Letter to Stakeholders, June 2025

Tuesday, June 10, 3:45 pm EST. While April was a month that focused on trade policy, May has been and June will be, characterized by how the United States manages its debt load. The biggest indicator of that fiscal policy will be determined by what eventually passes from May’s H.R.1 – One Big Beautiful Bill Act (BBB). As we noted last month, the Bipartisan Policy Center estimates over $4 Trillion in costs (without offsets) from the current bill as written. The reason it might affect the stock market – and early on, your portfolio – is because of how it may affect the bond market. 

Bonds and the Stock Market

“The bond market is the backbone of all markets.” 

- Ray Dalio, Founder, Bridgewater Associates 

As founder of the largest hedge fund, Ray Dalio’s comments on the importance of bonds are underscored by the positive stock market reaction in April to the 90-day pause in tariff policy. Why did the stock market jump so high so fast? Why did tariff policy change so fast from April 2^nd to April 9^th? Bond yields (interest rates). 

When the stock market has a negative shock – like it experienced after the April 2^nd tariff announcement – investors rush to the “safety” of US treasury bonds. Our US debt is referred to in our finance textbooks as the “risk-free rate of return” because allegedly there is no risk of US default. The United States typically enjoys quicker economic recoveries from crises because we are the issuers of these “risk-free” financial instruments and our US dollar serves as the world’s reserve currency. But that “safe haven” status has been questioned in recent months. 

Bond prices and bond interest rates have an “inverse relationship” because unlike common stocks, bonds are issued with a fixed rate of return. But like stocks, “the market” can determine whether that rate of return is too high or too low. For example, when demand for bonds goes up – as would happen in a “flight to safety” – the price for bonds would go up also. Due to that high demand, the “yield” (which is the interest you would receive for lending/investing in bonds) would normally go down (inverse relationship).  Soon after the April 2^nd tariff announcements, this happened (on April 4^th).  But just five days later, US treasury bonds began to “sell off” and rates began to rise. That’s not normal. In fact, former US Treasury secretary Larry Summers said it suggested a “generalized aversion to US assets in global financial markets.”  On that same day, April 9^ththe tariffs were postponed (paused) and the stock market soared. 

July 4^th Deadline

The United States Senate has been given a deadline of July 4^th for having their version of the “Big Beautiful Bill (BBB)” passed so it can be signed into law.  The non-partisan Congressional Budget Office (CBO) expects the law as written to increase federal deficits by $2.4 trillion over 10 years. Yale University’s non-partisan research center The Budget Lab reached a similar conclusion. The “world’s leading nonpartisan tax policy 501(c)(3) nonprofit” Tax Foundation estimated a $2.6 trillion deficit conventionally calculated, or $1.7 trillion deficit over 10 years if so-called “dynamic scoring” is used. Although there is political dispute of these numbers, Moody’s becomes the third major credit rating agency to downgrade our US credit “score” due to seemingly unabated rising US debt.

Bonds and the BBB

“Here’s the interesting thing about the stock market: it cannot be indicted, arrested or deported; it cannot be intimidated, threatened or bullied; it has no gender, ethnicity or religion; it cannot be fired, furloughed or defunded; it cannot be primaried before the next midterm elections; and it cannot be seized, nationalized or invaded. It’s the ultimate voting machine, reflecting prospects for earnings growth, stability, liquidity, inflation, taxation and predictable rule of law.”

• Michael Cembalest, Chairman of Market & Investment Strategy for J.P. Morgan Asset Management

Mr. Cembalest could have said the same for the bond market. To borrow money, the US government hosts bond “auctions” to sell bonds to investors. Depending on investor demand, interest rates can go higher or lower. Large investors can force policy changes by reducing demand. Passing the BBB affects decisions by bond investors including those who may choose to invest in other countries’ bonds instead of our own.  This is what we’re monitoring as we manage your portfolios over these next few months.

Jason J. Howell, CFP®, CPWA®, CSRIC® 

President

Jason Howell Company is a family wealth management firm that strengthens the finances of families making the transition from first generation success to family wealth. We envision a world where wealthy families give, grow and govern themselves in ways that enrich their local communities. We do this by reducing the fear, isolation and guilt associated with financial success.

Jason J. Howell, CFP®, CPWA®, CSRIC® and Douglas W. Tees, MBA, CFP® CAP®, CBDA  have spent a lot of time in the Washington, DC area, and are aware that many people who are first generation wealth suffer from a kind of "financial imposter syndrome."  Successful entrepreneurs and family businesses are always looking over their shoulder; government contractors worry about the next contract; former Capitol Hill staffers privately wonder if they should "feel bad" for the money they now make. Imposter syndrome is common among people who work for the many corporate headquarters based in this area as well. These feelings get in the way of properly managing family wealth. We empower them to get organized, build a team of advisors and make decisions.

Our typical "first generation wealth" families include dual income parents who work, save and have just the right amount of fun. For long-time, family owned businesses we focus on much family preservation as we do wealth preservation. 

First generation wealth success stories and family business owners realize that they:

• Need to “do something” with the cash in their checking/savings
• Need to eventually diversify their portfolio away from the family business
• Need an investment strategy for “up” and “down” markets
• Need a plan to mitigate market, credit, inflation, and political risks
• Need to start tax planning instead of just tax paying
• Need to be sure they are choosing the right work benefits
• Need to reduce financial miscommunications between family members
• Need to separate business finances from personal finances
• Need to separate family wealth from individual wealth
• Need a plan to provide space for both family and individual philanthropy
• Need to plan for money while alive and for what happens after death