RESOURCES

After a negative year-over-year change in GDP (adjusted for inflation) in the first quarter, growth rebounded strongly to 3.8% in the second quarter, which was the strongest quarter in almost two years. It’s probably appropriate to think of the first half of the year together, as some of what might have been done in the first quarter was likely pushed back into the second quarter. The average year-over-year growth for the first two quarters was 1.6%, which is weak growth, but still growth. One could reasonably conclude that uncertainty drove weakness in the last quarter of 2024 and first quarter of 2025. We will have to wait and see. Clearly, we do not have a booming economy, though.

For generations, real estate investors have relied on IRS Section 1031 to do “exchanges” of their investment real estate without causing tax realization. This feature has been one of the pillars that have made real estate investing with taxable (non-retirement) money attractive. Investors can adjust their portfolio to reflect their current needs and the present opportunities while still deferring taxes. What if equity investors could do the same? Now, they can.

The S&P 500 rebounded 10.8% in the quarter, mostly on valuation expansion, as the Schiller P/E (price based on inflation-adjusted earnings over the last ten years) jumped 9.8%. At 37.9x, it is 72% above its 50-year average, and 41% above its twenty-year average.

The Behavioral Portfolio was written for financial advisors, but would also be useful for engaged individual investors.