The 2nd Quarter: Full Circle If April was the faceplant and May was the bandage, then June was the stubborn attempt to jog again like nothing happened. And oddly, the market pulled it off – the S&P 500 hit fresh highs and breadth improved; for the first time in recent memory, gains didn’t just belong to seven mega-cap tech stocks and their AI dreams.
That’s the headline. The fine print? Still kind of a mess. Policy whiplash, Middle East flare-ups, and a Fed that can’t decide if it’s data-dependent or data-exhausted.
But the machines don't care. Stocks roared back. And in doing so, they quietly rewrote the story of 2025... for now.
That’s the headline. The fine print? Still kind of a mess. Policy whiplash, Middle East flare-ups, and a Fed that can’t decide if it’s data-dependent or data-exhausted.
But the machines don't care. Stocks roared back. And in doing so, they quietly rewrote the story of 2025... for now.
Beneath The Bounce
Going Forward
The temptation now is to re-embrace risk. Markets are back. Tech’s still expensive but seemingly unstoppable. Breadth is improving. Rates may fall, and recession risk has been repriced downward. As U.S. Bank’s Terry Sandven put it, “The wall of worry is crumbling as stocks reach all-time highs.”
But there are tripwires. The 90-day tariff reprieve is expiring, and while Treasury Secretary Scott Bessent claims trade partners are "negotiating in good faith," he also warned tariffs could “spring back” if talks stall.
Investors will also be keeping an eye on whether the Senate will be able to pass Trump’s “one, big, beautiful” bill. If passed by the Senate, the package - which narrowly passed a key procedural vote in the Senate on Saturday night - faces an uncertain path in the House.
Remember April. This market has a hair-trigger, and the usual safety nets—policy clarity, central bank confidence, investor discipline—aren’t exactly in place. If anything, this is the kind of environment where protection matters more, not less.
Wharton’s Jeremy Siegel echoed the sentiment: “The cooler inflation environment may prompt the Federal Reserve to lower interest rates sooner than anticipated. That may extend the rally. But it doesn’t eliminate the risk.”
So we stay where we are: diversified, cautiously allocated, not out over our skis.
And For What It’s Worth…
Don’t know how I missed this earlier, but KFC collaborated with Hismile, an oral care brand, to release a fried chicken-flavored toothpaste. True story. What started out as an April Fool’s Day prank became a real, limited-edition product inspired by KFC's Original Recipe with its 11 herbs & spices. It was designed to provide the taste of KFC's chicken in every brush.
Sadly, demand has been so strong that the product appears to be sold out.
Despite its tongue-in-cheek origin, perhaps this was a corporate attempt at vertical integration much like oil companies Exxon and Shell, which extract the oil, refine it, transport it, and sell it through their own gas stations. Now that KFC has a foothold with appetizers and entrées, they’re moving into oral hygiene.
Next logical step: arterial stents.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
- A Rally with Legs. After months of watching only Big Tech stretch its legs, June gave us something rare: participation. Industrials perked up. Financials showed signs of life. The rally has broadened - modestly, but meaningfully.
- Tariff Relief, or a Temporary Truce? The market got a gift in the form of a 90-day “pause” on April’s Liberation Day tariffs. Not resolution - just recess. But in an environment where certainty is a unicorn, that was enough. The Dow soared, the VIX (volatility index) calmed, and global investors exhaled just long enough to stop selling.
- Earnings: Surprisingly Spry, Again. Q1 earnings delivered a near 10% year-over-year increase. And more S&P 500 companies have issued positive Q2 earnings guidance compared to the averages. Call it luck, call it resilience, call it corporate gymnastics, but the results put a floor under stocks when they needed one.
- The Fed: Hawkish Hold, Dovish Vibes. The Fed held rates steady citing “data dependency,” which is just their way of saying we’re watching the same circus you are. Inflation stuck around 3.4% and markets continued pretending they hear rate cuts rustling around the corner.
Going Forward
The temptation now is to re-embrace risk. Markets are back. Tech’s still expensive but seemingly unstoppable. Breadth is improving. Rates may fall, and recession risk has been repriced downward. As U.S. Bank’s Terry Sandven put it, “The wall of worry is crumbling as stocks reach all-time highs.”
But there are tripwires. The 90-day tariff reprieve is expiring, and while Treasury Secretary Scott Bessent claims trade partners are "negotiating in good faith," he also warned tariffs could “spring back” if talks stall.
Investors will also be keeping an eye on whether the Senate will be able to pass Trump’s “one, big, beautiful” bill. If passed by the Senate, the package - which narrowly passed a key procedural vote in the Senate on Saturday night - faces an uncertain path in the House.
Remember April. This market has a hair-trigger, and the usual safety nets—policy clarity, central bank confidence, investor discipline—aren’t exactly in place. If anything, this is the kind of environment where protection matters more, not less.
Wharton’s Jeremy Siegel echoed the sentiment: “The cooler inflation environment may prompt the Federal Reserve to lower interest rates sooner than anticipated. That may extend the rally. But it doesn’t eliminate the risk.”
So we stay where we are: diversified, cautiously allocated, not out over our skis.
And For What It’s Worth…
Don’t know how I missed this earlier, but KFC collaborated with Hismile, an oral care brand, to release a fried chicken-flavored toothpaste. True story. What started out as an April Fool’s Day prank became a real, limited-edition product inspired by KFC's Original Recipe with its 11 herbs & spices. It was designed to provide the taste of KFC's chicken in every brush.
Sadly, demand has been so strong that the product appears to be sold out.
Despite its tongue-in-cheek origin, perhaps this was a corporate attempt at vertical integration much like oil companies Exxon and Shell, which extract the oil, refine it, transport it, and sell it through their own gas stations. Now that KFC has a foothold with appetizers and entrées, they’re moving into oral hygiene.
Next logical step: arterial stents.
As noted before, long term, the strategies will get the trends right. Short term, there may be a miss or two as the market juggles conflicting signals. So keep allocations of strategies reasonable within your portfolio, and remember that protection* remains paramount.
--David
_____
* WHAT DOES PROTECTION LOOK LIKE?
At the extreme, it’s cash. As I mentioned last month, it’s OK to hold some cash. Cash is, in fact, a position. It means you’re prepared to act when circumstances better align with your risk tolerance.
Protection can mean an overweight position in a model built for protection. Lower volatility and lighter drawdowns often indicate that a model is more protective in nature. Bond Bulls, for example, has the lowest volatility and max drawdown of any of the models.
Check out the updated white paper Conservative vs. Aggressive Portfolios for a list of all the strategies ranked from lowest risk to highest in terms of max drawdown.
Protection can mean putting multiple strategies to work in a portfolio, especially when those models tend toward an inverse relationship with each other, or focus on different asset classes or market sectors. Think Bond Bulls and American Muscle. Or Global Trader and The 12% Solution. Or even a bit of the Zen Knuckle combined with a couple of the above.
Because each strategy uses a slightly different mechanism to identify market risks, and because each can employ different funds representing different market sectors (although there is obviously some overlap), there is beneficial diversification at work when using multiple strategies within a portfolio – helping to reduce volatility and max drawdown.
Further down the page in Conservative vs. Aggressive Portfolios you can see examples of various combinations and how they have performed over the years.
Protection can mean keeping an eye on provisional picks during the month. These can provide a heads-up on potential trends -- and breakdowns of existing trends. Look for asset class shifts (a switch from an equity fund to a safe harbor asset like cash or bonds, or the contrary).
See if such a shift holds up for a few days. Not every such move is a trading opportunity or justifies a rebalancing, but information is power.
Finally, employing stop-loss and stop-limit orders. A stop-loss order is an order placed with a broker to buy or sell a specific stock (or ETF) once that asset reaches a specific price. It's designed to limit an investor's loss on a security position. While not perfect, and you'll find my own pro-and-con thoughts on the Q&A tab in the Members Pages, stop-losses have their place in risk management.
Read more on the Investopedia page for Stop-Loss Orders.
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