2Q25 Review & Outlook

2Q25 HIGHLIGHTS

Risk taking returned with a vengeance in the 2^nd quarter after the Liberation Day sell off in early April provided an ideal opportunity for increasing risk exposures.  Cryptos led the way with solid gains as Bitcoin surged almost 30%.  International stocks had their best quarter since 2Q20 and rose over 12%.  US large cap stocks followed closely behind at 11%.  However, US mid and small cap stock gains were muted comparatively.    

Many investors seem to be very surprised by the strength of risk assets in general.  A lot of faith seems to have been put in the analysis that tariffs would lead to inflation and no growth (referred to as stagflation).  Some talking heads on TV had even boldly predicted a recession.  Although no scenarios should ever be ruled out, we think all of them are low probability events. 

Our conviction stemmed from our expectations regarding two impending developments that we consider to be important catalysts - 1) the Tax Bill and 2) Trade Deals.  With respect to the Tax Bill, while critics were focused on the uncertainty of its passage, our thinking was that the Republican majority in Congress had no choice but to get it done if it wanted to have any chance of success in the 2026 midterms.  With other factors also at play, we were not surprised when the legislation was indeed signed into law on July 4, 2025.  We think the permanency of the 2017 tax rates in this bill is a major positive for businesses and so are other incentives for domestic companies.  We expect it to accelerate economic growth in the U.S.

On Trade deals, admittedly, the progress has been slower than what we had expected.  So far only a handful of deals have been announced and even some of those are not comprehensive.  That said, we recognize that the process of renegotiating a trade deal in this interconnected global economy is neither easy nor quick.  We are willing to be patient as the process plays out.  While the timing is a bit uncertain, we fully expect most deals to be announced by 3Q25.

2Q25 MARKET SNAPSHOT

As mentioned earlier and seen in the data above, Bitcoin had strong returns followed by equities.  Noteworthy also was the steepening of the interest rate yield curve by 17 bps.  It continues the trend that started in July of last year.  We have long considered the normalization of the curve as important for normalizing credit pricing and so welcome this steepening.  US Dollar weakness and GOLD’s similar magnitude of gains made sense given their age-old inverse relationship.  And finally, oil and Natgas weakened after the U.S. eliminated Iran’s nuclear capabilities without getting any resistance.  Markets clearly do not expect any major supply disruption, and we are in that camp as well.

PERFROMANCE REVIEW

After a one-quarter interruption, all OppoQuest Strategies again outperformed their respective benchmarks.  As the table above shows, the magnitude of outperformance was simply stunning with GROWTH at +8.97%, MODERATE at +9.09%, and CONSERVATIVE at +4.86%!  This is our best quarterly performance since 2Q20, and we are very pleased to report these numbers.  Major positive contributors to the performance were:

1)     AI-related software positions (PLTR, SNOW)

2)     Semiconductors (ARM, NVDA)

3)     Power generation equipment maker and Grid manager (GEV)

4)     Digital Advertising innovator (TTD)

As I indicated in my last letter, we followed through on our action plan and added substantial stock positions during the post Liberation Day April sell off.  In fact, we used all the cash (~30%) we had built up over the last two years.  We took advantage of the panic type selling and made meaningful additions to our highest conviction ideas like GEV, NVDA, ARM, PLTR, and SNOW.  By the end of April, we were back to having almost 100% exposure to stocks.

We also continue to pare down our China exposure.  The rigidity shown by Chinese leadership since the beginning of the year in trade talks with the U.S. led to that decision although late in the 2^nd quarter, we did see them become more conciliatory.  While we do think eventually both parties will settle and hash out a deal, we don’t think the expected reward at the end of that process is worth the cost.  There are other attractive opportunities that we are leaning into.      

OUTLOOK

Our next 12 months’ outlook has become very constructive.  Post the Liberation Day selloff, we think the market has mostly repriced tariff uncertainties.  While there is always room for surprises, we think the market’s worst reactionary impulses are behind us.  We fully expect participants to turn their focus on the two impending catalysts explained in the opening paragraphs - the Tax bill and Trade agreements.

With the Tax Bill passing in early July, one big positive catalyst is already in motion.  As also mentioned earlier, some of the provisions in the bill strongly favor growth and we think its passage provides businesses with the needed certainty and incentives to make aggressive long-term investments.  Particularly attractive is the expensing clause for new capital investments in the U.S.  Along with a lower tax rate for domestic manufacturing and the imposition of base level tariffs, we think reshoring is going to receive a major boost as these policies get implemented.

And on the deals front, announcements with U.K., Vietnam, and Indonesia have been made.  A framework agreement with China has also been announced.  The administration has pushed back the effective date of reciprocal tariffs from July 9 to August 1.  Despite unilateral intimation of applicable tariffs on many countries made by President Trump, we expect that important trading partners like Japan and South Korea will be given an opportunity to reach bilateral trade agreements. 

Overall, we think the environment 12 months from now will reflect a huge change in sentiment.  The uncertainty on trade issues will likely give way to transparent and stimulative set of rules which should encourage unprecedented levels of U.S. domestic investments as well as significant growth in international trade.  This fertile ground for risk taking should lead to a very strong performance by most risk assets, particularly equities.  And beyond 2025 also, we see the favorable environment continuing as lower interest rates come into the picture. 

We are well positioned for the expectations laid out above with close to 90% stock exposures in all our strategies. 

Sincerely,

For OppoQuest

PARESH JAIN

Managing Member & Portfolio Manager