Cautiously optimistic going into the fourth quarter of 2025.
Perspective 1. I believe that we are still on track for a 50,000 Dow Jones price target despite the fact that in the last few days we have had a little pullback. All major indexes have hit new records, and I believe this will continue for the near term. As of this writing, the Dow Jones industrial Average is at 45,912 up 8.3% year to date. The S&P 500 is at 6,591, up 12.3% YTD. The NASDAQ is at 22,233, up 15.79%, and the Russell 2000 index is at 2406, up 7.92%. Calling
for a 50,000 Dow Jones may seem like a huge milestone, but, in actuality, it is only about 8.9% away from that target. We will have to wait and see if it happens later this year or sometime next year.
Perspective 2. Economic growth continues. GDP (Gross Domestic Product), as defined as the total monetary value of all final goods and services in the U.S., has grown from a negative -0.05% in the first quarter of 2025 to a positive 3.5% in the second quarter of 2025.
Perspective 3. Interest rates are coming down. The Federal reserve recently lowered the Federal funds rate 25 basis points and hinted at the possibility of two more cuts by year-end. Inflation as measured by the Consumer Price Index is at 2.9%. A slight uptick from a year ago at 2.8% but substantially lower than the 9.1% in 2022.
Perspective 4. Caution is still warranted. (1) The supply of money, as measured by M2, (the physical currency in circulation, plus reserves held in central banks and consumers certificate of deposit, along with money market funds), has not contracted much over the last year; (2) Too much money in the system may bring back inflation; (3) There is a chance that the FED may not lower interest rates; (4) Mortgage rates are still too high; (5) The housing markets are not moving as fast as they have in the recent past; (6) The national debt is approaching 37.5 trillion dollars. This is unsustainable and needs to be addressed; (7) And finally, contrary to perspective 1, the markets are at an all-time high and we may see institutional investors taking profits and making risk adjustments to their portfolios, increasing their cash positions.
Perspective 5. Allocation and diversification are key to a moderate risk portfolio. Market Cycle charts indicate the International sector, as measured by the MSCI EAFE index, has been the best performing asset class year to date. The Small Caps and Real Estate Investments Trust have been the worst performing asset class so far this year. However, I expect this to change. Based on valuation, lower interest rates, and less regulations, I expect to see a rotation from Large Caps to Small and Mid-Cap sectors. I also expect U.S. companies to outperform their international
counterparts.
As always, if you have any questions concerning how today’s headlines affect your personal investment portfolio please reach out. I am always happy to help.
Sincerely,
Tim Vorpahl
President
Vorpahl Wing Securities, Inc.