Market Update: Navigating Stability Amid Change
Positioning for Stability in a Slower Growth Environment
The mid-year economic outlook offers a more nuanced picture following the latest GDP release: the U.S. economy expanded at an annualized 3.0% in Q2, rebounding sharply from a 0.5% contraction in Q1 and exceeding forecasts of around 2.4%*. However, much of the strength came from a decline in imports, while final domestic demand rose more modestly, suggesting the rebound may overstate underlying momentum. As a result, full-year GDP is still expected to average around 1.5%–1.6%**, with a modest pickup in 2026 (Bank of America Global Research, July 2025). Inflation trends have continued to moderate, and the Federal Reserve is likely to hold rates steady into late next year as price stability improves.
U.S. Customs data shows an effective tariff rate of 9.5% on May imports**. Analysts expect the economic impact of these tariffs to become more pronounced in the second half of the year. Notably, both freight and shipping demand have shown signs of improvement since the initial policy rollout.
Key macro trends shaping the second half of the year include:
- Disinflation gaining traction: Headline CPI rose just 0.3% in June, bringing the 12month rate to 2.7%, and core CPI (excluding food and energy) remained at 2.9%, indicating a gradual easing in inflation, though shelter and services remain the primary contributors to underlying pressures***.
- Equity markets broadening: Market leadership is expanding beyond mega-cap tech to sectors like Industrials, Financials, and Utilities. Increased participation across a wider range of stocks, along with renewed investor interest in value and defensive sectors, suggests a healthier and more balanced market rally.
- Fixed income regaining relevance: Year-to-date returns through mid-2025 have ranged from 4% to 7.25%****, driven primarily by high coupon income amid elevated starting yields. Real yields in corporate and municipal bonds remain attractive, though investors should stay mindful of duration and credit risk in a still-evolving rate environment.
- Policy and labor data as watchpoints: Tariff negotiations and employment trends will influence sentiment and asset flows.
This macro backdrop supports a balanced approach to asset allocation, favoring diversified equity exposure alongside selective fixed income and alternative investments.
California Real Estate: Long-Term Fundamentals Remain Intact
Against this broader backdrop, California’s housing market continues to demonstrate long-term resilience shaped by persistent structural forces. High prices, limited supply, and strong demographic demand combine to create a durable environment for long-term investors.
Recent housing data highlights*****:
- Median home price in May: $900,170 – down 1.1% from April but only 0.9% below year-ago levels.
- Sales volume: Down 5.1% month-over-month and 4.0% year-over-year.
- Inventory rising: Active listings up nearly 50% year-over-year.
- Affordability remains a challenge: Only 17% of Californians can afford a median-priced single-family home.
- Buyer sentiment improving: 26% believe it’s a good time to buy – the highest since early 2022.
Despite elevated ownership costs, driven by both home values and sustained mortgage rates, California real estate remains underpinned by long-term supply constraints, demographic trends and economic vitality. Most homeowners are locked into sub 5% mortgage rates, keeping turnover low and pricing stable.
The combination of disinflationary momentum, steady monetary policy, and structurally undersupplied real estate markets offers compelling opportunities—particularly in strategies focused on income generation and capital preservation.
Private credit strategies, such as Secured Income Fund, provide targeted yield opportunities in an environment where traditional fixed income continues to face duration and reinvestment risk. Portfolio risk is mitigated through broad geographic diversification (lending across 31 California counties) and exposure to a mix of residential and commercial real estate. Additionally, by lending against the lower half of the capital stack, the strategy is structured to limit downside risk in declining real estate markets.
*Source: Reuters, July 30, 2025; Yahoo Finance, July 30, 2025
**Source: Bank of America Global Research, “Midyear Market Outlook 2025,” July 2025.
***Source: US Bureau of Labor Statistics, Consumer Price Index Summary, July 15, 2025
****Source: Nuveen Fixed Income Weekly Commentary, July 2025; Vanguard Active Fixed Income Perspectives, Q2 2025
*****Source: California Association of Realtors, May 2025 Housing Market Report.