target is now 6700. Wells Fargo recently upped the ante to 7007! 

All the best,
Paul

Paul Krsek
CEO
5T Wealth, LLC
Main (707) 224-1340
595 Coombs St
Napa, CA 94559

Disclosure and Disclaimer - Updated last on March 20, 2024 by Paul Krsek: 

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