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Quarterly Letter to Clients

July, 2025

Indices at quarter-end (June 30, 2025):

Dow Jones Industrials: 44,094.77 2Q'25 +4.98% YTD +3.64%

Standard & Poor's 500: 6,204.95 2Q'25 +10.57% YTD +5.51%

Tariffs, wars, volatile oil prices, a soap opera in the White House. Why doesn't the market tumble? Who knows? After six months stocks are up a handful of percentage points. Perhaps, following two years of very strong gains, we should be very happy. A small gain is always better than down, especially given that tariffs cloud the earnings picture, and threaten the economy.

Inflation remains dormant, at least until (or unless) tariffs are really implemented and not just threatened. The possibility of tariffs keeps the Fed from lowering interest rates. If tariffs are actually implemented, we can expect inflation and interest rates to rise, and the Fed will be justified.

Which leads me to comment on bonds. With such a clouded outlook, it seems imprudent to buy longer dated bonds. My move has been to roll six-month Treasuries, where we can garner almost as much interest as is available in three-to-five year corporate bonds, with no risk.

Gold, a traditional store of value and a sometimes hedge against inflation, has soared. The dollar has declined to three-year lows, and capital is flowing out of the country. The current administration is pushing cryptocurrencies, which, as I recall, were originally designed to facilitate anonymous financial transactions--notably, laundering money. I, for one, will avoid that "asset class" until someone can clearly explain to me what it is and why it would be a good investment.

Maybe the government is just trying to keep us from focusing on the huge debt that they are incurring on behalf of the American people. They have come in with a chainsaw and are making off with a pork barrel, adding trillions of dollars to our national debt.

To my eye, stocks appear vulnerable. Several of the small group of stocks that have dominated the market averages in recent years have gone quiet, but all still trade at elevated prices (relative to earnings). I have always had a long-term, conservative approach to investing, and though that has not been a winning strategy over the last couple of years, patience, meaning time, has always been the factor that evened things out for me. The punsters may comment that I do not have all that much time left, but I cannot find it within myself to change direction.

Jim Pappas