Equity markets continue to show remarkable resilience in the face of a mixed bag of headlines. Mid-month rumors of President Trump possibly replacing Fed Chairman Powell saw downside pressure over 2 days. Still, strong earnings from mega-cap companies like Microsoft helped the broader indices higher on a high note at the month’s end. The S&P 500 was up 2.17% on the month, while the Dow Jones Industrial Average increased just 0.08%. The tech names lead the way with the NASDAQ Composite Index gaining 3.70%.
On July 31, 2025, President Donald Trump signed an executive order implementing new tariff rates of 10% to 41% on imports from over 70 countries, marking a significant shift in U.S. trade policy. The “reciprocal” tariffs will take effect on August 7, 2025, with goods currently at a 10% baseline now subject to country-specific rates. Canada will see an increase in tariffs from 25% to 35% on non-USMCA-compliant goods due to its perceived failure to address fentanyl trafficking. Trade agreements have been secured with partners like Japan and the EU at 15%, and South Korea also at 15% with an investment of $350 billion. Mexico has a 90-day extension for negotiations. These changes result in the highest average effective tariff rate in the U.S. since 1933, now at 18.4%.
The Federal Reserve’s preferred measure of underlying inflation rose materially in June, one of the fastest rates seen this calendar year, while consumer spending increased only modestly. This situation highlights the conflicting pressures faced by policymakers regarding interest rate trajectories. The core personal consumption expenditures (PCE) price index, which excludes food and energy prices, increased by 0.3% in May and 2.8% annually, indicating limited progress in addressing inflation. Additionally, inflation-adjusted consumer spending saw a slight uptick in June after declining in May. These trends illustrate the complexities influencing monetary policy decisions at the Federal Reserve. On one hand, stagnation in inflation control raises concerns about the effects of tariffs on consumer prices. On the other hand, a decline in consumer spending linked to a weakening labor market poses risks for a broader economic slowdown. The Fed Chairman flirted with the idea of cutting rates in September but concluded that they would keep a watchful eye on leading economic indicators. This inflationary backdrop reinforces our defensive positioning in shorter-duration securities, low-credit-risk positions that generate annual yields of 6.5%-7.5%.
This month’s Fed Beige Book generated some interesting comments from the broader business community regarding costs and pricing: “Prices increased across Districts, with seven characterizing price growth as moderate and five characterizing it as modest, mostly similar to the previous report.” On the cost side, “In all twelve Districts, businesses reported experiencing modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction. Rising insurance costs represented another widespread source of pricing pressure.” On the pass-through side, “Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges, although some held off raising prices because of customers’ growing price sensitivity, resulting in compressed profit margins.
Meanwhile, a softening demand for labor explains the unexpected decline in job openings reported for June. Furthermore, the Bureau of Labor Statistics revised the May Job Openings and Labor Turnover Survey (JOLTs) figures downward, indicating a less robust labor market, with both vacancies and quits being adjusted downward. The JOLTS data has been volatile and subject to significant revisions, resulting in each monthly report having relatively little predictive value. However, the overall data suggests that companies are carefully managing their payrolls, while workers are becoming less confident about their chances of finding new employment. We anticipate that decreased demand for workers and generally less turnover in the labor market will lead to a slowdown in wage growth in the coming months. After a period of insufficient savings, and with consumer spending closely tied to the labor market, the outlook for consumption is becoming uncertain.
Please see the following updates on existing positions held at the firm:
Oxford Lane Capital Corporation Senior Bond due January 31, 2027 (Ticker: OXLCZ)—Oxford Lane Capital Corp. reported first-fiscal-quarter core net investment income of about $112.4 million, or $0.24 per share, on total investment income of $124 million. During the quarter, the company invested approximately $441.8 million in additional CLO positions, received $120.7 million from sales and repayments, and issued 25.8 million new common shares through its at-the-market program, generating net proceeds of $116.4 million. The net proceeds helped increase asset coverage levels even as the net asset value per share declined. As of June 30th, the estimated asset coverage ratio was 550%. We continue to like the senior bonds from this closed-end fund, especially if we can generate an annual return of 7% to 8% and keep interest rate risk low.
W.P. Carey (Ticker: WPC)- W.P. Carey Inc. reported that Adjusted Funds from Operations (AFFO) grew to $282.7 million or $1.28 per diluted share, a 9.4% increase from last year. The company raised its full-year 2025 AFFO guidance to $4.87 to $4.95 per share, reflecting expected investments of $1.4 to $1.8 billion. Year-to-date, W.P. Carey completed $1.1 billion in investments, including $548.6 million in Q2, and sold assets worth $565.0 million, including 15 self-storage properties for $175.0 million. The company increased its quarterly dividend by 3.4% to $0.900 per share and maintained strong liquidity of $1.7 billion, positioning it well for continued growth in the second half of 2025. In summation, this was a good report. We continue to like the value here.
FFB Bancorp (Ticker: FFBB)— FFB Bancorp reported second-quarter 2025 net income of $6.0 million ($1.94 per diluted share), higher funding costs and compliance spending compressed the net interest margin (NIM) to 5.09% and lifted non-interest expense. NIM is still well above average. We expect it will take a couple of quarters to shift through the restructuring of the deposit base. Still, operating revenue increased 11% to $27.3 million, driven by solid 13% loan growth, particularly in commercial real estate, while deposits rose 6% year-over-year. The bank’s capital remains strong, with tangible common equity at 11.8%, and it continued its share repurchase plan, buying an additional 3.54% of shares outstanding in the second quarter. Asset quality weakened: non-performing assets increased to 1.85% of assets, driven by two multifamily credits, which prompted a $3.2 million provision and raised the allowance to 1.40% of loans. Management highlighted FFB’s top rankings among small public banks, while cautioning that near-term earnings will reflect ongoing investments in compliance and risk infrastructure. We continue to like the bank as an intermediate/long-term hold
Best Regards,
Stash J. Graham