The Financial Advocate: Summer 2025

“The Second Half”

As a football fan, I’ve come to expect the second half of a game to be an exciting event. Either big turnarounds with lots of points scored or significant failures from a dominant team often lead to a sensational finish.

The first half of 2025 started with a bang of rising markets, followed by a significant drop in the second quarter and a big rally into the summer. Whew! Given all the drama surrounding the financial markets this year, what can we expect for the second half? Right now, it looks like the second half of 2025 will have a solid finish. And looking ahead to next year, we believe the second half of 2026, where the news cycle will likely be dominated by the midterm elections, looks to be action-packed. (More on that later.)

Corporate earnings, which drive stock market returns, are coming in generally better than expected. Inflation numbers had been better than expected. They appear to be accelerating just now. We expect the Federal Reserve to begin to lower interest rates as we move into the fall of 2025. All of this suggests a tailwind into year end.

We are now in the period when Wall Street pundits begin to consider the outlook and forecasts for the coming year. We expect these forecasts to be mostly positive: lower interest rates, higher profits, moderating inflation, and growing employment. We anticipate seeing forecasts for higher corporate earnings against the backdrop of lower interest rates, all of which suggests a strong start to 2026.

Now, what about the second half of 2026? It is a midterm election year. The news is already full of politics, and it will only get louder as we move into next year. Markets do not like confusion or uncertainty, and we will be very mindful of how this news develops.

We believe that corporations will adapt and prosper while interest rates remain at manageable levels. We are optimistic about the outlook for technology, industrials, and utilities, driven by the construction of data centers and burgeoning demand for cloud computing. We are also feeling positive about demand for basic materials, which will fuel construction and the reshoring of major industries. Additionally, consumer spending is holding up, and the communications sector looks fine.

We are more cautious about healthcare, commodities, and currencies, as these are all “political footballs” that could be affected by the election cycle. As portfolio managers, it is our job to manage what comes our way. We will remain vigilant and mindful of unfolding events. However, we are generally positive on the near-term outlook.

A Note About AI

AI will deliver more knowledge faster and to more people and is certain to disrupt many businesses. For example: Do you need a paralegal to search for legal answers when a chatbot can provide them in a fraction of the time? What about travel sites? Anything you ask for is immediately at your fingertips. Or realtors, when every house on the market is available on a single webpage? The advertising market is already being disrupted, with some estimates suggesting that regular web searches are down by 15-30%. The web is changing and will not look the same in the coming years.

We believe in the promise of AI for productivity and life enhancement. However, we will need new compensation models so we don’t lose content creation, artistic expression, and knowledge development. This is a big and developing story that will involve business, politics, and international relations. We at Ventura Wealth Management plan to stay at the forefront of the developing world of AI, as it will change our futures and the future of many investments. Expect us to continue to discuss AI as it relates to disruptive forces and investment opportunities. It is quickly becoming the topic of this generation.

“Economist’s Corner,” by Roger Klein, Ph.D.

On July 29 and July 30, the Federal Open Market Committee (FOMC) held its regular meeting. The FOMC decided to keep its target interest rate unchanged between 4.25% and 4.50%. The FOMC vote was not unanimous. The vote was 9-2 in favor of keeping the target interest rate unchanged. There were only eleven votes because Fed Governor Adriana Kugler was unable to attend the meeting. The two dissenting votes were in favor of reducing the target interest rate by 0.25%. Their argument was that the labor market is beginning to show evidence of weakness and that a rate reduction now would serve as a small insurance move. As discussed below, the dissenting voters were correct about the developing weakness in the labor statistics.

Current monetary policy is moderately restrictive because the FOMC is concerned about the short-term inflationary consequences of the ever-changing tariffs. The tariffs are a tax on imports and will initially raise the price of imports. The FOMC is also concerned that inflation is currently running above the Fed’s 2% inflation target. In July, the PCE (Personal Consumption Expenditure) price index increased by 0.3% and the core-PCE price index increased by 0.3%. The year-over-year increase in the PCE price index was 2.6% and the year-over-year increase in the core-PCE price index was 2.8%.

The scene at the Federal Reserve will soon begin to change. Adriana Kugler announced that she will be leaving the Federal Reserve on August 8th. Her term as a Federal Reserve Governor was set to end on January 31, 2026. Ms. Kugler was appointed by President Biden. Jay Powell’s term as Federal Reserve Chair will end on May 15, 2026, but his term as a Federal Reserve Governor will not end until January 31, 2028. President Trump is eager to replace Powell as Federal Reserve Chair, so the replacement appointment for Governor Kugler will provide an opportunity to insert a “shadow Fed Chair” on the FOMC.

Cracks in the labor market are becoming obvious. The Bureau of Labor Statistics (BLS) reported that in July the economy added just 73,000 new jobs. But more concerning was the downward revision of 258,000 jobs for May and June. The total job gains for the last three months are now barely more than 100,000.

The details of the report are not encouraging. The unemployment rate ticked up to 4.25% from 4.1%, but that was in part because the labor force continued to decline. The labor participation rate fell again to 62.2% and is now down one half of a percentage point in a year. Employers are not laying off workers, but they have stopped hiring. The job gains were in healthcare and social assistance. The much-advertised rebirth in manufacturing does not show up in these data. The economy shed 11,000 manufacturing jobs in July, following a loss of 26,000 in May and June.

Managed Model Strategy

Global Alpha

The Global Alpha portfolio is concentrated in the technology and industrial sectors. Generally speaking, we continue to favor the mega caps, such as Microsoft, Nvidia, and Amazon. We are positive on the semiconductors and developers of semiconductor equipment. As the American consumer seems undaunted, we are focused on the ever-changing face of consumption and we own an eclectic mix of consumer assets. We are also positive on financials and select crypto assets.

Global Balanced

The Global Balanced strategy has delivered solid results in 2025, with its disciplined approach to diversification across asset classes and geographies benefiting clients. In recent months, U.S. equities have outperformed their developed and emerging market counterparts, contributing to returns. The portfolio’s allocation to alternatives has also added value, providing stability during periods of market volatility. In April, we took advantage of market weakness to add to select long-term holdings at attractive prices. Within fixed income, our positioning remains focused on high-quality opportunities, while selectively increasing exposure to emerging market debt and high-yield bonds.

Moderate Allocation

The Moderate Allocation portfolio maintains a neutral posture relative to it’s 60% equity, 35% fixed income, 5% cash benchmark. However, several positions were reduced or exited over the last few months, including Tesla, United Healthcare, and Oneok. These sales were made based on deteriorating fundamental conditions for each of the companies. Xcel energy was added in order to increase the portfolio’s allocation to the utilities sector. Utilities are benefiting from the increase in electricity demand due to the buildout of artificial intelligence data centers. We believe that inflation will accelerate as the effects of tariffs are passed through to consumers. However, the extent and magnitude of which remains to be seen. Our position in the Vanguard Short-Term Inflation-Protected Securities (VTIP) fund should benefit. Investors are now expecting the Federal Reserve to lower interest rates in September. Although a probable scenario, several import data releases between now and then will weigh heavily on the Fed’s decision.

Milestone360

Major Milestone Review

Financial planning is an ongoing process that evolves with each stage of life. Clients of all ages face important milestones. These can include buying or selling a home, education funding, navigating career transitions, or preparing for retirement. All require careful planning and strategic decision-making. Increasingly, milestone planning involves multiple generations within a family. For example, we are seeing more parents and grandparents providing financial assistance for first-time home purchases, childcare expenses, or education planning – each bringing unique planning considerations.

For business owners, milestone planning often extends to the enterprise itself. This may include launching the business, planning for major initiatives or expansions, exploring mergers or acquisitions, developing tax strategies, conducting valuations, or designing exit plans. Each of these business-focused milestones has both professional and personal financial implications, requiring coordination between business goals and an owner’s broader wealth plan.

Life events—such as the birth of a child or grandchild, the passing of a loved one, marriage, or divorce—can also have significant financial impacts. These moments often call for a comprehensive review of your financial plan, insurance coverage, beneficiary designations, and estate documents to ensure they remain aligned with your current goals, family structure, and long-term objectives.
As always, we are happy to discuss these items with you in your quarterly reviews. If you have immediate questions, please reach out to your Wealth Manager.

Enjoy the summer,

Nick Ventura Founder and CEO