The Economic Outlook: Structural Stability vs. External Friction
The U.S. economy currently shows a sturdy structural foundation, supported by a favorable trend in jobless claims and an absence of broad-based layoffs. This is not a classic demand-collapse story, but rather a period of recalibration driven by external variables. The primary factor is the Strait of Hormuz, where potential impairment maintains upward pressure on energy and fertilizer costs. While housing and rent data remain relatively well-behaved, these external supply disruptions create an inflationary impulse that reduces the Federal Reserve’s incentive to move toward an easing cycle.
Despite these headwinds, the domestic economy remains more energy-resilient than its global peers. While rising gasoline prices could soften consumer sentiment during the driving season, historical trends suggest this doesn’t automatically translate into a significant drop in spending. The current environment is defined more by energy costs and long rates than by internal decay, meaning the Fed is unlikely to hike, but currently lacks the justification to cut. The economy is signaling a phase of cautious stability rather than a slide into recession, assuming the geopolitical situation does not trigger a broader escalation.
Market Dynamics: Yield Adjustments and Global Performance
The market has moved away from the “easy-cut” narrative as the 10-year Treasury yield stays in the 4.50% to 4.60% range. The S&P 500 declined 4% for the quarter, its worst quarterly performance since Q3 2022. This rise in yields is effectively tightening financial conditions in place of the Federal Reserve, creating a backdrop where the path of least resistance for equities remains lower. While the broader market has retreated, the Energy sector has climbed 33% due to supply constraints, while interest-rate sensitive areas like Technology have seen double-digit declines as valuation models adjust to higher yields.
The outlook for international markets is slightly more bearish, with geography dictating much of the performance. Since the onset of the war, European indices have faced a more difficult landscape; France’s CAC 40 has retreated 10% and Germany’s DAX has fallen approximately 12% from their respective peaks as energy concerns intensified. This quarter, the DAX and CAC 40 fell 7% and 4%, respectively, reflecting the vulnerability of energy-importing regions. If the disruption in the Strait of Hormuz persists, the S&P 500 could face a drawdown in the mid-teens, but foreign indices—already impacted by a strengthening dollar—are at risk of slipping further into formal bear-market territory. However, on a positive note, the administration yesterday signaled that the U.S. could conclude military operations within two weeks. Such a development, if followed through, would likely stabilize the markets and cap the increase in oil prices in the short-term.
Financial Planning
We wanted to highlight a new savings vehicle expected to launch this summer—informally referred to as “Trump accounts”—that may offer a compelling way to build long-term, tax-advantaged assets for children and grandchildren. These accounts will roll out broadly on July 4, 2026.
At a high level, these accounts allow families to contribute up to $5,000 per year per child (indexed to inflation starting in 2028), beginning at birth and continuing through age 18. Contributions are made with after-tax dollars, and the assets are invested (initially in U.S. equity index funds) and grow tax-deferred.
A key advantage versus traditional retirement accounts is that no earned income is required, making it possible to fully fund the account from infancy—unlike custodial IRAs, which require the child to have wages.
Who can contribute
- Parents and legal guardians
- Grandparents and other family members
- Employers
- Charities and third parties
Who cannot contribute
- There are no explicit relationship-based restrictions in current guidance, but all contributions must comply with standard gift tax rules (i.e., annual exclusion limits, reporting for larger gifts)
- Contributions must be made in cash (no in-kind securities)
In addition, children born between 2025 and 2028 may be eligible for a $1,000 federal seed contribution, and certain private programs (e.g., corporate philanthropy initiatives) may provide supplemental funding.
From a planning perspective, the most powerful feature is the ability to convert the account into a Roth IRA later in life:
- Conversions can begin once the child reaches adulthood (often optimized in the early- to mid-20s)
- There is no cap on the amount that can be converted (unlike 529-to-Roth rollovers, which are limited)
- Conversions can be executed over multiple years to manage tax brackets
- Upon conversion:
- Original contributions are not taxed
- Investment gains are taxed as ordinary income. The taxes paid in one’s mid 20s would be far less than waiting until one reaches the age of required minimum distributions.
- Once in the Roth IRA, assets grow tax-free, with no required minimum distributions
In a fully funded scenario (e.g., $5,000 annually for 18 years), the account could reach meaningful scale by early adulthood, and—if converted efficiently—potentially compound into a substantial tax-free Roth IRA retirement asset. Assume this is funded for 18 years and that the returns are 7% annualized, this would result in a value at year 19 of $170,000. If the conversion happens at age 23, this value would approximately $238,000. There are tax advantages to waiting until after the child is no longer considered a dependent.
As always, this strategy is most relevant after fully funding parents’ retirement accounts and shorter-term priorities (e.g., education planning via 529s). We also expect further IRS guidance as these accounts are implemented.
We are actively evaluating how these accounts fit into broader multigenerational planning strategies and are happy to discuss whether they may be appropriate for your family.