Laura Kuntz, CPA/PFS, MBT, Chief Investment Officer
August 27, 2025
A quick video summary here.
Investment Update. If you read the financial news, you may see conflicting headlines.
- DOW notches record high…1, 4
- Stagnant job market is a rising risk for the U.S. economy.2
- US inflation to edge up …3
The investment world always has cross currents, and we see several now. Here’s what is behind the headlines.
Wider array of stocks rising, including those in the Dow Jones. U.S. technology stocks have certainly led the charge over the last several years, but we are now seeing a widening of upward opportunity into other sectors. The DOW is an example of “other sectors” because it focuses on various industries. This is good news.
Stagnant job growth. About three weeks ago, a jobs report came out that showed dramatically lower new jobs being created. A way to summarize this: people who are employed are happy; people who are looking for work are challenged. You might remember this report because the administration fired the head of the Bureau of Labor statistics. But, this labor report created a benefit for investors. It increased the likelihood of an interest rate decrease. That is good news for investors. I’ll add that it would be a good thing for investors if we can continue to count on the accuracy of economic numbers. China’s economic numbers are influenced by the Communist Party; therefore, a whole industry has grown up that estimates actual China economic data. Such an industry is expensive and could become a part of investment costs. That would be bad news.
U.S. Inflation. The Federal Reserve Board (FED) keeps a sharp eye on inflation because inflation can spin out of control. FED Chairman, Jerome Powell said last Friday, “The effects of tariffs on consumer prices are now clearly visible. We expect those to accumulate over the coming months with high uncertainty about timing and amounts.” He emphasized that the FED will stay ‘data driven’ in its decision making, adding, “Come what may, we will not allow a one-time increase in price level to become an on-going inflation problem.” Inflation is bad news, but the FED hanging tough, if it can, would be good news.
Overall. Large U.S. stocks are richly valued right now. To give you a sense of this, the S&P 500 (largest 500 stocks in the U.S.) is priced at 23 x forward earnings right now, while the 10-year average is 184 x forward earnings. To put this into perspective, the 1999-2000 dot.com bubble peaked around 245 x forward earnings – and then it crashed. Of course, this time is different, but it also has some similarities in terms of very high tech company valuations. Due to high valuations, as suitable, we are not overweighting stocks (which we often do given that they historically have been positive 2 years out of 3) but instead have pared back to a neutral allocations. More on our contrarian investment discipline here.
As we look out over 18 months, we see likely modest FED interest rate cuts and modestly higher inflation, to a total of 3.5% to 4%. We also see some continued pressure on the job market. In other words, these particular cross currents are likely to continue. At this time of high valuations and many global cross currents, the “name of the game” is discipline and a world-wide outlook.
As always, please let us know your questions and comments. We always appreciate hearing from you.
Proud of our team! Our team was recognized by Investment News as a 5-star team. I am so very proud of this. I love serving you as a team because then you benefit from the thinking of multiple team members and also have service and attention at all times. This helps support our values – our standards of care — of “count on us” and “beyond expected.”
Definitions
Dow Jones Industrial Average includes 30 industrial U.S. stocks. Stocks are subject to substantial price volatility and performance is never guaranteed. An index cannot be invested in directly.
The S&P 500 index is comprised of the 500 largest stocks in the U.S. It is subject to substantial price fluctuation.
Footnotes
1 Reuters, August 22, 2025.
2 Wall Street Journal, August 25, 2025.
3 Bloomberg.com August 23, 2025.
4 Per FactSet, Earnings Insight, August 8, 2025.
5 Reuters, “Is today’s AI boom bigger than the dotcom bubble?” Jamie McGeever, July 22, 2025.
Future investment performance can never be guaranteed. Laurel Wealth Planning does not practice law or accountancy. Please consult your attorney and tax advisor in these areas. Please contact us at 952-854-6250 if there is any change in your financial situation, needs, goals or objectives, or if you wish to initiate any restrictions on the management of the account or modify existing restrictions.
