Moneybeat: Midyear math

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MARY REICHARD, HOST: Next up on The World and Everything in It, the Monday Moneybeat.

NICK EICHER, HOST: Time now to talk business, markets, and the economy with financial analyst and adviser David Bahnsen. David heads up the wealth management firm The Bahnsen Group. He is here now. Good morning to you, David.

DAVID BAHNSEN: Good morning, Nick, Good to be with you.

EICHER: We’ve just passed the Fourth of July, so it’s a natural point to pause and take stock of the stock market. Looking back at the first six months of the year, what stands out to you about the markets? Any themes or trends that have really defined the first half?

BAHNSEN: Well, I mean, it was certainly—if you’re just looking backwards on the first six months—a very interesting kind of full-circle ride, in the sense that we started off the year with markets pretty frothy in their price, and a lot of the big tech, mag-7, AI names really kind of expensive.

Then, in between the start point of the year and where we are now at the mid-year point, you had a lot of headline-driven events, primarily around the threats of a trade war and tariffs. There were some geopolitical sparks in there as well, with Israel and the U.S. attacks on Iran.

By the end of the first half of the year, you just kind of went back to where you started—with a pretty good economy, pretty good earnings, and a pretty expensive market.

EICHER: So when you look at the big picture beyond just market performance—how would you assess the health of the overall U.S. economy right now? Are the fundamentals solid, or is there more going on beneath the surface?

BAHNSEN: Well, I continue to believe that there is a very different conversation about the short term, intermediate term, and long term outlook, and that the primary issue long term is still—and is going to stay—the indebtedness of the country and the burdens that the excessive governmental debt represents on the U.S. economy.

In the short term, the jobs report that came last week, right before the holiday weekend, was really instructive on both fronts—the good and the bad—as to what I think is the state of our labor market.

On one hand, you had a pretty low unemployment number—4.1%. You had pretty decent job creation: 147,000—that was higher than expected. You continue to kind of defy the critics who think DOGE is eliminating a lot of government jobs, when the government was the biggest addition to jobs created, albeit more on a state and local level than federal.

So certainly, the DOGE layoffs so far have vastly underestimated—underwhelmed—what people expected in terms of eliminating some of the government excess.

But, Nick, the decline in the labor participation force—again, over 200,000 people leaving the workforce, which is the mathematical reason that the unemployment percentage went down—that’s just an awful development that is getting worse, not better.

So on one hand, you have a pretty good jobs market for people who want a job being able to get one. On the other hand, you have far too few people who want a job.

EICHER: Well, that sounds less like a structural economic problem and more like a cultural one. Can you unpack that a bit—how our culture is shaping economic outcomes?

BAHNSEN: Well, you’re exactly right. It is a cultural problem, but that doesn’t necessarily bifurcate from an economic problem, because the cultural problem, which is a cultural cause, results in an economic effect.

So I think that the price paid in the economy for the cultural causation of just simply a society that is less embracing of work is less productivity. By the way, it increases the need for immigration, which then adds to the political hostility.

We clearly have a lot of forces that are working against higher immigration. We could say we want to isolate that topic to just really focus on the perils of illegal immigration, but the problem is that that topic gets a lot more complicated and a lot more controversial around illegal immigration when there is a significant amount of the labor force that is leaving and increasing incentives for employers to look to the immigration pocket to meet their labor needs.

EICHER: David, we’ve talked before about the so-called “Big, Beautiful Bill”—but now it’s law, the big beautiful law, lost a little alliteration.

But it’s no small thing, politically, that House Speaker Mike Johnson kept his narrow majority together. But we can set the politics aside and now that this is passed, what do you make of the substance? What should we be watching for as the economic effects start to play out?

BAHNSEN: Yeah, well, it is a big political victory for both Speaker Johnson and President Trump.

The reason it’s a political victory for President Trump is there is absolutely no denying right now that this is his party—that the Republican Party is his.

Now, the question that people are asking me, Nick, is what do I think of the bill when you put aside the politics—what it teaches us, where things stand. Speaker Johnson’s clearly underrated ability to manage his own caucus.

But all that stuff is really political and a little less interesting to me than the economic side.

I think that three things are true. I’ll say them very quickly.

One: The tax cuts got extended. They had to be extended. You would have created a recession to have that kind of big tax increase. So the part that everyone knew was going to happen—that’s the least surprise to it—got done, and that’s a good thing.

Second is the most negative—that it is a significant increase to the deficit over time, and that this was a chance to actually decrease the deficit, and it just simply didn’t do it. The fact that some knobs got moved around that I like—but most of those knobs that got moved I liked were offset by other knobs moving the wrong way.

I don’t think the Democrats will get a lot of political benefit other than people that are already predisposed to not liking President Trump with their “Oh, he’s slashing the social safety net, he’s slashing Medicaid” argument. It isn’t true, but I don’t think that’s going to have a big impact here.

I’m more focused on the Medicaid side—that the Republicans did such an absolutely awful job making the case that they were not slashing Medicaid.

And then the third thing, which is more relevant to markets: there’s some modestly good stuff on the business side. Full expensing of capital investment—that was made permanent, not just a four-year thing.

Now look, I think this “no tax on tips” stuff is just totally silly. The “no tax on overtime” and some of the personal tax stuff—it isn’t pro-growth. It picks a certain winner over a loser. A few people will benefit. People always tell me I’m supposed to say I’m in favor of any tax cuts, but I really am not.

I mean, I’m in favor of tax cuts that are evenly distributed across the economy, and I think that this doesn’t do that. But it’s so interesting—it’s only a few years, and then it goes away.

So that side of it is not the pro-growth side. The business stuff is more pro-growth, and I hope that there will be a good result there.

But it isn’t the big needle mover that President Trump’s fantastic legislation was in 2017. That was a much bigger deal in my mind.

EICHER: All right, David Bahnsen is founder, managing partner, and chief investment officer at The Bahnsen Group. He writes regularly for WORLD Opinions, and at dividend-cafe.com. David, thank you so much. We’ll see you next week.

BAHNSEN: Thanks so much, Nick.

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