John Gorlow
| Jul 17, 2025
Are you puzzled by how the markets appear to shrug off the erratic economic decisions coming out of Washington? The only thing that seems to rattle the markets these days is when Trump threatens to fire Jay Powell—then the reaction is immediate and negative. But what about the rest of it? The tariffs are on, off, on again, delayed (but maybe not). Major U.S. trading partners are wary and confused, and U.S. businesses are feeling the heat. Headline CPI rose in May. Analysts attribute this bump to rising tariff-driven costs. The Federal Reserve, once leaning toward rate cuts, is now weighing the inflation implications of trade tensions. .
And yet markets certainly aren’t reacting to these trends. Nor are they reacting to the average Joe, who may be worrying about health care, rising food prices, inflation, or the loss of a white collar or government job. Rather, investors appear be adapting to a seismic shift in geopolitical thinking. And that’s worth exploring. But first a look at the numbers.
Second Quarter Market Review: Strong Returns, Wild Ride
The second quarter delivered a mix of volatility, reversals, and resilience. The S&P 500 returned 10.94%, climbing to fresh highs by June’s end. International developed markets (MSCI Word-Ex U.S. Index) returned 12.05%, and emerging markets (MSCI Emerging Markets Index) gained 11.99%, with much of that return coming in a few dramatic weeks. The journey wasn’t smooth. On April 4, the S&P fell 6% following new U.S. tariffs—its 19th largest one-day drop ever. Just five days later, it surged 9.5% after a 90-day pause, the third-largest single-day gain in history. From mid-February to early April, the index lost nearly 19%, then bounced back almost 25% to finish at a new peak. Volatility didn’t derail markets, but investor sentiment remained unsettled, amid rising inflation, shifting fiscal priorities, and renewed geopolitical strain. .
Fixed Income and Real Assets: Stabilizing Forces
Fixed income markets delivered mixed results in the second quarter, as expectations around inflation and central bank policy remained in flux. Against this backdrop, real assets offered some ballast but with wide variation beneath the surface. .
The Bloomberg U.S. Aggregate Bond Index rose 1.15% as yields retreated from Q1 highs. Treasuries rallied modestly, especially at the short end. Credit markets held firm. Investment-grade corporates returned 1.44%, and high-yield bonds added 1.84%, buoyed by stable spreads and steady demand. Munis clawed back 0.89%. Globally, bonds followed suit. Emerging market debt benefited from a softer dollar and stronger risk appetite. .
Real Estate
The Dow Jones U.S. Select REIT Index returned –1.71%, while the S&P Global ex-U.S. REIT Index returned +14.21% for the quarter. From a market cap-weighted standpoint of 68% and 32% respectively, the weighted average return for the globally diversified REIT investor was +3.38%..
Commodities
Commodities delivered mixed results in Q2, with performance diverging sharply across sectors. The Bloomberg Commodity Total Return Index fell –3.08%, pulled down by steep losses in energy and softs, while select agricultural markets posted gains. .
Energy prices dropped significantly, led by a –23.06% decline in natural gas due to mild weather and high inventory levels. .
Soft commodities were also under pressure. Coffee plunged –19.97%, reflecting shifting harvest expectations and currency weakness in key producing countries.
In contrast, some agricultural commodities rallied. Soybean oil gained +15.00% on strong biofuel demand, while lean hogs rose +7.41% amid tightening supply. .
Gold
Gold remained relatively resilient amid ongoing macro uncertainty. For the second quarter, the LBMA Gold Price Index delivered a return of +5.53%, supported by a weaker dollar and rising concerns over fiscal stability in the U.S. and abroad.
The U.S. Dollar
The U.S. dollar posted a sharp decline in the second quarter of 2025. The DXY Dollar Index (symbol: DXY), widely used as a benchmark for dollar strength, began the quarter at approximately 104.40 on March 31 and ended at 96.81 on June 30. That’s a drop of roughly 7.3%, one of the steepest quarterly losses in recent history. This pullback reflects growing concerns about U.S. fiscal and monetary policy, as well as increasing investor demand for non-dollar-denominated assets. The dollar’s weakness contributed to stronger returns for international equities when measured in U.S. dollar terms, providing a meaningful boost to globally diversified portfolios.
Bitcoin
Bitcoin, meanwhile, surged past $120,000 in June, driven by growing institutional interest and a more constructive regulatory outlook. U.S. policymakers are exploring ways to let banks support crypto payments, opening the door to new fee-based services around custody and settlement. This legitimization is fueling momentum. Still, Bitcoin remains a lightning rod—dismissed by some as speculative folly, embraced by others as the future of digital infrastructure.
A Geoeconomic Shift Unfolds
In “The New Age of Geoeconomics (11-July),” Financial Times Editorial Board member Gillian Tet offers a broad overview of global shifts in economic policy going back to World War I. The current debt burden overhanging the United States is part of a shifting economic story that has unspooled over a century. There was the pre-1914 era of globalization followed by post-war protectionism, populist politics and nationalism. Then there was a great expansionist period of government spending after World War II, followed by the free-market era of Margaret Thatcher and Ronald Reagan.
Today we’re witnessing a rejection of neoliberal ideals—shorthand for decades of pro-market, pro-globalization policy—in favor of what Gillian Tett calls “power politics.” The geopolitical pendulum has swung from global integration and market liberalization toward nationalism, isolation, and a new brand of retaliatory economics. Many observers see troubling echoes of the 1930s in this shift.
The broader narrative here is about geoeconomics, Tet says. We are witnessing the displacement of the old orthodoxy of free markets and capital flows. This is evident in how the U.S. is aggressively using industrial policy to reshore supply chains, restrict exports, and weaponize finance. Other nations are following suit.
Against this backdrop of geopolitical realignment and economic nationalism, another transformation is underway—quieter but equally consequential. It’s not being driven by governments or international bodies, but by a handful of corporations reshaping the infrastructure of commerce, communication, and cognition. These are no longer just companies competing for market share; they’re laying down the foundations for how the world functions.
The Battle for Silicon Sovereignty
We haven’t seen this degree of concentrated influence over commerce and institutions since the era of oil, steel, and railroads. But today’s power brokers don’t produce commodities—they produce platforms. The cohort includes Apple, Microsoft, Google, Amazon, Nvidia, Meta, OpenAI, Palantir, and others rapidly expanding in reach. Their executives—figures like Tim Cook, Satya Nadella, Sundar Pichai, and Sam Altman—sit at the intersection of commerce, statecraft, and emerging technologies, shaping how people process information, engage with institutions, and perceive reality itself.
It’s no longer just about who builds the best product. It’s about who controls the frameworks through which societies interpret and respond to the world. These firms are embedded in systems touching everything from advanced manufacturing, national security, education, healthcare, and finance, to the most personal rhythms of modern life. Their influence spans the cognitive, economic, and cultural infrastructure of our time.
This concentration of power demands scrutiny—not because collapse is inevitable, but because the stakes are rising in ways that outpace institutional oversight. As tech titans race for dominance—not alignment—regulators are outgunned, and the public remains distracted. Without deliberate guardrails, the acceleration of innovation threatens to outstrip the stability of the very systems it promises to improve.
As Gillian Tett recently observed, the absence of a coherent counterweight to this consolidation raises urgent questions: Who governs the governors? Where is the accountability? While markets continue to react to Fed signals and macroeconomic data, the deeper transformation is structural. Power is no longer centered in Washington. Increasingly, it resides in boardrooms and server farms—where a new class of actors is quietly shaping the architecture of tomorrow’s economy.
Debt, Power, and the Illusion of Control
We're not sounding alarms—we're observing where influence is consolidating and what that means for markets, institutions, and decision-making structures. What amplifies these dynamics is the broader macro backdrop. One might view this concentration of power in a different light if it weren’t unfolding alongside extraordinary levels of public debt and a new cycle of government-led industrial policy. As Gillian Tett points out, much of today’s spending is being justified through a national security lens—driven largely by the perceived threat from China. This “siege mentality” gives political cover to deficits that once would have sparked debate. When global competition is framed as existential, the checkbook stays open.
Ray Dalio, founder of Bridgewater, echoes this view. In his latest book, he argues that the U.S., along with most G7 countries and China, is in the late stages of a massive debt cycle. “If not controlled in some way,” he warns, this will lead to a “major restructuring or monetization of debt assets,” not just in the U.S., but globally. He puts the probability of such an event at “something like 65 percent over the next five years.”
Deep political divides have made serious debt reduction virtually impossible. The administration’s domestic agenda—especially in the wake of past tax cuts—has widened the fiscal gap under the banner of growth incentives and deregulation. Meanwhile, the Congressional Budget Office (CBO) projects the federal debt held by the public will rise from 99% of GDP today to 122% by 2034, an all-time high. From a fiscal perspective, the math doesn’t work. This is no longer a cyclical issue—it’s structural.
Markets Look Past the Mess
Despite the noise, markets have remained oddly calm. The Atlanta Fed’s GDP tracker still hovers around 2.6%, and stocks sit at all-time highs. But the budget math doesn’t compute. No one seriously believes a $7 trillion federal budget can be balanced with tariff revenues. Even the most optimistic Wall Street Journal estimates top out at $300 billion. Meanwhile, inflation pressures are building. The New York times just reported a 2.7% uptick as tariffs take hold, while the Wall Street Journal flagged rising prices as a clear cost to American consumers. The World Bank has lowered its global growth forecast, citing growing protectionism. And the Dallas Fed now estimates that immigration restrictions alone could shave a full percentage point off U.S. growth this year.
Right now, some believe markets aren’t ignoring risk—they’re expressing confidence in the underlying strength of the U.S. economy. Strong earnings and steady demand support a case for cautious optimism. But that confidence may prove brittle. Beneath the surface, inflation pressures, fiscal overreach, and political dysfunction continue to mount. The market may simply be pricing in today’s resilience while bracing, quietly, for tomorrow’s cracks.
Strategy in Uncertain Times
What might that future look like? We are not in the guessing-game business. But it’s possible to see two sides of a coin. Maybe earnings will continue to rise while deficits deepen. Investment will bloom in some sectors while other industries—alternative energy and solar power, for example—stagnate. Inflation cools but fiscal imbalances fester. Labor markets stay tight while ICE raids fray the workforce in agriculture, hospitality and other service sectors. Global demand holds, but trade systems fragment, driving up costs. The markets march on, making money, while conditions deteriorate beneath the surface.
No one knows the future. But with the right strategy, that uncertainty doesn’t have to be unmanageable. Durable investment plans are grounded in long-term thinking, broad diversification, and disciplined rebalancing. This is the framework we use at Cardiff Park—and the reason our clients have successfully weathered every economic cycle for more than two decades.
When Markets Rise, So Do Instincts to Protect
When markets climb—especially after a period of stress—investors naturally begin to look for protection. Prices feel stretched, sentiment softens, and the instinct to hedge kicks in. That’s understandable. But at Cardiff Park, we take a different approach. Rather than reacting to short-term moves, we focus on rebalancing. A disciplined review of your asset allocation—scoping where you are today and where you want to go—can help realign risk, capture gains, and maintain your long-term strategy. If that’s something you’re thinking about, we invite you to connect with us. This is our core work.
Still, some investors seek protection through other means.
Hedging the Broad Market
One method is to purchase downside protection through options. For example, a put option on the S&P 500 at 5700 (with the index recently around 6300) might cost about 4% annually. That’s roughly $16,000 to cover $1 million of exposure over four months. When volatility rises, these costs can double or triple. What’s inexpensive during calm can become prohibitively expensive in panic. By understanding the true cost of hedging, you get a window into how structured products and annuities are priced.
Structured Notes and Annuities
When you see what it costs to hedge the equity market directly, you begin to understand how insurance companies price the products they sell. Structured notes and annuities often promise protection or guaranteed income, but they do so at a cost that isn’t always obvious. If the expected return on equities is 7–8%, and the cost of hedging is 4%, how much progress can you realistically make? These products are often pitched as “safe” alternatives—especially when markets are volatile or after investors have experienced losses. But what’s really being sold is comfort and simplicity. And what’s often sacrificed in exchange is liquidity, transparency, and long-term growth. We’re not saying these products have no place. In narrow, specific circumstances, they may be worth considering. But we don’t treat them as broad substitutes for either equities or bonds. Our preference is for straightforward tools that preserve flexibility, limit unnecessary cost, and align with the core goals of each portfolio.
Digital Assets and Alternatives
Some investors look even further afield, turning to digital assets like Bitcoin. For some, it’s an inflation hedge or an alternative to fiat currency. For others, it’s a speculation on the blockchain’s potential to reshape finance. There’s real innovation here—trillions in financial activity may one day flow through blockchain rails—but for most investors, exposure already exists through broad equity holdings in companies building that infrastructure. For exposure to the coins themselves, publicly traded ETFs like IBIT hold spot Bitcoin and offer access with institutional custody, daily liquidity, and low fees (around 0.25%). For most people, these are best treated as speculative satellite positions—not portfolio anchors.
What We Do: Designing Real Resilience
In Q2, the U.S. dollar dropped more than 5%—a meaningful move that caught many off guard. But for investors holding unhedged international equities, the decline amplified returns. This isn’t about predicting currency swings. It’s a clear reminder that global diversification—when done thoughtfully—acts as a built-in hedge. No market calls required. Just discipline.
Inflation-protected securities (TIPS) offer another layer of defense. They don’t make headlines, but they do something few assets can: compensate directly when inflation rises. That makes them one of the clearest, most dependable tools for preserving purchasing power over time.
Other hedging tactics—gold, structured notes, digital assets—can look attractive in moments of fear. But each comes with trade-offs: complexity, cost, volatility, or all three. These tools may serve a purpose at the margins, but they aren’t substitutes for a well-constructed, resilient portfolio.
We focus on structure. A globally balanced portfolio—built on high-quality bonds, diversified equities, and real assets that respond differently to changing conditions—may not offer a perfect hedge. But it offers something better: resilience. It's not about chasing yield or timing cycles. It’s about building a plan that stands up to uncertainty without giving up long-term growth.
That’s the Cardiff Park approach. No gimmicks. No panic. Just a steady hand in a noisy world.
If you’d like to review your portfolio or revisit any part of your financial plan, please contact us. We’re here to help.
Regards,
John Gorlow
President
Cardiff Park Advisors
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