Gill Capital Partners Fourth of July 2025 Market Update
Happy Fourth of July to our friends, clients, and partners. We hope you are able to take some time to celebrate this holiday. We wanted to provide a brief update on current happenings in the economy and markets for you to think about while the ribs are slowly cooking on the BBQ, and with all that is going on, you might need to slow-cook those ribs a bit longer. Significant new legislation is likely on the way as lawmakers continue to debate major tax cut and spending proposals on Capitol Hill. Assuming it successfully clears the reconciliation process, we will do a deeper dive into this over the next month and provide you with our thoughts and insights. This month, we will take another look at key economic data points such as GDP, inflation, jobs, and interest rates, along with an update on equity markets. We’ll dive into all of that shortly, but first, let’s start with our quarterly “Financial Planning Corner”, focusing on contribution limits for qualified savings accounts.
Financial Planning Corner – Retirement & Other Account Contribution Limits-Are you aware that there are different yearly contribution limits for different types of retirement accounts and other tax-advantaged accounts? Did you know that you can contribute more to an account as you get older? We would like to remind our clients of the contribution limits for 2025. Please see the following table:
Please keep in mind that these figures are updated each year, with changes approved by Congress. For those clients who are age 50 and older, the catch-up contributions are available for most of the accounts listed above. HSA accounts are the exception, needing to wait until age 55 or older for the catch-up contribution provision to apply.
The SECURE 2.0 Act provides enhanced catch-up contributions (new for 2025 and beyond) for those aged 60-63. This new catch-up provision allows for significantly more funds to be contributed; however, this change is optional for employers and retirement plans. The enhanced catch-up amount is $10,000 or 150% of the standard age 50+ catch-up contribution limit, whichever is greater ($11,250 for 2025). Once a client reaches age 64 and beyond, their maximum catch-up contribution limit will revert to $7,500. While not available for everyone, if this feature is available in your retirement plan, it can help individuals to maximize their retirement savings during their peak earnings years.
Please reach out to your advisor with any questions that you may have or to discuss how best to optimize your qualified retirement savings.
Update on Economic Fundamentals
We have always placed importance on fundamentals over headlines and will continue to do so. In fact, they are even more important in moments like this as chaotic headlines whipsaw investor sentiment, but the underlying fundamentals will continue to drive market performance in the long run. Let's look at what we are seeing.
Jobs & Consumer Spending – This week brings several updates on the labor market, including reports from ADP, Challenger, Gray & Christmas, and the monthly Bureau of Labor Statistics (BLS) jobs report, which covers the broader labor market, including government employment.
The most recent monthly jobs report, as released by the Bureau of Labor Statistics, showed that payrolls rose by 139,000, slightly above expectations. Furthermore, March & April’s numbers were revised lower, totaling 95,000 fewer added than initially reported. The unemployment rate remained steady at 4.2%.
Weekly jobless claims – In the most recent week, initial jobless claims fell to 236,000 for the week, while continuing jobless claims continue to increase, reaching 1.97 million, the highest since November 2021.
ADP National Employment Report- The ADP report is a monthly look at private sector employment. For the month of June, they reported an unexpected drop of 33,000 jobs, marking the first monthly drop in more than two years and a significant miss compared to the expectation of 100,000 jobs gained.
Consumer spending – Personal Consumption Expenditures (PCE) fell 0.1% in May, while retail sales dropped 0.9% in May. Personal incomes also decreased in May by 0.4%, the largest drop since September of 2021
Our view – We are seeing a bit of a mixed bag here with the top-line labor reporting numbers by the BLS continuing to show a stable employment picture, while the ADP report, the real-time weekly jobless claim data and consumer spending numbers are showing signs of weakness. We are watching the weekly jobless claims data closely, as currently it is alluding to a tight job market where people are remaining unemployed longer than we have seen in some time. We will be watching very closely to see if this starts to spill materially into the monthly BLS jobs reports. With the unemployment rate still near historically low levels—just above 4%—we’re not yet concerned about the labor market, though signs of softening are beginning to emerge. This is also becoming apparent in consumer spending and retail sales data, which are also softening as consumers are feeling less confident and are spending less.
GDP – In the first quarter, U.S. GDP contracted by a -0.5% annualized rate, which was revised sharply lower from the previously reported -0.2% estimate, marking the first quarterly contraction in three years.
Our view – While the number was negative, the contraction largely stems from trade distortions in the reporting. A sharp rise in imports (+38%) that occurred during the quarter largely drove this distortion as businesses and consumers front-loaded purchases ahead of anticipated tariffs. Forecasts suggest a strong rebound in Q2 as these trade distortions largely reverse the impact of the reporting. Outside of the trade impact, both consumer and federal government spending declined sharply in the quarter, further weighing on GDP.
Inflation – The monthly report on consumer prices (CPI) for the month of May came out earlier this month, and it showed that prices rose 2.4% from a year ago and 0.1% for the month. Core CPI, which excludes food and energy prices, increased 0.1% for the month and 2.8% from a year ago.
Our view – Taken together, this month’s CPI release still shows inflation hovering modestly above the Fed’s 2% target, with underlying pressures steady. Yet, delayed effects of tariffs, as suggested by price upticks in tariff-sensitive categories such as apparel and cars, add uncertainty to the outlook. While inflation has largely come under control, the Fed wants to make sure that we do not see a secondary spike from some of the new policies.
Interest Rates & The Federal Reserve - In its June 2025 meeting, the Federal Reserve held interest rates steady at 4.25–4.50%, emphasizing a cautious, data-driven approach amid rising uncertainty from tariffs and global tensions. While the Fed still projects two rate cuts this year, internal disagreement persists—seven officials see no cuts—as inflation remains slightly above target and economic growth slows. Chair Jerome Powell and other policymakers stressed the need for clearer signals from inflation and labor data before easing policy. Markets anticipate a possible rate cut in September, but the Fed remains focused on balancing its inflation mandate with growing signs of economic and geopolitical risk.
Our view – The Fed is caught in a tough spot at the moment with growth expectations unclear, a softening labor market, and uncertain impacts from tariff policy. They’ve made it clear they would prefer to hold off on further interest rate cuts until they have more clarity on all the factors at play. They believe they do not need to rush to cut interest rates, as they do not wish to risk reaggravating the inflation picture that is just now nearing their long-term targets. Interest rates have edged slightly lower in recent weeks but remain elevated, driven by the Federal Reserve’s guidance and the possibility of substantial deficit spending, depending on the outcome of the legislation currently under debate.
Equity Market Update – As of this writing, U.S. equity markets have rallied strongly from the April lows and are hovering near the all-time highs reached at the end of 2024. International markets, however, are leading the charge this year with returns as measured by the MSCI EAFE Index up 19.92% through June 30. This compares to the return for the S&P 500 this year, which is up 6.2%.
Our view – The equity market rally from the April lows has been dramatic, fueled initially by a moderated stance on tariffs from what was initially presented. The market is awaiting resolution of the new legislation that is currently being debated, the result of which, frankly, is unclear at the moment. The equity market likes the tax cuts that are included in the bill, and as discussed previously, the bond market does not like the projected price tag. Why are international equity markets dramatically outperforming U.S. markets this year? The two main reasons are currency and valuations. The first and most impactful has been the decline in the dollar. The U.S. dollar has declined a staggering 10% so far this year. This has resulted in a 10% gain in international investment purely on currency translation. Secondly, compelling valuations compared to U.S. equities have lured investors to increase their international allocations.
We will continue to update you as developments occur and will provide updates if/when new legislation is agreed upon and signed into law. Until then, enjoy the Fourth of July holiday and that slow-cooked meat.
As always, please let us know if you have any questions or concerns, or if we can provide assistance with any other financial planning matters including education, taxes, insurance, or estate needs.