Forecasts Have Missed the Mark, Our Discipline Has Not

June 30, 2025

Doubt is not a pleasant condition, but certainty is absurd.

—Voltaire

Every June, we find ourselves doing the same thing: reviewing the first half of the year and comparing reality to expectations. Not because we believe predictions drive portfolios, but because the gap between what people thought would happen and what actually happened is often the most instructive part of the investing process.

Take small caps, international stocks, or interest rates — all areas where prevailing forecasts heading into 2025 have missed the mark.

Although we think they can be foolish, this isn’t necessarily a critique of the forecasts themselves. It’s a reminder that the most important thing in investing isn’t being right — it’s about having a process and being prepared regardless of what happens.

That’s why at Blueprint Investment Partners, we design systems that can adapt to shifting conditions without relying on foresight. When small caps looked poised for a breakout, our models stayed cautious. When international equities still seemed out of favor, our systematic investing process told us to lean in.

In this month’s Co-Founders’ Note, we reflect on what’s unfolded so far in 2025 — not to pat ourselves on the back or call out misplaced predictions, but to reinforce the value of a systematic, long-term mindset in a world that keeps trying to throw curveballs.

But first, here’s a summary of our take on what transpired in the markets in June.

Asset-Level Overview: Market Talking Points for Financial Advisors

Equities & Real Estate

It feels like it has been a while since stocks have had a low-volatility month. In fact, measured by standard deviation of daily returns, June has been the lowest volatility month in 2025 thus far. Muted volatility is historically highly correlated with positive returns (and positive trends), and so it’s no surprise that returns have indeed been positive for the month. Broad U.S. equity indexes notched new all-time high closes to finish the month, and the continuation of uptrends leaves our strategies in an overweight position for U.S. equities heading into July.

International stocks also continued to maintain their positive trends in June, though foreign developed stocks overall lagged both U.S. and emerging markets. The segment remains the strongest among equities and quasi-equities. As a whole, our strategies are fully allocated to international equities, but with a tilt continuing to foreign developed.

Among the equity and quasi-equity bucket, real estate remains weakest. Trends were slowly heading in a positive direction before a sharp retracement left them in negative territory. A combination of high rates and a slightly softening economy are proving to be a ceiling on further price advancement at the moment.

Our Asset Allocations

Fixed Income & Alts

While short-term fixed income instruments have been stable, prices have been shakier as you move up the curve, with long-duration bonds remaining in downtrends across all timeframes. The intermediate-term picture improved just enough in U.S. bonds that our portfolios will see small increases in exposure for July; however, overall domestic bonds continue to be underweight. International bonds continue to perform relatively well and as a result will be held at their baseline level. Any remaining exposure will be held in cash equivalents that are providing yield.

Within the multi-asset trend alternatives bucket, short-term fixed income futures and other related instruments remain the most significant in terms of allocation. Longer-duration bonds continue to be primarily held in short positions. Commodities, such as gold and cocoa, also make up noteworthy positions. Meanwhile, the continued strength in stocks globally has caused net long exposure to increase there as well. The U.S. Dollar’s steady decline has caused this segment to increase allocations to foreign-denominated currencies.

Our Asset Allocations

Sourcing for this section: Barchart.com, S&P 500 SPDR (SPY), 1/2/2025 to 6/27/2025; Barchart.com, S&P 500 SPDR (SPY), 1/22/1993 to 6/27/2025; and Barchart.com, Total Stock Market ETF Vanguard (VTI), 5/24/2021 to 6/27/2025

3 Potential Catalysts for Trend Changes: Giving Clients the Context

Back to Status Quo: The U.S. economy has settled back into neutral with the shifts in policy and economic data that arrived during the last few weeks. Consumer spending hasn’t collapsed, but the latest data shows that it has weakened significantly. The labor market is also softening. Annualized growth in gross domestic product is likely expected to be around 0.8% during the first two quarters of 2025, but that is down sharply from 2.5% in 2024. While the stock market is not the economy, it reflects how investors feel about growth, profits, interest rates, and risk; companies were cautious about the economic outlook a few months ago, but recent profit guidance has tended to be better than analysts expected.

Tale of Two Reports: Depending on which poll you read, Americans are either more confident or less confident in the economy. The University of Michigan announced its index of consumer sentiment for June was 60.7, up from a May reading of 52.2, though the June reading is still low by historical standards. Before the pandemic, for example, the index hovered around 100. Post-pandemic – a period marked by the cost of almost everything increasing – consumer sentiment has experienced a broad decline. On the other hand, U.S. consumer confidence slipped in June, reversing its improvement from May, according to the Conference Board; their index fell to 93, from 98.4 in May. The survey’s forward-looking expectations index fell to 69, from 73.6 the month prior. The survey’s closely-watched labor-market indicator also degraded, which is calculated by subtracting the share of consumers who think jobs are “hard to get” from those who think jobs are “plentiful.”

Housing: U.S. home prices rose at the slowest annual pace in nearly two years, with mortgage prices continuing to stretch affordability. Mortgage rates continued at a mid-6% range throughout April, which kept monthly payment burdens near generational highs while pricing out many potential buyers. Sales of existing homes rose slightly in May (0.8% versus the prior month) but held near historically low levels. This is another sign that buyers are avoiding the market because of high prices. Spring is usually the busiest time of year for the housing industry, but this year has been a bust. According to an analysis by NAR and Realtor.com, households earning $100,000 a year could afford to buy 37% of the homes listed on the market in March, whereas six years ago – when mortgage rates and typical home prices were lower – they could afford 65% of available listings.

Sourcing for this section: The Wall Street Journal, “The U.S. Economy Pushes Through the Trade War,” 6/27/2025; The Wall Street Journal, “American Consumers Felt Better in June Than They Did in May,” 6/27/2025; The Wall Street Journal, “Survey Shows U.S. Consumer Confidence Worsened in June,” 6/24/2025; The Wall Street Journal, “U.S. Home Price Growth Cools to Near-Two-Year Low,” 6/24/2025; and The Wall Street Journal, “Home Sales Rose in May, but Housing Market Is Still Sluggish,” 6/23/2025

Comparing Reality To Expectations

The only function of economic forecasting is to make astrology look respectable.

—John Kenneth Galbraith

Each year as June comes to a close, it is common for us to consider the year’s first half and begin envisioning possible scenarios for how it will end. For example, this time last year we were generally seeing one of the best-ever times for U.S. stocks, not knowing that a slowdown was on the horizon, with 2024 becoming a tale of two halves.

Now, we once again find ourselves reviewing the first six months and marveling at how the markets defy predictions and keep financial advisors and clients on their collective toes.

Rewinding back to late 2024:

The election of President Donald Trump and his America-first agenda appeared to be a possible death knell for the performance of international stocks versus their U.S. counterparts after years of underperformance.
Further, the promises of fewer regulations and lower taxes had mid- and small-cap stocks temporarily rallying and poised for a run.
The fixed income picture was murkier, but public pressure from the President-Elect had the market pricing in multiple rate cuts for 2025.

Fast forward to today and reality is much different than the predictions:

International stocks (and bonds) have vastly outperformed U.S. equivalents in 2025. Using the Vanguard FTSE All World ex US ETF (ticker: VEU), one would have to go back to 2017 to find the last year that international stocks broadly outperformed the S&P 500. That stretch has been separated by multiple years of double-digit, or close to double-digit, underperformance.
For small-cap stocks, using the iShares Core S&P Small-Cap ETF (ticker: IJR) as a proxy, we see that not only are they NOT outperforming the S&P 500, but are flirting with negative territory on a year-to-date basis as we hit the midpoint of 2025. If the year ends in a similar position, it would mark the 12th consecutive year of small caps underperforming large caps.
Regarding interest rates, there have been zero interest rate cuts in 2025 thus far. Time remains for these to occur, but the Fed has been content to stand pat up to this point. The next several weeks could be crucial to determining what happens next, as the Fed meets next at the end of July.

The point of this review is to remind readers of our perspective and purpose. Blueprint Investment Partners believes the best way for financial advisors to help clients reach long-term goals is to have a long-term mindset. While important, this is not particularly profound. The uniqueness of our approach comes from combining that long-term mindset with a systematic investing approach capable of providing a plan for navigating shorter-term gyrations of markets. The goal of this combination is to help clients stick to their long-term plan. For example, when the circumstances earlier this year had even us wondering if the predictions for international equities and small caps would prove to be correct, we never wavered from following our plan; despite the negative news, following our process meant INCREASING exposure to international stocks and remaining underweight small caps.

Striving for Effective, Not Perfection

While this review of reality versus predictions serves as a pleasant reminder for us about the value in sticking to the plan, we also have to recognize that markets have not been as kind to our trend-following strategies since December as they were during the preceding 18-24 months. Our diversified strategies have mostly lagged their passive equivalents year-to-date, which can be challenging for clients in the short run, particularly those who struggle to keep the big picture in mind.

This brings to mind something we emphasize with financial advisors. We believe that all well-designed strategies will have both periods they excel and those they don’t — this is a feature, not a bug. Our goal is to:

Define these periods in advance so that our financial advisor partners know when to expect over- and under-performance, which allows them to proactively communicate and set expectations with clients and themselves.
Maximize the periods of outperformance. Specifically, our research tells us that if we can do well when markets trend upward (e.g., 2024, 2023, 2021, etc.) and lose relatively less when they trend downward (e.g., 2008), then it doesn’t matter to long-term performance what happens in the remainder of the time. The period from December 2024 to June 2025 reflects one of these “remainder of the time” periods.

One of our longer-tenured advisor partners, who we admire, had a great perspective on this recently. To paraphrase his point: Trend following is not always easy, but the more you dive in and try to understand it — or, even try to contradict it — the harder it is to argue against it being a great way to manage client assets. The fact that it’s not perfect acts as proof of its effectiveness, in our opinion, and builds conviction that trend following can weather the less-exciting periods to help clients reach their goals.

The bad news is that we have always had periods we have to weather, and we always will. The good news is that things change quickly, and all it takes is a time of sustained trends to make up for any lost time. No one knows what the second half of 2025 will bring, but change is inevitable everywhere except when it comes to us sticking to the plan.

Sourcing for this section: Barchart.com, FTSE All-World Ex-US ETF Vanguard (VEU), 1/1/2017 to 6/26/2025; Barchart.com, S&P 500 Index ($SPX), 1/1/2017 to 6/26/2025; Barchart.com, S&P Smallcap Ishares Core ETF (IJR), 1/1/2025 to 6/26/2025

Best regards,