As I mentioned last week, negative indicators have been building out there but each seems matched by something positive, creating a familiar tug of war that tends to show up at market cycle inflection points. This will be on full display in the coming days as the Fed is expected to start lowering its interest rate benchmark on Wednesday. While this sounds good on the surface because it’s what investors expect and juices up the parts of the economy and markets, it creates negative ramifications elsewhere – it’s just the way it works.

This week I’m leaning on a couple of pieces I received yesterday from JPMorgan. One sheds light on the difficult spot the Fed is in with this rate decision while the other talks about four potential directions for the markets from here.

The bottom line with all this, also like I mentioned last week, is that it’s a good time to rebalance your portfolio.

The primary US stock benchmark, the S&P 500, has been “overbought” since May. Overbought is a technical term indicating the current price of the S&P 500 is at least one standard deviation above its 50-day moving average. That’s spread across the 500 stocks in the index and while some of those stocks are very expensive, many more are fairly valued or even undervalued. That internal mix is a positive spin on what’s otherwise a negative indicator, and it could help prices stay higher for longer. After all, the next three months are usually some of the best of the year for stock performance.

Remember that rebalancing doesn’t mean selling all of your stocks and waiting to get back in later. You’re trimming from the winners and adding to underperformers. This means you’re still invested in stocks when rebalancing, just not quite as much as before, so you’ll benefit if stocks continue higher from here. What you’re doing is incrementally reducing risk.

Okay, on to the two pieces from JPMorgan…

To cut or not to cut? Markets have been weighing each economic data print on the Fed’s balance of risks. As this week’s chart shows, mixed reports on jobs and inflation have sent the scale tipping back and forth, underscoring the difficulty of the Fed’s position.

After several months of stronger than expected payroll gains, July’s jobs report showed definitively that hiring momentum had slowed. Last Friday’s August report told a similar story. The U.S. economy added just 22k jobs last month, well below expectations of 75k, and 27k jobs were removed from the past two months. But this weaker labor market hasn’t translated to material disinflation. Immigration policies are contracting the labor supply, putting upward pressure on wage growth, despite the slowdown in hiring. August’s 4.3% unemployment rate is the highest since the pandemic, but well below the 50-year average of 6.1%. On the other hand, Thursday’s CPI report showed core inflation of 3.1%, well above the Fed’s 2% target, and tariffs and OBBBA stimulus could spark an acceleration. So, while the last two jobs reports green light the Fed to cut next week, the margin of error is razor thin.

Stock and bond markets might cheer the decision initially, but the longer-term investing implications aren’t so clear. Rather than boosting demand, rate cuts can destroy it as households lose interest income much faster than the cost of debt comes down. Longer-term yields may actually rise, as a cut [this] week could fuel concerns about inflation and Fed independence. Real assets like infrastructure and diversifying globally could help investors with the tough task of building portfolios resilient to both a growth slowdown and an inflation speedup.

There are four market outcomes: higher or lower equities in combination with higher or lower yields.

While peak uncertainty has subsided, many outstanding questions for investors remain: How much will the Fed cut rates? Will tariffs boost inflation? Is labor market weakness a headwind or head-fake? Forecasting definitive answers to these questions may be challenging – let alone how these dynamics interact – but devising a spectrum of scenarios to assess how markets could be impacted can help investors position portfolios. We’ve done just that in partnership with our Portfolio Insights team.

Principally, there are four market outcomes: higher or lower equities in combination with higher or lower yields. With that as a framework, here are four potential scenarios that could play out in markets over the next 6-12 months:

• Full steam ahead: Accelerating growth (stocks up, yields up) - Weakness in the labor market proves to be a head-fake, unemployment remains low, and tariff impacts prove to be manageable. With peak uncertainty behind us, consumption picks up and AI capex balloons, further aided by tax cuts enacted. The Fed delays rate cuts. Stocks, yields, and the U.S. dollar rise. Opportunities: Large cap, small cap, high yield | Risks: Core bonds

• Steady as she grows: Slow and stable growth (stocks up, yields down) - The U.S. economy is growing but slowing. Corporations pick up most of the tab on tariffs, which weighs on profits, but revenues are solid given the consumer absorbs less of the cost and inflation remains relatively contained. Markets drift higher and yields drift lower. The Fed cuts modestly and the U.S. dollar falls further. Opportunities: Large cap, international stocks, core bonds | Risks: Small cap, U.S. dollar

• Rough waters: Recession (stocks down, yields down) - Cost pressures and lingering uncertainty prompt companies to pull back on hiring and capex. Labor market weakness accelerates, and unemployment rises. Consumers pull back on spending. Profits decline. The U.S. economy enters recession. Stocks tumble, but bonds protect. The Fed cuts meaningfully to support the economy. The U.S. dollar rises as investors seek refuge. Opportunities: Core bonds, U.S. dollar | Risks: Domestic (large and small) and international stocks, high yield

• Inflation unanchored: Stagflation (stocks down, yields up) - Inflation reaccelerates due to tariffs and rising service costs. The labor market weakens, and consumption slows. Growth sputters but avoids recession. The Fed is forced to reverse course and hike rates. This U-turn in monetary policy causes stocks to stumble and the dollar to fall, while yields spike above 5%. Opportunities: Short-term fixed income, international stocks | Risks: Large cap, small cap, core bonds, U.S. dollar

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As I've done for years now, I'm taking a summer break from writing these posts for the next few weeks. I'll still be hard at the rest of my work, however, so let me know if you have questions or need other assistance. Otherwise, I hope you've been out enjoying time with family and friends. 

- Brandon

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This week I want to follow up on a couple of points from my post about the One Big Beautiful Bill recently signed into law. There were meaningful changes to the 529 plan landscape and a new type of savings account created for kids, the so-called Trump account.

I’m repurposing an article from SavingforCollege.com about these two topics and adding some notes of my own. This website is a good resource for 529 plan information but the bill’s recent passage has created some ambiguity. I expect this will clear up as the months go by. However, it’s good to delve into what we know now so you can keep applicable items on your radar.

Here’s the article I mentioned. My notes are italicized.

The newly enacted “Big Beautiful Bill” (H.R. 1, the 2025 budget reconciliation bill) significantly reshapes the landscape of education savings plans. With expansions for 529 plans, ABLE accounts, and the introduction of Trump accounts, families and financial planners must understand these important changes.

Changes to 529 Plans: Expanded Flexibility

Credentialing, Licensing, and Continuing Education Programs

Families can now use 529 plans for credentialing programs such as welding, aviation mechanics, and other trade certifications. Covered expenses include tuition, testing fees, and costs for books, equipment, and continuing education required to obtain or maintain a professional credential.

This includes not only initial program costs but also exam fees and continuing education required to obtain or maintain certification. For example, you can use 529 funds for:

Preparation and exam fees for professional licenses and certifications, including CPA exam prep and fees, bar exam review and registration costs, and licensing exams for fields like law, accounting, and finance

Training and certification for skilled trades and vocational careers, such as commercial Driver’s License (CDL) training, plumbing, electrical work, welding, HVAC, or cosmetology

These programs are often listed under state Workforce Innovation and Opportunity Act (WIOA) directories or the federal WEAMS (Web Enabled Approval Management System) database maintained by the U.S. Department of Veterans Affairs.

I’ve found these sites difficult to navigate. They also illustrate an important question: If you’re trying to pay for a credential program from 529 plan savings, can you enroll with the provider directly or must you enroll with a qualified institution.

For example, let’s assume I want to leverage unused 529 plan money to pay for an industry program for myself, such as the Charted Financial Analyst designation. This could easily cost $9,000 including exam fees, study materials, and exam prep courses. I could simply pay cash for this but wouldn’t it be better to fund this from an education account? Now we can, or at least it seems like it!

People typically enroll with the CFA Institute directly. However, this organization isn’t a Title IV school that shows up on the lists referenced in the links above. Institutions partnering with the CFA Institute do show up, but that could mean enrolling in a larger program, such as a university in this case, with all the extra cost and hassle that entails.

Ultimately the CFA credential, like the CFP credential I already have, should qualify as eligible expenses for 529 plan money, based on a statement from the CFP Board and Section 3 of the Workforce Innovation and Opportunity Act. It’s probably going to be like other 529 expenses where you incur the expense (keep your receipts!) and then reimburse yourself from the 529 plan account. Assuming so, this will be a big help for young people because of broader access to education, but also for parents and grandparents who, for whatever reason, find themselves with excess 529 plan money.

Credentialing programs must meet certain criteria to be considered qualified, typically recognized under the WIOA or similar federal/state programs. Be sure to check whether a specific program appears on your state’s WIOA list or the WEAMS database to confirm it qualifies for 529 usage.

This expands the scope of 529 savings to cover programs critical to skilled trades and high-demand technical careers, supporting individuals who choose alternative educational pathways.

When it applies: Distributions after July 4, 2025. My understanding is that eligible expenses could have taken place this year prior to July 4^th, but the distribution to reimburse yourself would have to be taken after that date.

Broader K-12 Expenses

Previously limited to tuition, 529 plan funds can now cover an extensive range of additional K-12 costs. Families now have more flexibility to pay for:

Curriculum materials (including textbooks, workbooks, and digital learning tools)

Tutoring services (must meet certain requirements)

Online education platforms or subscriptions

Educational therapies for students with disabilities

Standardized test fees (e.g., SAT, ACT, AP exams)

Dual-enrollment tuition for college courses taken during high school

These changes reflect the growing diversity of educational models and the support services students often need to succeed.

When it applies: Distributions after July 4, 2025.

Higher Annual K-12 Limit

The annual per-child distribution cap for K-12 expenses has doubled from $10,000 to $20,000. This significant increase allows parents greater latitude in covering comprehensive education expenses for private, religious, or eligible public schools.

Families who prefer private or specialized education options will particularly benefit, as the expanded cap allows for a broader financial cushion to address tuition and the newly included academic and support-related expenses.

When it applies: Tax years starting in 2026.

What are Trump Accounts?

Trump accounts are essentially starter IRAs for children. While families can contribute up to $5,000 annually (indexed for inflation), additional contributions may come from employers, state programs, or nonprofit organizations, and certain types, like the federal seed deposit, don’t count toward the limit.

Key features:

Federal Seed Contribution: Eligible children born between 2025 and 2028 receive a one-time $1,000 government deposit. This must be elected by parents but the mechanism for doing so is unclear at this time.

Investment Restrictions: Funds must be invested in low-cost U.S. equity index funds until the beneficiary reaches 18. Broad-market funds, nothing related to specific sectors and no leverage can be used – simple and cheap is the idea.

Withdrawal Rules: No withdrawals before the child turns 18, except rollovers to ABLE accounts. Post-18, normal traditional IRA withdrawal rules apply. Withdrawals before age 59.5 come with penalties but there are some exceptions. However, as with typical Roth IRAs, contributions could be distributed tax free – just the gains would be taxed and have an early withdrawal penalty.

I don’t think Trump accounts will be a replacement for 529 plans. Instead, the accounts will be useful for parents, grandparents, even entities, to start putting money away for long-term savings/retirement for kids who don’t have earned income and couldn’t contribute to a retirement account. Otherwise, if these same people want to save non-specifically for the kids in their life, currently available account types like UTMA or UGMA seem much simpler and have fewer strings attached.

When it applies: Accounts established from January 1, 2026, with contributions beginning July 4, 2026.

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Good morning! I hope your last few weeks of summer went well. Summer always seems to pass quickly but now with our kids out of the house its end doesn’t have the same significance. Anyway, my short blog break is over and it’s back to writing these posts.

There are several updates percolating so let’s review…

US and foreign stocks performed well over the summer but have slowed a bit so far in September, which is typical. Bonds were up about 3% in the last three months and this is great for more conservative investors. Part of the reason for the good performance from stocks and bonds is the odd way that markets can sometimes climb a “wall of worry” when investors continue buying as negative information builds. And it has been building, especially in recent weeks.

While the economy continues to grow its growth rate is slowing. That’s not terrible, of course, but it changes the outlook. We’ve seen this play out over the summer in broad measures of economic activity like ISM reports, downward revisions to labor market numbers, and inflation upticks (plus expectations for tariff-related and even immigration-related price pressures).

This puts the Federal Reserve’s rate-setting committee in a difficult spot between its dual mandates to prop up the labor market while keeping inflation in check. Based on the CME Group’s FedWatch tool, investors now see a quarter point interest rate cut by the Fed as a given at its meeting next week. Two more similar cuts are expected later this year and there’s roughly a 40% chance of a fourth cut in January. All would be in response to an economy that’s continuing to slow into year-end. That may not play out exactly as the market expects, but this evolving consensus about the Fed ultimately juicing up the economy helped fuel stock market returns over the summer. It also sent the yield on the 10yr Treasury, a key economic benchmark, down by nearly half a point during this timeframe to a hair over 4% as I type. Bond prices move opposite to bond yields so this mostly explains the good performance coming from bonds.

I don’t think it’s time to worry too much about the economy and markets because it seems like there are positive indicators countering each negative one. Maybe we’re in a slower-growth balance phase for a while, not teetering on the edge of recession, and markets will keep climbing that wall of worry for months. Only time will tell.

Still, it’s wise given market performance to look ahead and think about raising cash for upcoming spending needs. This can be done through rebalancing stocks that have performed well. A broad market US stock fund would be an obvious choice for rebalancing, but sectors like Tech, Communication Services, and Industrials have done the best lately so you can be choosy if you own a variety of funds in your portfolio. Small cap stocks have also had a run this summer and could be good candidates. You can easily rebalance within tax deferred accounts like IRAs and Roth IRAs because the transactions themselves aren’t taxable. But you’ll want to consider your gain/loss options carefully when rebalancing within other account types. You could add sales proceeds to bonds or stick that cash into a money market fund or bank CD if you’ll need to spend it in the next year or so.

Reminder – be wary of mixing near-term spending cash with volatile asset classes. Bitcoin, to pick on something popular, began the summer at around $108,000 per coin, fell to about $99,000, and rose to nearly $123,000 before dropping to $112,000, with all sorts of volatility in between. What if you needed the money along the way – would that have been on a good day? One can make a case for crypto as a long-term speculative asset but it’s no place for short-term cash.

Money market funds from firms like Schwab and Vanguard are still paying a bit over 4% APY, but that’s expected to fall assuming the Fed lowers interest rates as mentioned above. The funds work with a lag of maybe a month or more so the rate decline won’t match Fed policy exactly. You could stick some cash into a short-term CD but those rates, such as out to 12 months, have trended lower over the summer to just below 4% APY in recent weeks. CD rates going out two years and beyond are also below 4%.

All in all, we had a pretty quiet but positive summer in the markets. Volatility typically picks back up heading into the fall and, as usual, there are lots of potential catalysts. However, I still think we have some tailwind in the markets but the sails are starting to buffet a bit. So it’s a good time to review basic portfolio management concepts like rebalancing and setting aside cash as needed. I’m doing this for you if I’m responsible for managing your portfolio. If you’re managing on your own, let me know if you have questions and I’ll be happy to assist.

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As I mentioned a couple of weeks ago, the inflation impact from new tariffs is taking longer to show up than many speculated back in April. The impacts have been starting to show up, however, at least as of June’s CPI numbers. This is causing further speculation that tariff pressure is building and won’t really start being felt until later this year. Although risk of an outright recession is low, these changes will eventually impact business and consumer spending, causing the economy to slow, and so forth – it’s just a question of by how much and when.

This is also affecting assumptions about when the Fed may reduce interest rates. According to the CME FedWatch tool, there’s very little chance the Fed lowers its rate benchmark at its meeting this week. However, the market is pricing in a couple of rate reductions from September through year-end. The interest rate traders whose actions create these probabilities could be wrong, but it’s a good view of what investors are focusing on right now.

There’s still a lot of uncertainty around all this but news from recent days of “preliminary” trade deals with Japan and the EU helps to reduce tariff-related anxiety somewhat. My understanding is that our average bilateral tariff rate with the EU will go from about 1% last year to 15% on imports and 0% on US exports. Maybe the real-world numbers end up averaging less, but that’s a large increase in a short time on over $6 billion of imports (the total in 2024). Now there’s talk that the Trump administration’s tariff “floor” is 15%. Analysts suggest that 10% and below could be more-or-less absorbed by the economy here and abroad but the higher tariffs go tilts the scale more. Who’s going to pay for that? The cost won’t be borne entirely by Europe and our other trading partners. That said, the outlook isn’t all doom and gloom because our economy has time and again proven to be incredibly resilient.

Along these lines, here’s another piece from JPMorgan that I received yesterday. The article has some reminders about tariff-related dates and a good visual of where average tariffs have been and where we appear to be headed.

From JPMorgan…

Peak policy uncertainty is likely behind us, with the average effective tariff rate recently settling near 15%, and markets have primarily shifted focus away from policy.

August could be another busy month of tariff deadlines. Peak policy uncertainty is likely behind us, with the average effective tariff rate recently settling near 15%, and markets have primarily shifted focus away from policy.

However, several key dates in August will be key to watch:

August 1st: New “reciprocal” tariffs on several countries, including major trade partners, are set to come into effect:  25% on Japan and Korea, 30% on Mexico (non-USMCA), 30% on the EU, 35% on Canada (non-USMCA), 50% on Brazil, and 50% on copper (in addition to previously implemented tariffs). With these measures, the average effective tariff rate could rise from 15% to 22%, based on 2024 import levels, marking the highest estimated rate since early April.

August 12th: This marks the deadline for negotiations with China, although an extension is possible. While 100%+ tariffs are unlikely to come back, the U.S.-China relationship is strained, with the deadline bringing a new chance for escalation. On the bright side, China has increased access to rare earths, with U.S. rare earth magnet imports from China surging 660% from May to June, which has helped ease tensions.

Mid-August: The Federal Circuit Court of Appeals may announce its ruling on the legality of the President’s use of IEEPA for some tariffs. A decision favoring the administration could uphold “reciprocal” and fentanyl tariffs of 10% or more. If the court sides with the Court of International Trade, which initially struck down the tariffs, the average effective tariff rate could drop to just 6%. However, other legal pathways exist for the administration to implement its tariffs.

The administration is hinting at a new baseline tariff of 15-20%, but this will depend on how the above unfolds.

What does this mean for investors?

Markets have appeared unfazed by the latest tariff threats. The S&P 500 hit a fresh high on July 21st, up 7.2% YTD, with markets refocusing on long-term themes like AI. However, the June CPI report indicates that tariff impacts are emerging and may intensify over the next few months, even before tariff rates potentially move higher. The impact on corporate earnings remains unknown – businesses may pass on the cost of higher tariffs to preserve margins, but price hikes could reduce sales in this environment.

There are plenty of other reasons to be optimistic about U.S. economic resilience and corporate earnings. However, it is still a good time to focus on active management and diversification as well as avoid overconcentration, which can help investors navigate the choppy waters of more tariff news.

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I’ve written before about being selective in the voices I pay attention to when it comes to the economy, markets, and so forth. These days we need beacons of rationality in what can otherwise be a sea of disfunction. Anyway, two of these are Bespoke Investment Group and certain analysis and information from JPMorgan. Bespoke is a subscription service I’ve been using for years that provides all manner of analysis but really shines when providing broader context. JPMorgan offers macroeconomic commentary from its investment management arm for free to investment advisors.

Both shops had good commentary yesterday regarding the end of the 90-day tariff pause that helped markets recover so quickly from the April lows. That they’re both echoing essentially the same concern about the outlook for tariffs is interesting.

You probably heard about the Trump administration engaging in more rhetoric and a letter writing campaign with our trading partners last week. That caused volatility to perk up again in the markets although investors, at least on average, still assume that tariff numbers being bandied about won’t actually come to fruition. Regardless, real-world tariffs (our effective-rate referenced below) have been rising and will eventually impact corporate profits and inflation, although recent reports have been solid and Consumer Price Index readings have been coming in below consensus estimates.

Maybe actual tariff impacts are just being pushed down the road several months. Are investors being overly optimistic about this, and perhaps also about the likelihood that larger tariffs will actually stick? It’s entirely possible that markets will continue to grind higher from here. But prices are relatively high so it seems best to plan for more market volatility in the weeks and months ahead while all this gets sorted out. Along those lines, let us know if your situation has changed because that could mean adjustments to your investment portfolio. Otherwise, your first approach should be leveraging your plan and trying to ride out volatility.

Here are the notes I mentioned. First from Bespoke and then from JPMorgan.

Consistent with the decisions released so far in July, after the close Friday, the Trump Administration announced a 30% tariff rate for the European Union and Mexico. That rate of course assumes that the tariffs actually go into effect on August 1. […] the market currently prices the odds of full implementation of the August 1 tariffs at less than 10%.

In the background, Friday saw the release of the Monthly Treasury Statement which showed tariff collections of $26.6bn NSA ($320bn annualized) in June. When compared to US International Trade Commission data on the realized effective tariff rate data current through May, we can see that realized tariff collections for the month likely exceeded 10% of imports. We also note that Daily Treasury Statement data current through July 10 is consistent with monthly collections up 15% versus June, which would take the effective rate on imports closer to 12% based on recent history. Again, this is all before the recent wave of letters for new rates effective August 1 (theoretically).

The market will stay at elevated levels as long as marginal buyers are convinced that the rates set out in the letters won’t be the rates that take effect. There is no plausible way the market can trade at 6250 [the S&P 500’s level as of a few days ago] with 30%+ tariffs on Canada, Mexico, and the EU as well as 20%+ tariffs on all other major trading partners. But for those rates not to play out, either a deal needs to be reached or the market would need to sell off; it was market declines that forced a change in approach during April, and it will be market declines that force a change in approach on August 1 as well of no deals can be reached.

We see many investors apply a “it’s all rhetoric” approach to Trump administration policy, and it’s understandable why they do so. Trump himself, let alone other members of his administration, says so much that it’s tempting to discount all the rhetoric as irrelevant. On the other hand, many proposals advocated by Trump in the lead up to the last election that some argued wouldn’t take effect have been borne out. Regardless of whether you think his policies on regulation, taxes, immigration are good or bad, the President has followed through on many that a lot of people assumed he wouldn’t.

The above does not mean that Trump is assured to follow through on his plans to hike tariffs to an effective rate well above 20% on August 1. But the market’s confidence that he won’t is potentially misplaced based on prior experience and is also a signal to Trump that he should follow through. For long-term investors, this is yet another example of why staying invested is so important; there’s no way to model this interplay and over a timescale of years it’s mostly irrelevant. For more tactically oriented investors, the President has created more volatility, but good luck trying to anticipate when and to which sectors the next tape bomb will drop.

From JPMorgan…

Economic forecasting has been an increasingly tough job due to the ever-evolving tariff landscape. A major source of confusion has been the difference between statutory (or announced) and effective tariff rates. For example, the tariff paid by importers may be 25%, but when you calculate the effective rate by dividing tariff revenues by import values, it often appears lower. This happens due to real-world complexities such as exemptions, quotas, shipping delays, and product mix shifts.

This week's chart illustrates the significant changes in both statutory and effective tariff rates since the start of the year. The gap between these rates is wide due to implementation delays and a dramatic shift in import share composition, both by product and country. Imports from China, which are subject to the highest tariffs at an estimated effective rate of 40%, have plummeted, decreasing by 24% y/y from March to May 2025. In contrast, imports from the Eurozone, now facing an effective tariff of approximately 10%, have surged, largely driven by the frontloading of products like pharmaceuticals.

The data show that importers are actively seeking substitutes from other countries to circumvent these tariffs. The terminal tariff rate is still uncertain, but a rate in the high teens is becoming more likely. The Section 232 [national security-related tariffs] investigations are almost complete, indicating more sectoral tariffs could be introduced, along with the already announced 50% copper tariff. Also, recent negotiations with Vietnam, which initially raised hopes for lower rates, ended with a 20% tariff on products originating in Vietnam, higher than the previously announced 10% during the 90-day pause. This outcome makes other negotiations look less promising. As a result, investors may need to be more cautious and actively manage their exposure to affected companies.

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