Written by Erik Laymon, Portfolio Analyst
August 1, 2025

In Laymon’s Terms – July 2025

Hello investors! Welcome back to “In Laymon’s Terms,” where we cut through Wall Street’s noise to deliver sound insights. As we wrap up July, markets are buzzing with fresh records and a shift that’s got everyone talking: bonds are making a serious comeback. Drawing from Wall Street’s latest thought leadership as well as our favorite “talking heads,” let’s break down what’s happening, what it means for your portfolio, and how we’re “Aligned” to keep your retirement on track. No jargon overload—just the facts you need.

Market Commentary: Solid Winning

July brought some solid wins for U.S. stocks, with the S&P 500 hitting new record highs thanks to strong economic data in retail sales and with big tech earnings kicking off the season. But it wasn’t always this smooth– reports of economic policy chatter, like potential Fed Chair changes (which were quickly denied), added to some drama, though long-term Treasury yields held steady at around 4.5%.

So, what is the biggest story right now? We are in a “higher-for-longer” interest rate world, which was something we had discussed years ago not long after the pandemic lockdown economy. The difference between then and now is our historical track record over the last few years, and it’s creating opportunities for meaningful, low-risk income generation. Quick history lesson: following the 2008/2009 “Global Financial Crisis,” yields tanked as central banks slashed rates to near zero, leaving investors chasing risk just to get a decent return. Now, with rates well-settled above pre-pandemic levels, the majority of the bond universe is yielding over 4%—with rates expected to remain elevated through 2027 and possibly beyond according to BlackRock’s “Advisor Outlook” from July. These yields have not been seen in two decades.

On the geopolitical front, trade tensions and tariffs are keeping things interesting, with “sticky” inflation limiting Fed cuts. The U.S. is still deficit spending, and the “One Big Beautiful Bill” could pile on more debt than people anticipated. The dollar has been showing weakening signs overseas, which, along with high tariffs, could invite foreign direct investment. If rates are to remain higher for longer, along with yields, inflation and spending may be key contributors.  Analysts will be watching contributors to GDP spending and forecasts to monitor our economic health in the meantime.

Analyst Insights: Why go International?

Here’s where it gets exciting for retirees: income is back, and you don’t need to ramp up your risk tolerance to grab it. Bond portfolios that are well diversified across sectors are delivering great income—from short to medium-term government bonds, U.S. agency mortgage-backed securities, and corporate bonds including High Yield. Earnings reports indicate that corporate balance sheets are holding strong amid growth, even with tariff uncertainty.

Is it worth it to look beyond US borders for bonds? We think so. This move not only diversifies the timing of gains and losses away from US markets, some European economies are yielding the same or higher than what we can get from US Treasuries. While Europe may not be a powerhouse economic region like the United States or Asia, European markets are seen as having a rather stable fiscal outlook.

As mentioned earlier, a weaker US dollar this year is supporting international stocks too. Market dynamics favors international stocks when the dollar weakens, and in times of US economic growth slowing (but positive), owning or growing international holdings could be key. We are currently exploring international opportunities with a 1–3-year outlook in mind, and will let you know if we find anything interesting.

In the meantime, volatility is here and is part of the game—but this higher-rate backdrop has changed how the game is played. Our model portfolios include a healthy allocation to a “multi-alternative” strategy that is designed to derive competitive yields for income generation that are not closely tied to stock or bond market dynamics. Amid volatility, we’re watching fiscal sustainability risks, like heavy Treasury issuance (debt increases) and trade tensions that continue to cool foreign demand for the US. Nevertheless, our resilient economy continues to keep risk of defaults low, and our clients are happy with their traditionally allocated portfolios.

Moving forward, we will continue to stay selective. We maintain an overweight to quality like dividend payers and value stocks, as well as short-intermediate term bonds and mortgage-backed securities. We have hedged somewhat with international exposure to stocks and bonds and are avoiding tilting into long-term bonds amid Fed policy caution. With the Fed projecting only 100 basis points of cuts by 2027, we agree that rates could stay elevated for a while. This should produce some great income for those needing it.

The Bottom Line: Bonds are Powerful

Bonds are back as a powerhouse for steady retirement income, offering yields we haven’t seen in years without forcing you into riskier bets. Markets are resilient, but uncertainties like tariffs loom, so diversification—as always– remains your best friend. Remember, this isn’t one-size-fits-all advice. If you’ve got idle cash or questions about your mix, reach out to your Align advisor—we’re here to tailor this to your retirement journey. Let’s keep aligning for success!

*Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.

**Bonds are subject to availability and market conditions; some have call features that may affect income. Bond prices and yields are inversely related: when the price goes up, the yield goes down, and vice versa. Market risk is a consideration if sold or redeemed prior to maturity.

The main risks of international investing are currency fluctuations, differences in accounting methods; foreign taxation; economic, political, or financial instability; lack of timely or reliable information; and unfavorable political or legal developments.

Emerging market investments may involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation.**