Category: News

Some investors who remember the harsh, dramatic stock market downturns of 2000 and 2008 may fear that we are on the precipice of a third downturn, driven by excessive enthusiasm for artificial intelligence (AI) stocks. The AI investment cycle resembles the dot-com internet bubble of 2000 in that there is a massive buildout of infrastructure based on the hopes of a new technology. AI looks to be at least as revolutionary as the internet in changing our daily lives and our economy. The current market is less comparable to the Great Financial Crisis of 2008-2009, when a speculative bubble in house prices, spurred on by lax lending standards, brought down a much larger part of the economy.

Because the US tax code has been consistently used by both parties to further political/social priorities, it is good to remember that its basic purpose is to raise money. We agree that the “art of taxation” is akin to “plucking the goose” to obtain maximum revenue (“feathers”) from citizens with minimal complaint (“hissing”).[1] It helps that process if government expenditures are kept in a reasonable range. From the taxpayer’s point of view the key difference to keep in mind is between “avoidance” (arranging your affairs so as to pay as little tax as possible) and “evasion” (which is illegal).

Being sent on a “fool’s errand” means being asked to do something again that did not work at least once before. The financial press and Wall Street are suggesting that US investors look to Europe and the world to diversify and prosper.[1] One author’s vehicle of choice is the MSCI-World Index. Funds that mimic this index own 1,320 stocks and, by weight, are 72% US companies. Four other countries—Japan, the UK, Canada and France—make up 15%, leaving 13% for the rest of the world. However, the real problem is what the rest of the world’s indexes are made up of. In the US S&P 500, the finance sector makes up 13% of the index. For the MSCI World Index, the finance sector makes up 17%, which means that for the world ex the US, the finance sector is approximately 29 percent. This approaches 40% in some country indexes. In the heavily regulated US, the old-line bank and finance companies carry very high leverage and are considered, at Woodstock, risky. Imagine that sector in the world ex US with less regulation. It is a problem waiting to happen.

Real gross domestic product (GDP) growth in the US was up 3.8% for the second quarter, a strong rebound from the negative 0.6% in the first quarter.[1] This was driven by a 29.3% decline in imports (following a 38% surge in Q1) and resilient consumer spending (which makes up 68% of GDP). The strength of imports in Q1 and consumer spending in Q2 may have been reactions to proposed tariff policy and front-loading imports and purchases to stay ahead of price increases. The positive GDP growth, consumer spending patterns and capital expenditure cycle associated with cloud data centers and artificial intelligence (AI) have spawned positive earnings reports and guidance for the remainder of 2025 and into 2026.

High-tax states are challenging moves by high earners and high net worth individuals who are moving out of their states to avoid higher tax rates. Taxpayers should remember that citizens always have the right to design their affairs to pay as little tax as possible. This is avoidance.

In the universe of investment management firms similar to Woodstock, we were an early adopter of the Global Investment Performance Standard (“GIPS”). We decided to have a large composite be our flagship:[1] our Growth Composite, which has covered over 80% of assets under management at Woodstock for 20 years. Clients included in the Growth Composite range from grandparents to grandchildren and include those drawing from their account and those accumulating. Most are taxable accounts. On June 30, 2025, we reached 20 years of performance recording under GIPS.

The S&P 500 Index returned 11.0% in the second quarter of 2025, fully recovering from its -21.3% peak-to-trough sell-off after bottoming on April 7, and finished the mid-year at an all-time high. Investors were relieved in April when President Trump revealed his more pragmatic side, quickly deferring the tariffs he had announced on April 2. Investors have since grown more accustomed to his negotiating strategy of taking extreme positions before walking them back.

While the US stock market recovered to all-time highs, the US dollar had its worst half-year performance since 1973, suggesting stock market enthusiasm may stem more from anticipation of easier monetary policy than from faster economic growth. US stocks underperformed most other world markets in dollar terms. The yield of the 10-year US Treasury bond traded down about one-third of a percentage point from the beginning of the year.

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. Many of the provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 were set to expire at the end of 2025. OBBBA makes these provisions permanent. These include:

• 10, 12, 22, 24, 32 and 35 percent tax brackets
• Elimination of personal exemptions
• Increased alternative minimum tax exemption and threshold amounts
• Lower limitation on the deduction of mortgage interest
• Limitation of casualty loss deduction
• Termination of the miscellaneous itemized deductions

What do we know about dramatic meltdowns in the US stock market? In our recent memory, we’ve had three. In two of them, 1999-2000 and in 2007-2008, the writing was on the wall well before the fall. In the first, start-up companies with no earnings had colossal stock market valuations. In the second, tiered mortgage-backed securities for homeowners making no down payments were being sold to the general public. The third, in 2020, was in response to the global economy shutting down abruptly in response to the worldwide Covid-19 outbreak.

Post-election optimism around deregulation, tax cuts, and a business-friendly administration has given way to concerns about potential negative economic impacts, especially around how uncertainty may cause consumers and businesses to reduce spending.

The Economic Miracle

The US economy has proven to be surprisingly resilient during its post-COVID recovery. Inflation has come down as employment and real wages have grown, which has enabled the US consumer to maintain high levels of spending. The 2.4% annualized increase in real gross domestic product (GDP) in Q4 2024 (see Figure 1) was primarily driven by increases in consumer spending and government spending that were partly offset by a decrease in investment. Imports, which are a subtraction in the calculation of GDP, decreased.