Commentary from the Investment Committee of Coral Gables Trust
Q2 2025 – Volatility is here to stay
As we reflect on the first half of 2025, one thing is abundantly clear: change has arrived with speed and scale that few anticipated. While this year was expected to bring transition, the breadth of geopolitical and economic developments has been striking. For investors, the journey has been anything but uneventful. Markets entered 2025 with strong momentum, quickly reaching record highs. However, this optimism was abruptly challenged in April when the Trump administration announced sweeping tariff increases on nearly all global trading partners. This announcement triggered a sharp market selloff, taking the market into bear market territory with a 20% drop from its peak. Remarkably, just a week later, a temporary pause in the tariffs was announced. Markets welcomed this reprieve with a historic rally, and by quarter-end, the NASDAQ, S&P 500 and Dow had reclaimed all-time highs. The technology and Artificial Intelligence heavy, NASDAQ, led the climb with a second quarter gain of +17.97% and a first half return of +5.86%. The S&P 500 and the Dow followed closely behind and experienced second quarter gains of +10.94% and +5.46%, and year-to-date returns of +6.20% and +4.55%, respectively. The swift and sizable rebound highlighted the market’s underlying resilience and investors’ readiness to look through near-term volatility in pursuit of greater policy clarity. While the path was anything but linear, the strong performance across major indices reflects renewed optimism around corporate earnings, the strength of the U.S. consumer, and signs of policy recalibration in Washington. The dramatic swings also served as a powerful reminder of the importance of staying invested through periods of uncertainty, as markets often recover before the headlines do.
A notable shift this quarter has been the acceleration of change within market leadership. The tariff overhang, combined with evolving investor sentiment, accelerated a rotation that was already underway. The dominance of the “Magnificent Seven” mega-cap technology/AI companies is less influential, giving way to a welcome broadening of market participation. In our view, this shift is constructive as it reflects a return to fundamentals and introduces a more diverse set of opportunities across sectors and geographies. As shown in the chart below, for the first time in over two years, the S&P 500 excluding the Magnificent Seven has taken the lead, with their contribution to index returns declining by nearly 60%. This shift points to a healthier and more balanced market backdrop, supported by a broader set of fundamentally driven companies.
Sources: FactSet, Standard & Poor’s, J.P Morgan Asset Management
Economic Developments: Moderation with Underlying Strength
As we enter the second half of the year, the U.S. labor market continues to be a pillar of economic resilience. As such, the U.S economy added 147,000 jobs in June, exceeding expectations of 110,000. This increase is mainly due to employment trending upward in areas like healthcare, hospitality and government. While this is slightly above the average for the past 12 months, it reflects a more moderate pace relative to the hiring surges of 2023 and early 2024. The unemployment rate ticked down to 4.10% from 4.20% in May. Pockets of weakness may exist within the labor market, however, recent data has helped ease concerns about a job-related slowdown in the economy. The labor market remains steady and resilient, supporting consumer spending and economic growth. The chart below illustrates a labor market experiencing moderating but sustained momentum despite economic headwinds. Job creation continues to exceed expectations, albeit at a more tempered pace than in recent years. The latest data supports a “soft landing” narrative, where ongoing employment gains help sustain the economy without adding inflationary pressure.
Sources: U.S. Bureau of Labor Statistics via FRED
Despite the U.S. economy entering 2025 on stable ground, the economy contracted at an annualized rate of 0.30% in the first quarter. Due to the uncertainty surrounding tariffs and trade policy, the contraction was primarily driven by a massive surge in imports, which subtracted nearly 5.00% from GDP growth. The import boom was largely a response by businesses and consumers front-loading purchases to avoid anticipated tariffs introduced by the Trump administration. However, the headline GDP contraction paints a different picture than what underlying economic indicators suggest. A deeper look reveals consumer spending remaining resilient and growing at 1.80%. As such, the tariff-driven import rush does not reflect economic weakness but rather strategic behavior. The strong investment and consumer spending data suggest firms and households were adapting to policy shifts. Furthermore, economic growth remains healthy with tariff policy and inflation remaining the biggest risks to the economic outlook.
Federal Reserve: Wait-and-See Approach
The Federal Reserve maintained its “wait-and-see” approach at June’s meeting and kept the policy rate unchanged at 4.25%-4.50%, reflecting a cautious approach amid uncertainties stemming from tariff policies. The Federal Reserve Chair Jerome Powell emphasized the economy’s solid foundation while acknowledging heightened inflationary risks expected to intensify over the summer due to tariff effects. According to the latest Federal Reserve dot plot, seven committee members anticipate no rate changes this year, while two project just a single cut. This suggests the Federal Reserve may hold steady for longer than the market currently anticipates. Interestingly, more committee members are projecting rates above the median than below, signaling a more cautious outlook on the path ahead. However, Chair Powell will likely use his upcoming Jackson Hole address in August to signal the Federal Reserve’s policy stance for the remainder of the year.
Source: Bloomberg
Fixed Income Markets: Steady Amid Uncertainty
In the second quarter, bonds delivered steady performance and reaffirmed their role as a reliable source of income and diversification. Despite ongoing political uncertainty and tariff-related market volatility, yields remained largely range-bound, and investors were rewarded for maintaining disciplined exposure to high-quality bonds. The 10-year Treasury ended the quarter at 4.23%, a slight increase from the first quarter, but comfortably within our projected range of 4.00% to 5.00%. The yield curve steepened slightly, reflecting expectations of sustained fiscal deficits and the possibility of monetary easing later this year.
U.S. fixed income underperformed foreign bonds during the quarter, as European yields declined following European Central Bank rate cuts. Both domestic and foreign bonds performed well, though foreign bonds led with a quarter return of +7.37% compared to the Bloomberg Barclays Aggregate Bond index at +1.21%. Looking ahead, we believe high-quality fixed income remains well positioned to deliver consistent returns while serving as a critical buffer against market volatility.
International Markets: Taking the Spotlight
International equities extended their outperformance in the second quarter, building on a powerful start to the year that has prompted many investors to reassess long-standing home-country biases. While U.S. equities rebounded sharply over the quarter, global stocks quietly led the way over the first half. The MSCI EAFE index gained +12.04% in the second quarter, bringing its year-to-date return to almost +20.00%. The MSCI Emerging Markets index rose +12.17% in the second quarter, supported by easing inflation pressures, stronger earnings, and renewed consumer momentum across Asia and Latin America.
After years of lagging U.S. equities, international holdings are finally benefitting from a convergence of tailwinds: policy easing abroad, weakening of the U.S. dollar, and a broadening of global equity market leadership away from U.S. mega-cap technology. One of the most compelling aspects of this shift is the valuation advantage. As of mid-2025, developed international stocks are trading at approximately 14 times forward earnings compared to over 22 times for the S&P 500. This represents an historically wide discount of 35%. More importantly, this is not a reflection of weaker fundamentals. Many regions, particularly Europe and Asia are delivering stronger than expected earnings, improving margins, and increasing shareholder returns through dividends and buybacks. We continue to advocate for the inclusion of international equities and for those who are underweight may want to increase their exposure. A weaker U.S. dollar stands to further enhance returns, while reduced reliance on U.S. technology companies allows for a more diversified and resilient equity profile.
Thoughts on Asset Allocation
The first half of 2025 has reinforced the value of staying both invested and diversified. Despite periods of heightened volatility, markets rewarded patience and discipline, underscoring the importance of maintaining a long-term perspective. We are encouraged by the broadening of market leadership across sectors and regions, which reduces concentration risk and creates a more balanced foundation for returns. As the macroeconomic and geopolitical environment evolves, we remain committed to navigating this complexity with discipline and agility. Many positives are on the horizon that include the passage of tax legislation that will be beneficial to businesses and individuals in the coming quarters. If nothing else, clarity has been restored on what was a huge overhang during the first half of the year. Trade negotiations are expected to continue, and earnings reports thus far have proven that markets are not terribly worried about tariffs causing rampant inflation.
The Trust Investment Committee maintains conviction in our active managers, who have demonstrated strong relative performance across asset classes. Their focus on company fundamentals, valuation discipline, and risk management remains central to navigating what we expect will be a dynamic second half of the year. Listed below is a subset of our equity and fixed-income managers that performed exceptionally well for the year-to-date period against their benchmarks.
Confluence International Developed 22.02% 19.87% MSCI EAFE TR
Schafer Cullen High Dividend Value 8.14% 6.00% Russell 1000 Value TR
T. Rowe Price Large Cap Growth 7.46% 6.09% Russell 1000 Growth TR
PIMCO Income Fund 5.41% 4.02% Bloomberg Barclays Agg
Cohen and Steers REIT 4.47% -1.14% FTSE/NAREIT REITs Index
Principal Preferred Bond 3.68% 0.71% S&P Preferred Stock
*Returns are from actual portfolio results. Results may vary. Past performance is no guarantee of future returns.
We look forward to speaking with each of you about our investment philosophy and strategies and your portfolio’s performance.
For additional information, please contact Mason Williams, Chief Investment Officer, at 786-497-1214, or Michael Unger, Vice President/Investment Officer, at 786-292-0310.
RESOURCES
Quarterly Report: Q2 2025
Q2 2025 – Volatility is here to stay
As we reflect on the first half of 2025, one thing is abundantly clear: change has arrived with speed and scale that few anticipated. While this year was expected to bring transition, the breadth of geopolitical and economic developments has been striking. For investors, the journey has been anything but uneventful. Markets entered 2025 with strong momentum, quickly reaching record highs. However, this optimism was abruptly challenged in April when the Trump administration announced sweeping tariff increases on nearly all global trading partners. This announcement triggered a sharp market selloff, taking the market into bear market territory with a 20% drop from its peak. Remarkably, just a week later, a temporary pause in the tariffs was announced. Markets welcomed this reprieve with a historic rally, and by quarter-end, the NASDAQ, S&P 500 and Dow had reclaimed all-time highs. The technology and Artificial Intelligence heavy, NASDAQ, led the climb with a second quarter gain of +17.97% and a first half return of +5.86%. The S&P 500 and the Dow followed closely behind and experienced second quarter gains of +10.94% and +5.46%, and year-to-date returns of +6.20% and +4.55%, respectively. The swift and sizable rebound highlighted the market’s underlying resilience and investors’ readiness to look through near-term volatility in pursuit of greater policy clarity. While the path was anything but linear, the strong performance across major indices reflects renewed optimism around corporate earnings, the strength of the U.S. consumer, and signs of policy recalibration in Washington. The dramatic swings also served as a powerful reminder of the importance of staying invested through periods of uncertainty, as markets often recover before the headlines do.
A notable shift this quarter has been the acceleration of change within market leadership. The tariff overhang, combined with evolving investor sentiment, accelerated a rotation that was already underway. The dominance of the “Magnificent Seven” mega-cap technology/AI companies is less influential, giving way to a welcome broadening of market participation. In our view, this shift is constructive as it reflects a return to fundamentals and introduces a more diverse set of opportunities across sectors and geographies. As shown in the chart below, for the first time in over two years, the S&P 500 excluding the Magnificent Seven has taken the lead, with their contribution to index returns declining by nearly 60%. This shift points to a healthier and more balanced market backdrop, supported by a broader set of fundamentally driven companies.
Sources: FactSet, Standard & Poor’s, J.P Morgan Asset Management
Economic Developments: Moderation with Underlying Strength
As we enter the second half of the year, the U.S. labor market continues to be a pillar of economic resilience. As such, the U.S economy added 147,000 jobs in June, exceeding expectations of 110,000. This increase is mainly due to employment trending upward in areas like healthcare, hospitality and government. While this is slightly above the average for the past 12 months, it reflects a more moderate pace relative to the hiring surges of 2023 and early 2024. The unemployment rate ticked down to 4.10% from 4.20% in May. Pockets of weakness may exist within the labor market, however, recent data has helped ease concerns about a job-related slowdown in the economy. The labor market remains steady and resilient, supporting consumer spending and economic growth. The chart below illustrates a labor market experiencing moderating but sustained momentum despite economic headwinds. Job creation continues to exceed expectations, albeit at a more tempered pace than in recent years. The latest data supports a “soft landing” narrative, where ongoing employment gains help sustain the economy without adding inflationary pressure.
Sources: U.S. Bureau of Labor Statistics via FRED
Despite the U.S. economy entering 2025 on stable ground, the economy contracted at an annualized rate of 0.30% in the first quarter. Due to the uncertainty surrounding tariffs and trade policy, the contraction was primarily driven by a massive surge in imports, which subtracted nearly 5.00% from GDP growth. The import boom was largely a response by businesses and consumers front-loading purchases to avoid anticipated tariffs introduced by the Trump administration. However, the headline GDP contraction paints a different picture than what underlying economic indicators suggest. A deeper look reveals consumer spending remaining resilient and growing at 1.80%. As such, the tariff-driven import rush does not reflect economic weakness but rather strategic behavior. The strong investment and consumer spending data suggest firms and households were adapting to policy shifts. Furthermore, economic growth remains healthy with tariff policy and inflation remaining the biggest risks to the economic outlook.
Federal Reserve: Wait-and-See Approach
The Federal Reserve maintained its “wait-and-see” approach at June’s meeting and kept the policy rate unchanged at 4.25%-4.50%, reflecting a cautious approach amid uncertainties stemming from tariff policies. The Federal Reserve Chair Jerome Powell emphasized the economy’s solid foundation while acknowledging heightened inflationary risks expected to intensify over the summer due to tariff effects. According to the latest Federal Reserve dot plot, seven committee members anticipate no rate changes this year, while two project just a single cut. This suggests the Federal Reserve may hold steady for longer than the market currently anticipates. Interestingly, more committee members are projecting rates above the median than below, signaling a more cautious outlook on the path ahead. However, Chair Powell will likely use his upcoming Jackson Hole address in August to signal the Federal Reserve’s policy stance for the remainder of the year.
Source: Bloomberg
Fixed Income Markets: Steady Amid Uncertainty
In the second quarter, bonds delivered steady performance and reaffirmed their role as a reliable source of income and diversification. Despite ongoing political uncertainty and tariff-related market volatility, yields remained largely range-bound, and investors were rewarded for maintaining disciplined exposure to high-quality bonds. The 10-year Treasury ended the quarter at 4.23%, a slight increase from the first quarter, but comfortably within our projected range of 4.00% to 5.00%. The yield curve steepened slightly, reflecting expectations of sustained fiscal deficits and the possibility of monetary easing later this year.
U.S. fixed income underperformed foreign bonds during the quarter, as European yields declined following European Central Bank rate cuts. Both domestic and foreign bonds performed well, though foreign bonds led with a quarter return of +7.37% compared to the Bloomberg Barclays Aggregate Bond index at +1.21%. Looking ahead, we believe high-quality fixed income remains well positioned to deliver consistent returns while serving as a critical buffer against market volatility.
International Markets: Taking the Spotlight
International equities extended their outperformance in the second quarter, building on a powerful start to the year that has prompted many investors to reassess long-standing home-country biases. While U.S. equities rebounded sharply over the quarter, global stocks quietly led the way over the first half. The MSCI EAFE index gained +12.04% in the second quarter, bringing its year-to-date return to almost +20.00%. The MSCI Emerging Markets index rose +12.17% in the second quarter, supported by easing inflation pressures, stronger earnings, and renewed consumer momentum across Asia and Latin America.
After years of lagging U.S. equities, international holdings are finally benefitting from a convergence of tailwinds: policy easing abroad, weakening of the U.S. dollar, and a broadening of global equity market leadership away from U.S. mega-cap technology. One of the most compelling aspects of this shift is the valuation advantage. As of mid-2025, developed international stocks are trading at approximately 14 times forward earnings compared to over 22 times for the S&P 500. This represents an historically wide discount of 35%. More importantly, this is not a reflection of weaker fundamentals. Many regions, particularly Europe and Asia are delivering stronger than expected earnings, improving margins, and increasing shareholder returns through dividends and buybacks. We continue to advocate for the inclusion of international equities and for those who are underweight may want to increase their exposure. A weaker U.S. dollar stands to further enhance returns, while reduced reliance on U.S. technology companies allows for a more diversified and resilient equity profile.
Thoughts on Asset Allocation
The first half of 2025 has reinforced the value of staying both invested and diversified. Despite periods of heightened volatility, markets rewarded patience and discipline, underscoring the importance of maintaining a long-term perspective. We are encouraged by the broadening of market leadership across sectors and regions, which reduces concentration risk and creates a more balanced foundation for returns. As the macroeconomic and geopolitical environment evolves, we remain committed to navigating this complexity with discipline and agility. Many positives are on the horizon that include the passage of tax legislation that will be beneficial to businesses and individuals in the coming quarters. If nothing else, clarity has been restored on what was a huge overhang during the first half of the year. Trade negotiations are expected to continue, and earnings reports thus far have proven that markets are not terribly worried about tariffs causing rampant inflation.
The Trust Investment Committee maintains conviction in our active managers, who have demonstrated strong relative performance across asset classes. Their focus on company fundamentals, valuation discipline, and risk management remains central to navigating what we expect will be a dynamic second half of the year. Listed below is a subset of our equity and fixed-income managers that performed exceptionally well for the year-to-date period against their benchmarks.
Investment Manager *YTD 2025 Return Manager Benchmark ______
Confluence International Developed 22.02% 19.87% MSCI EAFE TR
Schafer Cullen High Dividend Value 8.14% 6.00% Russell 1000 Value TR
T. Rowe Price Large Cap Growth 7.46% 6.09% Russell 1000 Growth TR
PIMCO Income Fund 5.41% 4.02% Bloomberg Barclays Agg
Cohen and Steers REIT 4.47% -1.14% FTSE/NAREIT REITs Index
Principal Preferred Bond 3.68% 0.71% S&P Preferred Stock
*Returns are from actual portfolio results. Results may vary. Past performance is no guarantee of future returns.
We look forward to speaking with each of you about our investment philosophy and strategies and your portfolio’s performance.
For additional information, please contact Mason Williams, Chief Investment Officer, at 786-497-1214, or Michael Unger, Vice President/Investment Officer, at 786-292-0310.
Index of Commentary
Q2 2025
Q1 2025
Q4 2024
Q3 2024
Q2 2024
Q1 2024
For additional information, please contact:
Mason Williams
Managing Director
Chief Investment Officer
Michael J. Unger, CFP®
Vice President
Investment Officer