HM Wealth Monthly Letter 2025

Welcome to 2025. Happy to be here and looking forward to a positive year. Many changes are likely ahead that will raise emotions of uncertainty, hope, greed, optimism, and panic. My hope is to help narrow down the headline clutter to focus on a few material matters each month. News events, legislative updates, market moves, and charts I found interesting. I am big on visuals. There are pros and cons to every decision we make, financial or not. It's important to put our critical thinking cap on and weigh all sides, not just the one that feeds into our personal biases. What I have found, and this is in no way a new discovery, is that if we allow a singular bias to dictate our decision-making, it can lead to blindly emotional decision-making. We should all know this is the worst state to be in when making important financial decisions and can lead us to leave behind prudent risk management. One of my favorite quotes from Warren Buffet, which rings in the back of my brain when things seem too good to be true, "Only when the tide goes out do you discover who's been swimming naked". Allowing yourself to feel more confident or comfortable with increased investment risk is ok. We all feel some form of this after a strong stock market year, but take that to the table, talk with your advisor, and evaluate the facts of the situation and your overall financial plans. In my mind, there is no reason to take undue risk when not necessary to achieve a goal.   

Looking forward this year, here are a few topics you will likely see headlines about:  

AI - Artificial Intelligence  
This theme was a major driver of major US stock market index performance in 2024, with a few concentrated names providing the biggest moves. We may see the adoption of AI create opportunities for increase efficiencies across more sectors of the economy in 2025.  
Geopolitics  
The war in Ukraine continues in the region. The US is still providing support in the form of funding and weapons. This conflict and the US's role could be changing with the new incoming Trump administration.  
Changes here at home are going to capture much of the headlines with the incoming Trump administration promising many changes in their first 100 days.  
Interest Rates  
In 2024, rates were high and steady in the first half of the year, with trillions of dollars flooding into High-Yield Savings Accounts and Money Market Funds. The second half of the year saw the Federal Reserve begin cutting rates. This was due to core inflation coming down and the Fed not wanting to be overly restrictive to the economy and avoid causing a market crash.  
In 2025, we are likely to see a higher new normal than pre-pandemic. The days of the 3% mortgage are long in the rear view mirror and not likely to return.

Taxes  
With the Tax Cuts and Jobs Act(TCJA) set to sunset at the end of 2025, this will likely have the attention of lawmakers as this change would impose a net increase to income taxes of Americans at the federal level. There will likely be debate and new proposed changes this year before the TCJA sunset.  

Stay aware, informed, and disciplined. Do not get consumed by sensational headlines. Take a vacation. Learn a new thing. You should have a good year.  

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

February 2025

February started off on the international stage. On February 1st, the US imposed tariffs of 25% on Canadian and Mexican imports and a 10% tariff on Chinese imports. Within what felt like mere hours, agreements had been reached with both Canada and Mexico to postpone these tariffs for 30 days, supposedly until further deals could be negotiated. This is a developing and ongoing topic that we will continue to follow as the White House makes multiple announcements a week, which can change even before the ink is dry. I want to keep you informed but not recommend any action on these headlines yet, as the knee-jerk reaction is often the wrong one in the long run.  

US vs. the World  

The US stock market has outperformed global markets for more than a decade thanks to stronger earnings growth, greater exposure to technology, and the dominance of the Magnificent Seven. The dollar's strength has also been a tailwind.  

However, performance leadership between US and non-U.S. markets is cyclical. While the dollar's recent surge has weighed on non-U.S. stocks, a reversal in the dollar's trend could support international markets moving forward.  

In a change from the normal of the last decade, year to date, International Equities have outperformed the US major indexes.  

On the Interest rate front, the next Federal Reserve meeting is scheduled for March 19th. Current market sentiment has a near zero percent probability that the Fed will change rates at this upcoming meeting. That can has been kicked a few months down the road.  

If you have heard one piece of advice about investing repeatedly from a friend, parent, or myself, it is......to diversify. I am going to share some background as to why this advice matters and what it looks like when you do it right.   

The Role of Diversifying Asset Classes 

In the context of just the past two years, diversifying asset classes, including bonds and real assets, such as commodities and real estate, have not appeared to be beneficial to portfolios. However, when taking a broader view of the last 24 years, their value becomes more apparent. While global equities have had extreme highs and lows, not a single year has passed in which every asset class has declined. In the worst years for stocks (2000-03, 2008, 2018, and 2022), diversifying asset classes have helped to mitigate the losses for globally balanced portfolios, providing an annual return that is more easily stomached by investors. Even the lowest performing asset class of the century so far, commodities, has pulled through for investors in tumultuous markets on numerous occasions. 

Benefits of Diversification: Lower Standard Deviations 

Standard deviation is a key measure of risk for portfolios and can help investors come to terms with their exposure to so-called tail events, or the potential extremes they may experience to the upside or downside over the short term. From a portfolio perspective, lower correlations between asset classes cause the portfolio standard deviation to be lower than the average standard deviation of its assets. Since 2000, the globally balanced portfolio has had a standard deviation of 9.7%, which is only higher than bonds and cash, providing a much smoother ride for diversified investors. Staying invested throughout market cycles is key to building wealth over the long term, and the risk benefits of diversification may help investors stick to their plans during highly volatile markets. On the other hand, diversification can comes with owning asset classes that may be underperforming when others are on the rise. When reviewing your portfolio performance for the year you may see this manifest in the returns of a diversified portfolio being lower than owning a pure all US Equity portfolio. I commonly see investors comparing the returns of their diversified portfolios (that often contain US/International Equity and Bonds) to the S&P 500, which is a US Based all Equity index. It's an Apples to Fruit Salad comparison. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

March 2025

The market’s pullback this year has largely come down to valuation—investors are simply less willing to pay as much for each dollar of earnings amid renewed tariff uncertainty. A couple of months ago, trade tensions were more of a background concern. Now, with rhetoric turning into action, risk appetite has shifted. 

But there’s a silver lining. Broadly diversified portfolios have held up much better than the S&P 500, which was down as much as 10% from its peak in February. Bonds have delivered strong returns, offering both diversification and a safe haven during this period. International equities have also surprised to the upside, helped by China’s stepped-up stimulus efforts and a more proactive Europe positioning itself for a future less dependent on U.S. leadership. Germany has taken steps to bolster its military and infrastructure by unlocking the potential for over $1 trillion to be spent on a wide array of projects. 

For those who’ve been questioning the value of diversification—wondering why we don’t just own the Nasdaq and a few large growth names—this moment is a clear reminder. This is why. 

But here we are, the S&P 500 is slightly off it's low from a 10% correction. This may feel scary for some investors, as we haven't felt one of these since October of 2023. But historically, we expect to experience a sell-off like this once a year. 

While drawdowns in volatility like we've been experiencing are never welcome and potentially tough to stomach, we view this market movement as a healthy reset for some parts of the market, where we're seeing some recent warning signs, like extended valuations and very narrow market breadth, starting to improve. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

April 2025

How do you make decisions when fundamentals are no longer driving the market moves? 

1.        You don't…Most likely, you will be riding the lightning third rail of emotion from the slew of headlines coming to your phone. 

2.        (optional)You re-evaluate your goals 

Have they changed materially?
No - do nothing.
Yes - consider an appropriate change based on the update to your situation and not just the markets. 
 

Suppose you felt the need to get out of your stocks when the market came down more than 5-10%. How do you decide when you get back in? This mistake has cost investors long-term returns since the beginning of time. In the April 8th example I am referencing, a tariff headline came along the very next day that led the market mid-day to a massive move higher. The S&P 500 would end the day up 9.5%, placing that move in the top 3 best days for the index since 1990. This happens more often than not. Wells Fargo Investment Institute mapped out the 30 best days and the 30 worst days for the S&P 500 over the past 30 years. It found that the largest percentage gains and the largest percentage losses often happened in quick succession. 

What if you had bet against the market index because of how it felt in the morning and then checked your phone during lunch to see the trade that you hoped would provide some protection was actually delivering a sucker punch, compounding the downward trend. These knee-jerk responses rarely work out in your favor; let's not take your retirement portfolio to the roulette tables when what moves the market is a tweet that can be revoked or stipulated 2 seconds later. You aren't a supercomputer with an unlimited attention span. 

As of, April 10th , the Trump Administration has continued to apply pressure via tariffs to countries around the world. It is believed that the move has led to more conversations with more countries over economic policies currently in place, with negations being met with good faith reduction or delay in the announced triple-digit tariffs. We view this in a positive light, with the context that the ten thousand pound elephant in the room, China, has stood its ground and retaliated. My opinion: this is posturing by both sides. Neither want to seem weak, lesser, obedient, or not in control. I am by no means a seasoned historian, but history indicates that in a dictatorship, the leader must maintain the appearance of power and control. Once cracks begin to form in that foundation it leads to others challenging the leader or party for power. We are seeing some headlines of this in Russia as Putin is 72 years old and there have been multiple reports of assassination attempts in the past few months.  

What can we be doing during these unpredictable markets? 

For taxable investment accounts - Tax Loss Harvesting. If you are investing with us, we are likely doing this for you already. Taking advantage of securities that have been hit hard recently by headlines and selling those at a loss to capture that tax loss. We use this to offset gains from other securities sales we have made or sales from RSU grants needed for living expenses. One great feature about these capital losses is that they can be carried forward into future tax years if not completely used today. For those that remember 2022, everything was down, stocks and bonds, and double digits at some points. We took advantage of that. A key part of this is keeping yourself invested in the market. As I mentioned earlier, if you sell your stocks, that is one decision, and you will be forced to make another, when to get back in. When tax loss selling, we take those proceeds and reinvest those into other equities representing similar market segments to keep your exposure to the equity markets in line with the long-term strategic allocation. Otherwise, you would be sitting on a big pile of cash that will look quite silly when you miss the first 10%, 15%, or more of the market recovery.  

For long-term retirement account investors - Consider buying more! If you have extra cash in the bank you are planning on contributing to your retirement account anyway, why not do it when we've got ourselves a discount? It doesn't mean going out and buying extremely discounted or distressed companies. But even good companies go on sale during times of stress. This broad-based selling pressure, in my opinion, has become more common than ever before due to the shift from actively managed mutual funds to passive investing. When there is overwhelming selling of an index ETF, the fund, more or less, sells pro-rata all the companies in the index. They don't pick favorites or use gut feeling on which ones get sold. That's how passive investing works. This is where patience and experience can play in your favor by taking advantage of these stocks that are being forcibly sold elsewhere for nothing more than a scary headline. 

As April comes to a close, we have seen a bounce from the YTD and monthly low on April 8th of slightly over 10% on the S&P 500. Is this the beginning of a rally with sentiment about trade slowly turning in the minds of investors? Is this a mild rebound before a leg lower in equity markets? I remain cautiously optimistic and await further progress and economic news. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

May 2025

One of the most notable events from May was the surprise, but not unexpected, announcement from Warren Buffett that he would be stepping down from his role as CEO of Berkshire Hathaway at the end of the year, at which point he will be 95. This year would be his last year on stage at the annual shareholder meeting, which marks the end of an era. The meeting was dubbed the  "Woodstock of Capitalism" and was held in Omaha, Nebraska. I won't endlessly repeat his eternal words of wisdom here; there are far better books that have already done so. But the changing of the guard for such a highly respected and humble industry figure deserves acknowledgement.  

Interest Rates 

In May, the Federal Reserve opted to keep interest rates steady, reinforcing its cautious, wait-and-see stance as officials continue to assess evolving economic conditions. A key factor in their decision appears to be uncertainty around tariffs, which could place added pressure on both consumers and small businesses. This backdrop makes policymakers hesitant to shift course prematurely. 

We’ve adopted a similar mindset when considering portfolio allocations from a broader perspective. Given the unsettled nature of global trade developments and a macroeconomic environment that is still in the early stages of reshaping, we've chosen to remain measured in our positioning. Outside of investments, this translates into an expectation that mortgage rates may stay elevated through the summer months, while yields on money market investments should remain relatively attractive. 

On to Tariffs 

The United States and the United Kingdom reached a trade agreement that offers modest tariff relief on both sides, signaling incremental progress amid broader global trade tensions. Under the deal, most U.K. goods will continue to face a 10% global tariff that the U.S. implemented earlier this year. However, notable exceptions include U.K. steel and aluminum, which are now exempt from the 25% U.S. levy, and a reduction in tariffs on U.K. automobile exports, down to 10% from 25% on the first 100,000 vehicles annually. 

In exchange, the U.K. is eliminating tariffs on certain U.S. beef imports and reducing duties on ethanol. While these measures are a step toward improving trade relations, U.K. officials emphasized that negotiations remain ongoing, particularly around the baseline 10% tariffs still in place and the U.K.’s digital services tax, which has been a point of friction due to its impact on major American tech firms. 

This developing trade framework could gradually ease some sector-specific pressures, but it's clear that broader resolution remains a work in progress. 

Following a weekend of intensive negotiations, the U.S. has effectively raised its average tariff on Chinese goods to 39%, according to estimates from Evercore ISI. This figure includes tariffs implemented before the Trump administration and marks the highest effective rate among major trading partners. In comparison, the U.K., after reaching its own trade agreement last week, faces a significantly lower effective tariff of around 8%. 

It’s important to note that the U.K.'s agreement reflects a more permanent framework, whereas the arrangement with China amounts to a 90-day pause on further tariff hikes—more of a temporary truce than a resolution. Nonetheless, these developments provide a reference point for the range of possible trade outcomes going forward, with China at the upper end of the spectrum and the U.K. closer to the lower bound. 

We continue to monitor these shifts closely, as prolonged trade tensions or stabilization could have meaningful implications across sectors and asset classes. 

A Crypto Milestone 

This month, Coinbase made history by becoming the first cryptocurrency platform to be included in the S&P 500 index. The announcement triggered a surge in the company's share price, largely due to expected buying pressure from passive investment vehicles that track the index, such as ETFs and mutual funds, which now must include Coinbase to mirror the index accurately. 

What does this mean for investors? Simply put, even if you haven’t directly invested in cryptocurrency, you may now have indirect exposure through your S&P 500-linked investments. This marks a subtle but significant shift in how mainstream market participants engage with digital assets. 

For context, Coinbase was founded in 2012 and has grown into one of the world’s largest custodians of bitcoin. It operates as a digital exchange platform, allowing users to buy, sell, and store cryptocurrencies, as well as trade crypto-related derivatives. Its inclusion in the S&P 500 underscores the growing relevance of the digital asset ecosystem within the broader financial landscape. 

As always, we continue to monitor how evolving market dynamics like this may affect broader portfolio construction and long-term strategy.

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

June 2025

Geopolitical Tensions and the Surprising Movement in Oil Prices 

In early June, oil prices initially moved higher as markets responded to escalating tensions between the U.S. and Iran. Concerns centered around potential disruptions to oil supply, particularly given the strategic importance of the Persian Gulf region. 

The backdrop to this volatility was a series of high-stakes military maneuvers. In an unprecedented move, the U.S. launched a strike on fortified Iranian nuclear facilities, reportedly using the GBU-57 bunker-buster bomb for the first time in a foreign conflict. This act was part of broader efforts to de-escalate the ongoing hostilities between Israel and Iran, though it quickly drew a response. Iran retaliated by targeting a U.S. military base in Qatar. Remarkably, within hours of this exchange, news emerged of a ceasefire agreement between Israel and Iran. While it remains to be seen whether this truce will hold, the immediate hostilities—particularly the exchange of drones and missile fire—appear to have paused for now. 

In a twist that defied conventional expectations, U.S. markets ended Monday, June 23rd, nearly 1% higher, and crude oil prices fell by over 7%. This reaction runs counter to historical norms—typically, geopolitical conflict in oil-producing regions sends crude prices upward as markets brace for potential supply disruptions. 

So, what’s changed? One key factor is the significant rise in domestic oil production. According to the U.S. Energy Information Administration, crude oil output in the U.S. has climbed nearly 50% from 2016 to 2024. This growth has helped cushion the U.S. economy from global supply shocks. Additionally, market participants may be looking past the current flare-up, assuming it won’t lead to prolonged disruption. 

Regardless of broader market dynamics, California residents should be aware of a scheduled increase in the state’s gasoline tax starting July 1st—an adjustment that could add pressure at the pump despite declining crude prices. 

Fed Holds Steady in June, Balances Rate Cut Timing with Inflation and Growth Risks 

On June 18th, the Federal Reserve chose to keep interest rates unchanged, signaling that while they remain open to reducing rates in the second half of the year, there’s no urgency to move just yet. 

For the Fed to resume the rate-cutting cycle it began last year, officials are likely looking for either a noticeable cooling in the labor market or clearer signs that recent price pressures—particularly those tied to tariffs—are not reigniting inflation. The message from their latest meeting was one of caution and uncertainty. 

The Fed’s updated projections underscored just how divided policymakers are. Among the 19 officials, ten foresee at least two rate cuts this year—a slim majority. Two expect just one cut, while seven see no cuts at all in 2025, a jump from four in their March projections. This internal split reflects the balancing act the Fed faces: they’ve made meaningful progress on inflation, which is now nearing their 2% target after several years of overshooting it, but the risks of moving too quickly—or too slowly—are significant. 

Lower rates too soon, and inflation could resurface, undermining recent progress. Hold off too long, and the combined effects of economic uncertainty and rising costs from tariffs could erode business margins, potentially leading to job losses and a broader slowdown. 

At this point, the Fed appears firmly in “wait-and-see” mode—carefully watching how the next few months unfold before making its next move. 

Private Investments Coming to 401(k)s—But Not Without Considerations 

Wall Street firms have long eyed the individual retirement market as the next frontier for private investments, and with $12.4 trillion held in 401(k)-type plans, it’s easy to see why. The latest push comes from Empower, a major player overseeing $1.8 trillion in retirement assets for 19 million participants. Empower recently announced it will begin offering access to private equity, credit, and real estate in select 401(k) accounts later this year. 

To achieve this, Empower is partnering with seven asset managers, including notable names such as Apollo Global Management and Partners Group. The goal is to expand investment options beyond traditional public stocks and bonds, aiming to bring institutional-style investing into individual retirement plans. 

However, incorporating private investments into 401(k)s is not without challenges. These assets are inherently less liquid and more difficult to value. Unlike publicly traded securities, private funds often carry higher fees, and their long-term nature means investors could be locked in for years. Employers, who ultimately decide what investment options are available in their company plans, have historically shied away from these offerings—often due to fiduciary concerns and the legal risks associated with higher-fee products. 

Empower plans to make these investments available only through managed account programs. These portfolios are tailored to a participant’s age, risk profile, and financial situation, offering a more personalized experience than traditional target-date funds. 

To plan sponsors considering this route: proceed thoughtfully. Do your due diligence. Engage with plan participants to understand their comfort level and preferences. It’s essential to consider the potential for enhanced returns alongside the unique risks associated with these types of investments. 

There are legitimate reasons to consider these assets. Many companies today remain private for longer periods, which can leave public investors with less upside by the time those companies reach the market. Private markets can offer a broader opportunity set—but with that opportunity comes complexity. 

Liquidity remains a key concern. Most private investment vehicles have extended lock-up periods and limited windows for withdrawals. We’ve seen recent stress in private real estate funds, particularly those focused on commercial properties, where redemption requests exceeded available liquidity. In several cases, funds were forced to “gate” redemptions—temporarily halting withdrawals—because assets like a 140,000-square-foot industrial property aren’t quickly or easily sold to raise cash. 

This type of risk may be appropriate for institutional or high-net-worth investors, but it may not align with the retirement goals and liquidity needs of many 401(k) participants. While innovation in retirement investing is welcome, the inclusion of private assets must be handled with care, transparency, and a strong understanding of the potential trade-offs.

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

July 2025

About midway through this year, a massive tax bill was passed (on July 4th, to be exact). The One Big Beautiful Bill Act (OBBBA) has provisions that affect everyone, in my opinion, no matter where you are in life, so listen up. Below, I've summarized the most relevant provisions and takeaways, and be sure to pay attention to the dates associated with each area discussed; some changes are temporary and some are permanent. 

For All 

Permanent Extensions of Key Tax Provisions: 

• Federal Income Tax Rates: Individual tax brackets will be permanently extended and adjusted annually for inflation starting in 2026.  
• Standard Deduction: The enhanced standard deduction becomes permanent, increasing to $15,750 for single filers, $31,500 for joint filers, and $23,625 for heads of household beginning in 2025. 
• Itemized Deduction Cap: A new cap limits the value of itemized deductions to 35%. Most taxpayers will retain full value, except those in the 37% tax bracket. 
• SALT Deduction: The cap on state and local tax deductions increases from $10,000 to $40,000, rising by 1% annually through 2029 before reverting to $10,000. The deduction phases out at $500,000 of modified AGI. 
• Alternative Minimum Tax (AMT): Permanently extends higher AMT exemption amounts and reverts to 2018 phaseout thresholds ($500,000 single / $1 million joint), indexed for inflation. 
• Child Tax Credit: Increased to $2,200 per child beginning in 2025, permanently extended and indexed for inflation. 
• Charitable Deduction for Non-Itemizers: Starting in 2026, taxpayers who do not itemize may deduct up to $1,000 (single) or $2,000 (joint) for certain charitable contributions. 
   

For those 65+ 

• Senior Standard Deduction: Starting in 2025 through 2028, A new $6,000 deduction per qualified senior (age 65+). The deduction phases out above $75,000 (single) or $150,000 (joint) of MAGI. This is categorized as a "personal exemption" but works similarly to the standard deduction. If you are looking for the no-tax on Social Security provision, this is what is meant to fulfill that promise. 
   

For High Net Worth & Ultra-High Net Worth  

• Estate and Gift Tax Exemption: The lifetime exemption rises to $15 million (single) / $30 million (joint) starting in 2026 and is permanently extended, with inflation indexing. 
  Charitable Contribution Floor: Beginning in 2026, the first 0.5% of charitable contributions will not be deductible for itemizers. 
   

For Business Owners 

• Pass-Through Deduction (Section 199A): The 20% qualified business income deduction is made permanent, benefiting many pass-through business entities. 
   

For Families and Education  

• New Child Savings Accounts ("Trump Accounts" ): Starting in 2026, tax-advantaged savings accounts can be opened for U.S. citizen children under 18. Key features include: 
  • No contributions until 12 months after enactment. (Ballpark July 2026) 
  • No withdrawals before age 18. 
  • Converts to a traditional IRA upon maturity. 
  • Contributions by individuals are not tax-deductible, though some entity contributions may be.
• 529 Plan Expansion: 
  • Increased K–12 expense limit to $20,000 starting in 2026. 
  • Expanded to include credentialing programs and professional certifications. 
• ABLE Account Enhancements: 
  • Permanent increase in contribution limits with additional inflation adjustments. 
  • Eligible beneficiaries now qualify permanently for the saver's credit. 
  • Allows permanent rollover from 529 plans to ABLE accounts. 
     

Other Noteworthy Provisions (Both effective starting 2025) 

• Tip Income Deduction: New above-the-line deduction up to $25,000 for qualified tip income through 2028. Phases out above $150,000 (single) and $300,000 (joint) MAGI. 
• Overtime Income Deduction: Similar above-the-line deduction available through 2028 for overtime pay exceeding regular wages, capped at $12,500 (single) / $25,000 (joint). 
   

We expect there will be further clarification on both of these items in the coming months from the IRS. My suggestion to those who think they may be eligible is to keep very detailed records. 

We will continue to monitor these proposals as they progress and provide guidance tailored to your individual situation. Please reach out with any questions or to schedule a planning review.

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

August 2025 

Where to from here? Thoughts on an extraordinary year for the markets and economy. 

It has been quite a year for the markets and the economy, here at home and around the world. In the face of massive geopolitical and policy uncertainty—think Ukraine, the Middle East, trade/tariffs, doubts that Republicans could get their One Big Beautiful Bill Act (OBBBA) passed, and a precipitous drop in the US Dollar—economic growth has remained positive and risk assets have delivered positive returns. Consider…  

The US economy grew 1.3% over the first six months of 2025, while the S&P 500 returned 6.2% and the US Bloomberg Aggregate returned 4.0%. The world economy grew 3.0% over the first six months of 2025 while the MSCI ACWI ex-US index returned 17.9%. Diversifying assets like global credit (ICE BofA Global High Yield (USD) Index) and commodities (Bloomberg Commodity Index) also joined the party, returning 4.4% and 5.5%, respectively. So, where do things go from here? As we move into year-end, we remain optimistic on the US economy and US stocks, and we are particularly constructive on international equities and real assets. Our belief that the US economy should continue to expand rests on multiple factors including: the stimulative impact of the OBBBA, the economic benefits of a more relaxed regulatory regime, the enactment of new trade agreements and the growth/productivity enhancing benefits of the AI revolution. In addition, we think that continued economic growth depends on the US labor market—which has shown recent signs of weakness—remaining robust enough to support consumer spending and any tariff-induced inflation proving temporary. Other pillars of economic support include historically high consumer net worth, ample availability of credit, and a resurgent IPO market. Were the economy to stumble, we see any weakness as being short-lived, given few signs of excess and the Fed's ability to move rates meaningfully lower. While US equities are trading at the high end of their valuation range, higher levels of profitability and better-than-expected earnings growth are supportive of a higher multiple. Finally, US stocks have historically done well in the first year of a Presidential term while November and December have provided above-average returns. 

As it concerns the rest of the world, increased clarity around trade has proven a meaningful positive (see the deals with Japan and the EU); an agreement with China, as well as Canada and Mexico, would provide an additional boost to corporate sentiment and spending. Interest rates are mostly lower outside the US, with the European Central Bank and the Bank of England lowering key policy rates, a tailwind for investment. From a stock market point of view, international equities, broadly speaking, continue to be attractively valued and finally have fundamentals that are equally attractive. European equities have gotten a meaningful boost from pro-cyclical fiscal policies, particularly in Germany, and earnings growth for international equities is forecasted to match that of US equities over the next two years. After years of underperforming US equities, international stocks are catching a bid in 2025, and we remain slightly overweight the asset class. 

In summary, we wouldn't be surprised by a short-term period of elevated volatility as markets digest recent events. However, we believe that the intermediate-term horizon over which we base our dynamic asset allocation decisions provides an attractive backdrop for diversified multi-asset class portfolios as we move through the rest of the year. 

Jackson Hole Meeting Key Takeaways 

The annual meeting of the Federal Reserve Bank added life to the stock markets this month after comments from Jerome Powell signaled a potential shift in Fed policy stance. Citing slightly elevated risks to employment in the Fed's data as a catalyst for change, as the Fed aims to prioritize its "maximum employment" objective.  

ROTH Conversion Timing 

When it comes to ROTH Conversions, timing is, almost, everything. Now that the OBBBA has made 2025 tax rates permanent and given some additional tax breaks to some Americans, the math around ROTH Conversions and their timing has changed. For starters, we are no longer running against the clock of rising federal income tax rates in 2026. Now, those 65 or older have an additional tax break that could help with the conversion of pre-tax retirement savings. 

One motivator behind clients wanting to convert their retirement savings to a tax-free retirement savings account is to avoid the looming freight train that is the federal government debt load. This concern still exists and may be a motivator for more conversions. The OBBBA, by keeping tax rates low, left government tax revenues lacking in new revenue to help pay off the ever-growing debt load. Some economists say this new bill will add to that debt load long-term. While this new bill has some pros and cons, we stand ready to help you take on the opportunities it presents.  

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

September 2025

September Fed Update: What Changed and Why It Matters 

The Federal Reserve approved a widely expected rate cut in September and indicated that additional cuts are likely if the data cooperate. The Fed’s work is to balance its dual mandate: (1) supporting maximum employment and (2) keeping inflation near its target. Both matter, but one can take priority over the other depending on the incoming data. 

Over the past two years, higher rates were used to cool an overheated economy as inflation spiked. While inflation remains above the Fed’s long-run goal, recent labor indicators point to softer demand for workers. That shift helps explain why the Fed is easing policy: they want to avoid holding their economic in an overly restrictive stance for too long. Still, none of this is on autopilot—surprises in inflation or jobs data can change the path quickly. 

Markets Move First, Not Last 

A common misconception is that borrowing costs drop the moment the Fed cuts. In reality, markets adjust to what they expect will happen. For example, average 30-year mortgage rates drifted lower over the summer ahead of the September decision—evidence that expectations often get priced in before a vote occurs. The takeaway: market rates can move well before (and sometimes independently of) the Fed’s official actions. 

What This Means for Investors 

Policy is shifting from “firmly restrictive” toward “less restrictive,” not straight to “easy.” 
The Fed remains data-dependent; a hot inflation print or re-acceleration in hiring could slow—or even pause—further cuts. 
Diverse portfolios help navigate this transition, as different asset classes respond differently to changing rate expectations. 
Rates on Money Markets or High Yield Savings accounts will be trending downward.  
 

Fannie & Freddie: Why They’re Back in the Headlines 

Fannie Mae and Freddie Mac don’t make mortgages; they buy them from lenders, package them into securities, and guarantee timely payments to investors. This plumbing has long supported the 30-year fixed-rate mortgage, a product that’s rare outside the U.S. 

Recent reports suggest the government could explore selling shares in Fannie and Freddie—transactions that would be complex and among the largest of their kind if they occurred. Key points to understand: 

• Conservatorship status: Since the 2008 crisis, both firms have been under federal conservatorship. It’s unclear whether any share sale would occur while that status remains in place, and details on structure and timing are undecided. 
• Fiscal angle: Proponents argue that an offering could reduce the federal deficit and return funds to taxpayers, but the net impact would depend on terms that have not been finalized. 
• Execution risk: Large offerings take time. Previous efforts to change Fannie and Freddie’s status have stalled, and skeptics question whether an accelerated timeline is realistic. 
• Market backdrop: Housing affordability remains challenged by elevated home prices and still-high mortgage rates, making the timing sensitive. 

The U.S. Treasury holds warrants to purchase a substantial majority of the firms’ common equity and owns senior preferred shares. Other investors hold junior preferred or common shares. If an offering happens, it would involve the government selling stock—but the who/what/when remain open questions. 

Our Bottom Line 

• The Fed cut was about balancing still-elevated inflation with a cooling labor market. Expect more data-driven decisions rather than a pre-set path. 
• Don’t assume your borrowing costs change overnight—markets often move ahead of the Fed. 
• Fannie and Freddie’s potential share offerings are noteworthy but uncertain. We’re watching the policy details and market conditions that would make such deals feasible. 
  

We’ll continue to monitor the data and policy signals and keep you updated on what they mean for portfolios and planning. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

October 2025

Inflation Softens as the Fed Stays Cautious 

September’s delayed Consumer Price Index (CPI) report came in below expectations, rising 3.0% year-over-year.  The softer-than-expected number sparked a market rally and reinforced expectations for additional rate cuts before year-end. 

The Federal Reserve followed through with another quarter-point rate cut, lowering the target federal funds range to 3.75%–4.00%. Policymakers noted that “uncertainty about the economic outlook remains elevated,” particularly given the government shutdown that temporarily halted key economic data releases. With inflation still running roughly one percentage point above the Fed’s 2% goal and signs of a cooling labor market, this preemptive move was seen as a hedge against a potential slowdown in employment. 

Trade Developments Ease Global Tensions 

Towards the end of the month, the U.S. and China reached an initial trade framework designed to ease recent friction. China agreed to delay restrictions on rare earth exports and committed to increased U.S. soybean purchases—both positive steps toward stability after months of renewed tariff threats. 

This agreement has provided modest tailwinds for global markets and added clarity for industries dependent on cross-border supply chains. This had an immediate effect on the commodity markets as this suggests one of the world's biggest buyers of US commodities may return to our markets. 

Market Breadth Is Finally Widening 

After several years dominated by the so-called “Magnificent Seven” (Mag 7) tech giants, the S&P 500 is showing encouraging signs of broader participation. As of September 30, non-Mag 7 companies accounted for 59% of this year’s total index return, compared with just a fraction two years ago. 

On a rolling six-month basis through June 30, 2025, 51% of S&P 500 stocks outperformed the Mag 7 median return, a sharp increase from only 1% in mid-2023. Likewise, the share of stocks trading above their 200-day moving average climbed from 16% in April (around the time new tariffs were announced) to 64% by September’s end. 

This renewed market breadth represents a healthier, more balanced equity environment—reducing concentration risk and offering a wider range of opportunities for investors. 

Nvidia’s Outsized Impact on Returns 

One notable exception to this diversification trend is Nvidia, whose rapid rise has reshaped the technology landscape. As the primary supplier of semiconductors powering the global AI boom, Nvidia has contributed roughly 20% of the S&P 500’s total return year-to-date through September. 

Its dominance has elevated peers like Apple, Microsoft, and Alphabet, helping push their individual market capitalizations toward $4 trillion each. Without Nvidia’s extraordinary performance, overall market breadth would likely appear even stronger—though its success continues to underscore the transformative potential of artificial intelligence. 

Social Security COLA Adjustment Announced for 2026 

In a move that will impact more than 75 million Americans, the Social Security Administration announced a 2.8% cost-of-living adjustment (COLA) for 2026. The increase will take effect with payments beginning in January 2026, and beneficiaries can expect notices to appear in their My Social Security accounts by late November 2025. 

While modest, this adjustment reflects the continued resilience of inflation, albeit at a more controlled pace compared with recent years. 

Looking Ahead 

With the S&P 500 up 36% since its April lows and investor sentiment improving, markets appear to be transitioning toward a more balanced growth phase. A combination of easing inflation, wider market participation, and potential clarity on tariffs and rate policy could help U.S. equities regain traction relative to global peers. 

We continue to monitor these developments closely and will provide updates as new data emerges—particularly around inflation trends, rate policy, and global trade progress. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

November 2025

November delivered what you might call a “reality check with a side of market indigestion.”

Tech stocks — especially the high-growth, high-hype names — sold off sharply after spending most of the year sprinting ahead of their fundamentals. Prices had been running a marathon at a sprinter’s pace, and eventually the market realized, “Hey… lungs are a thing.”

Why? (Usually a combination of causes)

1. Earnings vs. Expectations

A handful of large tech companies reported perfectly fine earnings — but not perfect enough to justify already sky-high valuations. When stocks are priced for perfection, even “good but not great” feels like a disappointment.

2. Profit-Taking After a Big Run-Up

Many investors decided to lock in gains from the strong year-to-date rally. Think of it as the market doing its version of cleaning out the garage before holiday guests show up.

3. Higher-for-Longer Rates Still Cast a Shadow

Even as inflation cooled, the Fed signaled they weren’t quite ready to declare victory. Higher interest rates hurt the “long-duration” companies the most — meaning those whose big profits are way out in the future (hello, tech).

4. Algorithmic Selling Amplified Everything

Once the slide started, computer-driven trading piled on. Algorithms don’t panic — but they do accelerate whatever direction the market is already moving.

What Does This Mean for You?

1. Corrections Create Opportunity

When quality companies go on a temporary “sale,” disciplined investors benefit. This is where staying invested and rebalancing shines.

2. Long-Term Themes Are Still Strong

AI, cloud infrastructure, cybersecurity, and automation didn’t stop being essential because of one messy month. The long-term trajectory is intact.

The November tech sell-off wasn’t the start of some financial apocalypse — it was the market reminding everyone that trees don’t grow to the sky. Volatility is the admission price for long-term returns, and you’re already playing the game with a strategy designed for moments exactly like this. 

Fed Outlook: Cautious Steps in a Murky Environment

With the recent government shutdown limiting access to timely economic data, the Federal Reserve’s latest statement leaned heavily on earlier trends. While policymakers noted that available indicators still point to moderate economic growth, they were clear that data gaps complicate their read on current conditions.

Assessments of the labor market changed little, but the Fed acknowledged that recent figures continue to hint at gradually rising risks to employment. Inflation, meanwhile, was described as having moved higher compared with earlier in the year—an acknowledgment of the modest but noticeable upward drift in prices over recent months.

During his press conference, Chair Jerome Powell struck a tone that many interpreted as more hawkish. He again characterized the latest rate cut as a “risk-management” decision and underscored that committee members hold strongly differing views about what should come next. He emphasized that the December meeting is far from settled. If the disruption to government data persists, the Committee may choose to pause in December until members have greater clarity.

While the broader economic backdrop appears generally stable, recent strains in funding and credit markets serve as a reminder that vulnerabilities can surface unexpectedly. That dynamic is shaping the internal debate at the Fed. Reports suggest Powell’s allies are preparing for the possibility that he may need to steer another cut through a divided committee—potentially facing multiple dissents.

The chair’s options each come with trade-offs. One path would be to deliver a cut in December, as markets currently anticipate, while signaling a higher threshold for future reductions. This “cut and hold” approach would echo what occurred in late 2019, when Powell navigated similar resistance among policymakers. Although this could draw objections from officials who oppose additional easing altogether, it might also help rebuild consensus by clarifying that further cuts are not guaranteed.

The alternative is to keep rates steady and revisit the issue in January, once the Fed has access to the jobs and inflation data delayed by the shutdown. That option, however, risks extending the public disagreements within the Committee for several more weeks—without any assurance that fresh data will resolve the underlying divide.

As Richmond Fed President Tom Barkin recently noted, the labor market is cooling but not dramatically weakening, and inflation is neither accelerating nor meaningfully improving. In this environment, it is difficult for policymakers to declare a clear victory on either side of the debate. Ultimately, Powell must weigh which error would be harder to unwind: cutting too much or holding for too long. A third cut in December would be consistent with his stated goal of moving rates closer to a neutral setting—one that neither stimulates nor restrains growth.

Government Shutdown Ends, But Policy Debates Continue

Meanwhile, November brought progress in Washington. The House passed a spending package that reopened the government after a record 43-day shutdown. The lapse in funding, which began October 1, had furloughed large numbers of federal employees, forced others to work without pay, delayed air travel, and halted the release of key economic reports—further complicating the Fed’s policy decisions.

The new funding bill provides government operations with support through January 30 and secures full-year budgets for the Agriculture Department, military construction, and the legislative branch. It also includes provisions reversing earlier federal layoffs, ensuring that employees such as air-traffic controllers receive restored pay and can return to work.

Although the deal brings welcome relief to hundreds of thousands of workers and restores essential government functions, it leaves unresolved political challenges that are expected to resurface next year.

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management

December 2025

Let's wrap up 2025 and stop our heads from spinning so we can process it and go into 2026 with a better sense of the passage of time. Newsflash – 2020 and all that came with it was over 5 years ago.

2025 included some of the same wild sentiment moves in the market and for consumers.  

-Surge in International Equities, including Emerging Markets
-Tariffs and trade negotiations
-Federal Reserve easing interest rates
-AI
-Continued inflation
 

Federal Reserve: A Divided Committee and a Tentative Pause

December brought a 0.25% rate cut from the Federal Reserve, a decision that revealed a divided committee and mixed messaging. While the cut aimed to support moderating economic momentum, the lack of consensus and commentary from Fed members suggests we may not see further cuts in the near term. Markets have interpreted this as a signal of a “wait and see” approach from the Fed going forward.

2025 Economic Landscape: Resilience Amid Complexity

• U.S. Mixed Signals: Corporate profits improved, and credit conditions remained favorable, but employment indicators softened. Despite historically tight labor markets, slowing demand has begun nudging unemployment higher.
• Global Divergence: While Europe and China showed improving cyclical momentum, monetary and fiscal policies remained varied across regions. Europe benefited from ongoing support, while China leaned toward consumer-driven growth strategies.
• Consumer Behavior: Households maintained high equity exposure and stable spending patterns, though wealth concentration remains a concern for long-term economic resilience.
   

Policy and Fiscal Themes: Deficits and Tariff Pressures

• Tariffs Stay Elevated: U.S. tariff rates held at multi-decade highs, putting pressure on corporate margins and consumers alike. These costs — absorbed partially by businesses and largely passed on to consumers — added inflationary pressure and policy uncertainty.
• Fiscal Expansion: The "One Big Beautiful Bill Act" passed in Q3 delivered tax cuts aimed at boosting business investment. While beneficial to short-term profits, it entrenched large fiscal deficits, raising longer-term debt servicing concerns.
   

AI: Boon or Bubble?

AI remained a dominant driver of business investment, with large tech firms responsible for the lion’s share of GDP growth in the USA. However, two emerging risks cloud the outlook:

1. Power Constraints: The expansion of AI data centers has run into infrastructure limits, especially in energy supply. Delays in building new capacity could dampen growth in this high-demand area.
2. Performance Plateau: With incremental improvements in newer AI models, questions are emerging around the utility of ever-larger data centers and whether valuation expectations are running ahead of fundamental productivity gains.
    

Looking Ahead to 2026

Investor optimism remains strong, with expectations of continued profit growth and monetary easing. But structural headwinds — including high tariffs, potential inflation persistence, and consumer pressures for some groups — could complicate this path.

As always, we remain focused on identifying long-term opportunities while being mindful of emerging risks. I want to thank you for spending your year reading these monthly letters. The goal is to provide bite-sized education, perspective on global markets, and some of my thoughts in the hope of better connecting you to your investments and long-term goals. I appreciate your continued trust and look forward to navigating the year ahead together. 

-Thomas May AWMA® CRPC® CLTC®

Partner Herrera May Wealth Management