Perspectives
Quarterly Market Newsletter
Second Quarter, 2025
What a ride -- perhaps not one you hoped for, but it’s the one we got! At the beginning of the quarter, we got “Liberation Day.” This was really a bundle of proposed tariffs for our trading partners across the world. Stock investors did not take the plan well. Perhaps, because of the negative response from investors, these tariffs were soon delayed and modified. After this, markets began to recover, but, unfortunately, the tariff picture is no clearer as of the close of this second quarter.
Riverplace Capital had been warning for some time that volatility this year would pick up, and so it has. We made the prediction that this period would also offer many opportunities, not just risks. Given that outlook, Riverplace Capital has sought to add to and improve portfolios as opportunities developed. We believe there will be more of these volatility episodes coming!
Despite pressure from the President, the Federal Reserve has kept interest rates on hold. There is a case for lowering interest rates. Inflation has subsided and is very close to the Fed’s target. The looming tariffs are keeping the Fed on hold. Soon, answers should start coming in as to their effect on the economy. Then, hopefully, interest rates can start declining, but not yet. See our Forecast section on Fixed Income to see our prediction.
Forecast
Economy
In an earlier weekly blog, Riverplace Capital predicted that there would not be a recession this year. Although our economy is more and more an example of “have and have nots,” the “haves” are spending. Remember the top 10% of earners account for 50% of consumer spending. This keeps things moving forward. Also, lower income earners are finally getting wage increases greater than inflation. This helps, too.
New industries have been leading the way for economic growth. This will continue even though our new administration is trying to revive and bolster older ones with tariffs and other efforts. Steel, oil, coal, autos, etc., simply will not grow sufficiently to move the U.S. economy forward. This reality is very important in how and where we invest your dollars.
Equities
The stock market has been more a market of stocks, rather than a categorical play. Company performance is more important than being part of a sector or any larger demarcation such as value or growth. Therefore, good stock picking is being rewarded. For example, the “magnificent 7”is not a good description of outstanding performance. Only 4 or 5 of the original 7 deserve this description. Several of the original names are not out-performing. It is time to ditch a few great past performers and move into the companies of the future. The trick is to know, for each company, whether they are in a lull or the economy passing them by.
Stocks in the value sector led the way for the first part of this year, but growth is now assuming the lead once again. This is where we are placing emphasis for the second half of this year. Growth companies can be found in almost every sector. Careful selection is what is called for and what we are doing.
Fixed Income
After rising earlier this year, interest rates have leveled off and are trading within well defined ranges. Until the Federal Reserve begins reducing short-term interest rates, these ranges should hold. Although the financial press implies great meaning for every squiggle in the interest rate patterns, not much is actually happening. “A tempest in a teapot,” is a good way to describe this.
If the Federal Reserve begins lowering the fed-funds rate too soon, Longer-term interest rates will actually go higher. That is because investors will feel that inflation may come back. So, the “Fed” must wait until the current inflation rate continues to decline and looks like it is on a sustainable path to their 2% target. With tariffs on most of our imported goods looming, this conclusion cannot be made.
Many investors are hoping for a July rate cut, but September is more likely. The tariff effect needs to play out more fully. In the meantime, our economy seems to be handling current interest rates just fine.
Investment Strategy
Equities
Most individuals invest in stocks because they believe companies’ results over time will increase the value of ownership. There are many reasons why that may happen, but growth is the simplest and most common reason this happens. A company that goes from making millions to billions is a simple but good way to visualize this process. The reasons for this increase may be many. It may come from a new product or service, or a better way of doing something.
The pace of change in our economy is astounding and seems to be accelerating. Connectedness, through the internet, has driven many changes. Now Artificial Intelligence will drive even more. This is both a curse and an opportunity. At Riverplace Capital, we look at this process as one of opportunity. Therefore, we embrace the inevitable changes and retire the successes of the past.
Keeping up with rapid change and benefiting from it is not easy. We must be careful not to chase foolish trends or fall for hype. This challenge is why we love this business so much.
Fixed Income
As fixed income investors, we have slowly moved from only buying short-term, high-quality securities to extending the length of time which we would be willing to commit. Five years is about as far as we are willing to go. This is because we believe that rates will ease somewhat in the future. Perhaps by September the Federal Reserve will begin to reduce short-term interest rates.
Quality remains paramount. We are aware that there are many new asset-backed, fixed income securities as well as some that promise downside protection, or some other gimmick. Our experience tells us that many of these will not turn out to be good investments. So, we stick with instruments with known credits, specific maturity dates, and a fixed rate of return.
Wealth Management
Since we modified our approach using ETFs for our asset allocations, we are pleased with the results. These portfolios are producing results in excess of their benchmark. We will make adjustments to this approach as circumstances dictate. Since our approach here is proprietary, we will discuss the particulars of this strategy individually with you, if interested.
Talk With Us
Artificial intelligence, this is a broad term that loosely refers to machines that can learn and then apply that knowledge. Experience either reinforces the learning or indicates a different path that needs to be taken. The range of learning can be about a specific area of knowledge or all the way up to a general scope. ChatGPT is an example of a general model, whereas a specific one might be in genetics for drug discovery. Another might be one that is focused upon process control of a specific manufacturing challenge such as producing specialty chemicals.
There are a host of companies that provide solutions in a variety of arenas. Once the basic concepts of building models are grasped, there is no end to possible applications. Today, military intelligence and robotics are already using AI. Humanoid robots now seem to be closer to reality than ever before.
No company has a lock on this technology. A few may end up being providers of general models that others can, for a fee, use to run specific applications. Others are already providing tailored solutions for areas such as inventory control, human resources, manufacturing, etc. The possibilities are endless. We will probably be surprised by some of the applications that emerge. This technology will change our world! We, at Riverplace Capital, are finding good investments that will benefit from this. If you have more questions about our endeavors here, Talk with Us.
as of 6/30/2025
5.5%
Dow Jones Industrial Average
3.6%
Mid Cap Stocks (S&P 400)
-0.6%
NASDAQ Composite
5.5%
Small Cap Stocks (Russell 2000)
-2.5%
MSCI EAFE
17.37%
Barclay Aggregated Credit Index
4.2%
Inflation
2.8%
(Equity indices are three-month returns excluding dividends)
Embrace the future, learn from the past, then forget it, live in the present.
- The Lonely Bull
Notice
Are you ready to take a serious look at your financial prospects?
Riverplace Capital is offering a free financial plan (value $1500) for anyone, not just for our clients. Information is powerful and knowing how well your needs are being covered can help you make better decisions during this time of heightened uncertainty and stress. You may want to analyze a variety of “what ifs.” Can you be more aggressive with your investments, or should you be more conservative? If you get sick, how well can you manage through the illness? Other questions may come to mind that cold rational analysis can help you see through the fog of the moment.
Free is free and no one is under any obligation to Riverplace Capital. The Bull and his partners want to help investors make the correct decisions. In other crises, we have seen too many people do great harm to their financial futures. This can be avoided with the proper analysis and counsel. It is important to stay on a disciplined path. You may need to make changes, just do them as part of a rational plan. Let us help you.