The Financial Advocate: Fall 2025
“Up and Running. For Now…”
With Washington finally up and running after the longest ever shutdown on record, the government is slowly returning to “normal.” We believe that it is too soon to interpret all the impacts from these disruptions or to make any political predictions as to who “won.” One thing we do know is that more potential conflict lies ahead. Profligate spending is an undeniable problem at the federal level. Sane, rational legislating is needed. Programs require financial reworking into a more sustainable, balanced, and prudent format. Changes to most government programs will be necessary if we are aiming for a responsible budget process.
As portfolio managers, the biggest hurdle we face is assembling data on which to base decisions. That data would normally come from government surveys – data that was turned off during the shutdown. We have been able to muddle along using a handful of private data sources. This is our current situation: inflation and unemployment have both ticked up a bit. Layoffs are increasing, which could imply a weakening jobs market. Interest rates are stuck, and the Fed looks stuck too. Those investors looking for lower interest rates might be surprised to see no change. Yet, against this backdrop, we are moderately optimistic. The key reason is the high quality and magnitude of corporate profits. Stock prices are a function of corporate profitability; corporate profits have grown 12% year-over-year! Most companies are meeting or beating analysts’ expectations. We are expecting good earnings growth in 2026. With that outlook, we remain constructive on the domestic equity market.
A well-respected Wall Street analyst, Ed Yardeni, thinks we are in the “Roaring Twenties!” Given high profitability, a strong economy, and tame unemployment, he believes there is no reason for bold interest rate cuts. He believes the economy is fine. While opinions are varied, most are positive for the coming year. We have warned in earlier newsletters that we believe most of the “chop” in the coming year will be driven by politics. With midterms due in November, and infighting all over the place, headlines are dominated by politics. Meanwhile, the economy and our business leaders continue to crank out profits from the products and services that we demand. Remember, the U.S. economy is more than 70% driven by consumption. The consumer is in better shape than the headlines imply, and spending continues to grow. It’s simply hard to bet against the American consumer!
I want to leave you with some impressive numbers. There is much talk of the size of the U.S. government debt. It is too large at $38.3 trillion and needs to be addressed by legislators. But here are some other numbers you probably don’t see very often. The U.S. population is wealthier than you might realize. How wealthy? – about $170 trillion! Yes, U.S. citizens have $176.3 trillion in net worth. Here’s another fact: Baby Boomers (individuals born between 1946 and 1964) control 51.4% of total household wealth! That money will be handed down mostly to the Millennial generation who, to the surprise of many, are behaving in a very fiscally responsible way. Savings rates are high in this generation, and retirement planning is active. The “wealth transfer” that will occur in the next twenty years will be the largest transfer of wealth ever. It could easily keep our economy humming for decades to come. Something to think about!
“Economist’s Corner,” by Roger Klein, Ph.D.
The Federal Open Market Committee (FOMC) will be meeting on December 9 and 10. The FOMC will meet without the most recent data for employment; the unemployment rate and the consumer price index (CPI). The federal government shutdown lasted for 43 days and ended on November 12. During the shutdown the Bureau of Labor Statistics (BLS) did not issue the reports for employment, consumer prices, and producer prices.
On November 20, the BLS released the employment report for September. This report was originally scheduled to be released on October 3. The September data are history, but they are the first set of data to be reported since the end of the shutdown. The employment report is a critical set of data for the FOMC. The Federal Reserve has a two-fold mandate, achieving a high level of employment and price stability.
What did the September employment report tell us? The report consists of two surveys: the Establishment Survey and the Household Survey. The Establishment Survey reported that payroll employment increased by 119,000 in September, somewhat higher than economists expected. However, payroll employment for July was revised down by 7,000 from 79,000 to 72,000 and the August payroll employment was revised down by 26,000 from 22,000 to negative 4,000. These downward revisions are not good news.
In September, most of the gains were in health care, food services and drinking places, and social assistance. Job losses occurred in transportation and warehousing and in the federal government. Employment in the federal government is down by 97,000 since reaching a peak in January. Employment in manufacturing fell by 6,000 in September, after declining by 15,000 in August, and declining 9,000 in July.
The Household Survey reported that the unemployment rate increased to 4.4 percent in September from 4.3 percent in August. In September, the number of unemployed increased by 219,000 to 7.6 million. The labor force increased by 470,000 in September, a large number. One year ago, the unemployment rate was 4.1 percent and the number of unemployed people was 6.9 million. The low unemployment rate for this business cycle was 3.4 percent in April 2023.
What do these numbers mean for the FOMC meeting in December? The unemployment rate is increasing and employment growth is slowing. At the same time, inflation is elevated. The FOMC will have to determine which of the two mandates should be addressed now. The odds favor another 0.25 percent rate cut. More data will be available within ten days after the December FOMC meeting. Should the FOMC meeting be postponed?
Managed Model Strategy
Global Alpha
Global Alpha continues to seek broad based ideas in many themes you have come to know: AI, robotics, quantum computing, cloud computing, data center construction, reshoring, and consumer spending, such as discounter retailers and entertainment. New investments will include a renewed focus on the medical industry, avionics, and space travel, while not ignoring the traditional industries of construction, utilities, and energy.
There have been a few strong pullbacks this year but the domestic markets appear to be ending the year with a strong finish. 2026 looks well-poised for U.S. industries as well. Gold and cryptocurrencies are being used as hedges in the portfolio, and each will be evaluated on an ongoing basis for their contribution to portfolio performance.
Global Balanced
The Global Balanced portfolio has continued its strong performance in 2025, benefiting from broad diversification across asset classes and regions. Our disciplined emphasis on high-quality U.S. equities remains a core driver of results. The portfolio’s international holdings have also contributed meaningfully, with strength across both developed and emerging markets.
Our increased exposure to aerospace and defense companies—domestic and abroad—has been additive to returns. Looking ahead, we are seeking opportunities to add to the fixed income allocation at attractive yield levels. The alternatives sleeve continues to perform well, supported by our long-term position in gold.
In recent weeks, we initiated our annual tax-loss harvesting process to help manage capital gains exposure in taxable accounts.
Moderate Allocation
The Moderate Allocation portfolio increased its exposure to the A.I. theme over the past quarter by taking advantage of pullbacks in Cadence Design Systems and Oracle Corp. We also initiated positions in Prologis Inc., an industrial REIT, and Merck & Co. In contrast, we exited our holdings in Verisk Analytics and Zoetis Inc. Additionally, we trimmed our position in gold, which has performed exceptionally well.
The U.S. economy continues to demonstrate resilience despite the government shutdown and ongoing uncertainty surrounding trade. Although the job market has clearly slowed, we expect further reductions in the Federal Reserve’s policy rate. While equity valuations remain somewhat stretched, the overall backdrop for equities remains constructive.
Milestone360
Important Retirement Plan Updates
There are several important changes to retirement plan contribution limits and rules taking effect in 2026. Many of these rule changes impact a broad range of households, so we encourage clients to review the updates carefully and reach out with any questions.
2025 Contribution Limits
Traditional & Roth IRA
• Contribution limit: $7,000
•Catch-up (age 50+): $1,000, for a total of $8,000
401(k), 403(b), and 457 Plans
•Employee contribution limit: $23,500
• Catch-up (age 50+): $7,500, for a total of $31,000
• Special catch-up for ages 60–63: $11,250, for a total of $34,750
2026 Contribution Limits
Traditional & Roth IRA
• Contribution limit: $7,500
• Catch-up (age 50+): $1,000, for a total of $8,500
401(k), 403(b), and 457 Plans
• Employee contribution limit: $24,500
• Catch-up (age 50+): Total potential contribution of $32,500
Important Rule Change for 401(k), 403(b) and 457 Catch-Up Contributions
Beginning on January 1, 2026, certain higher-income earners will be required to make all catch-up contributions to a Roth account, rather than to a traditional pre-tax account.
• This requirement applies to individuals with FICA wages of $145,000 or more in 2025.
• If 2025 FICA wages are below $145,000, catch-up contributions may still be directed to a traditional, pre-tax account.
• The $145,000 income threshold will be adjusted annually.
• To confirm your status, review your 2025 W-2, when available
Because of this rule change, many employer-sponsored retirement plans that did not previously offer Roth options have added them. If you would like to discuss whether Roth contributions make sense for your financial plan, please reach out to your wealth manager.
Traditional vs. Roth: Quick Reminder
As a reminder, a traditional contribution and a Roth contribution are taxed differently at different times.
Traditional Contributions
• Not taxed at the time of contribution
• Earnings grow tax-deferred
• Withdrawals in retirement are taxed as ordinary income
Roth Contributions
• Taxed as ordinary income at the time of contribution
• Earnings grow tax-free
• Qualified withdrawals in retirement are not taxed
401(k), 403(b) and 457 contributions must be made by December 31st of the current year. Traditional and Roth IRA contributions can be made until the tax filing deadline.
Thank You
As the holiday season begins, we want to express our sincere gratitude for your continued trust. 2025 will be remembered as a challenging year for investors. While it appears that the year will finish with strong results, the path was certainly bumpy. We hope 2026 presents a smoother ride. Enjoy the holidays with your families. We look forward to serving you next year.
Nick Ventura
Founder and CEO