Weekly Investment Update (07/25/2025)

This week’s headlines were dominated by the ongoing evolution of U.S. trade policy, as the White House raced to secure tariff agreements ahead of the August 1 deadline. The U.S. finalized a deal with Japan, reducing tariffs to 15%, a notable retreat from the 25% rate recently threatened by the Trump administration. Meanwhile, negotiations with the European Union (EU) reportedly made progress, with the EU likely to accept a 15% reciprocal tariff on key goods in a bid to avert a steeper 30% rate that could escalate into a trade war. Although trade remains a source of uncertainty, the market has reacted positively as worst-case scenarios are being avoided.

Earnings continue to highlight the solid fundamentals supporting this market. Thus far, 75% of companies have exceeded estimates, with overall results beating projections by 6.8%. Quarterly earnings growth is tracking ahead of expectations at 7.7%. Technology remains a key driver, with even companies like Alphabet — once facing questions about AI's impact on search — demonstrating strong execution. The company’s results were supported by robust results across Search, YouTube, and Cloud, reinforcing confidence in its AI strategy and monetization potential. Despite elevated capital spending, the company’s performance underscores its ability to adapt and thrive, supporting our continued overweight position.

Passage of the GENIUS Act Provides Legal Clarity on Stablecoins

What is happening: Congress passed the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act on a bipartisan basis, after which it was signed into law by President Trump. The law establishes the first legal and regulatory framework for stablecoins, a type of cryptocurrency designed to maintain a stable value by being pegged on a one-for-one basis to a reserve asset, such as the U.S. dollar or gold. Stablecoins fall into three categories: fiat-backed, crypto-backed, and algorithmic. Their primary use case is to facilitate fast, low-cost digital transactions without the price volatility of traditional cryptocurrencies. The GENIUS Act brings legal clarity regarding which entities can issue stablecoins to U.S. consumers and what assets an issuer must hold as collateral, as well as regulatory enforcement mechanisms for issuers not in compliance.

The passage of the GENIUS Act, combined with increasingly bullish sentiment, has driven aggregate crypto market capitalization above $4 trillion for the first time ever. Notably, the combined value of all major stablecoins has surpassed $250 billion.

Why it matters: Cryptocurrencies continue to gain traction and institutional support, with the GENIUS Act marking a significant regulatory milestone. As the asset class continues to grow in terms of size and use, lawmakers have concluded that a formal regulatory framework is necessary to protect consumers.

Having legal and regulatory guardrails in place could support broader adoption within financial services, although this remains in early stages. While this could foster innovation and create opportunities, stablecoins are not currently disruptive to legacy payment systems. In the near term, they are more likely to complement rather than replace traditional networks.

Adoption may increase in select emerging markets where fiat currencies are unstable or in cross-border transactions, such as remittances, where Visa and Mastercard have limited presence. Currently, only 5%-10% of stablecoin volume is tied to payment transactions; the balance remains trading related. Payments completed with stablecoins only equate to about 0.03% of the total global payments volume annually. Therefore, we do not anticipate near-term disruption to Visa and Mastercard — both of which are held in Bessemer portfolios.

Beyond any impact on individual companies, the GENIUS Act stipulates that assets held by stablecoin issuers be backed one-to-one with high-quality short-term assets, such as Treasury-bills. This requirement could create a new source of demand for U.S. Treasury issuance — particularly relevant amid rising deficits and borrowing costs.

Despite progress in regulation and adoption, in our view, we believe stablecoins still present risks. We will continue to monitor developments in the broader crypto space for potential market and Bessemer portfolio implications.

Fed Independence Remains Intact Despite Recent Criticism

What is happening: The Federal Reserve’s decision to keep interest rates steady since December has drawn criticism from the Trump administration. While the president has denied plans to fire Fed Chair Powell, he has consistently called for lower rates to ease the burden of net interest costs on federal debt, which are expected to account for 17% of total spending in 2025, up from just 5% in 2020. Powell’s term as chair ends in May 2026, though his term as a Fed governor runs until January 2028. Thus far, Powell has not indicated whether he will remain as a governor or leave the Fed entirely when his term as chair ends.

Bond markets experienced a bout of volatility last week after renewed speculation over whether Chair Powell will be removed. Short-term yields fell and long-term yields rose on the news. However, after Trump denied those claims, yields reversed their earlier moves. The drop in short-term yields likely reflected market expectations that the next Fed chair could pursue more aggressive rate cuts.

Why it matters: The ongoing criticism of the Fed’s monetary policy stance has raised concerns about the future of its independence. While Powell’s successor may share President Trump’s preference for lower rates, enacting such a policy shift may be challenging. Monetary policy is set by a majority vote of the Federal Open Market Committee, which includes eight permanent voters — seven from the board of governors and the New York Fed president — plus four annually rotating regional reserve bank presidents. In total, the committee comprises 19 members, including nonvoting regional presidents. Some members, such as Governors Waller and Bowman, have supported more immediate easing, but overall, the committee remains divided. In the June Summary of Economic Projections, where each of the voting and nonvoting members submit their fed funds forecasts, seven officials projected no rate cuts this year, while two officials projected only one.

While the Fed chair serves as the institution’s key spokesperson, the structural independence of the Fed is anchored in its democratic approach to policymaking. It would be extremely difficult for a Fed chair to orchestrate a committee action to reduce rates without a clear economic rationale. In our view, any further easing is likely to depend on economic data, not political pressure. We continue to expect the Fed to continue rate cuts in the second half of the year as evidence of gradual softening in labor market data becomes more pronounced.