Hall Capital “Market Views” Newsletter July 2025

This is the 61st edition of Market Views from HALL CAPITAL. Our aim is to provide concise views of where we see risk and opportunity for investors.

Long Term vs Short Term
- a long term focus wins

We are long-term investors. Still we recognize that the long term is made up of a series of short terms. We account for short term developments, but our long-term convictions carry the most weight. Below are key factors shaping the outlook, with thoughts on both the near term and beyond:

Tariffs and Growth

• Short-term: Negative
• Long-term: Negative

Fed Chairman Powell noted, “The effects of tariffs will depend, among other things, on their ultimate level.” We agree and believe tariffs rates will be reduced, but we don't know by how much or when.

Tariffs and Inflation

• Short-term: Negative
• Long-term: Neutral

While there’s a chance of embedded long-term inflation, we believe price increases will be transitory even if modest tariffs remain in place.

Middle East Turmoil

• Short-term: Mildly negative
• Long-term: Potentially positive, if Iran’s nuclear ambitions are truly obliterated.

U.S. Corporate Tax Cuts and Deregulation

• Short-term: Positive
• Long-term: Positive

Rising Federal Debt

• Short-term: Mildly negative
• Long-term: Significantly negative—unless addressed in the next administration.

Elevated Stock Valuations

• Short-term: Neutral
• Long-term: Restrictive

Valuation has little bearing on market direction over a horizon of less than a year, but price matters for long-term returns. High starting P/E's may not indicate a crash, but they do suggest more muted returns ahead. The next decade is likely to yield lower returns from equities than the last – unless the benefit from the next factor below is even greater than expected. And it could be. 

AI Driven Productivity

• Short-term: Positive
• Long-term: Very positive

Despite valid concerns of the risks of unfettered AI development, we believe that the technology will engender unimaginable progress over the long term. The vast majority of global actors are seeking to maximize the technological and financial upside of AI while at the same time they are attempting to manage the risks. 

While these are the primary issues we are monitoring, other challenges—such as climate change and political polarization—are harder to price in. I tell myself that all we need is strong leadership to meet these challenges. 

Why We Favor A Balanced Asset Allocation
- to provide stability and increase odds of earning target returns

Wall Street strategists issue annual market forecasts. They know these predictions have little value, yet they produce them because clients expect them.

As noted above, many of our perspectives are prefaced with “unless…” or “depending on…” That’s by design. Successful investing doesn’t require accurate predictions; it requires an ability to manage the risk as well as the opportunity. The future is always uncertain. Investing with the belief that one knows the future is living dangerously. Some investors guess correctly and are rewarded. But we have found that taking outsized risks isn’t necessary to earn very attractive returns. (See Focus List). 

One of the most important skills in investing is thinking probabilistically. Lean into the most likely outcomes. Build your portfolio with "house odds". Develop a discipline of stronger conviction when prices are attractive—even if the fundamentals remain unclear. Though a Las Vegas casino enjoys house odds, it may still have a losing day or week. But over the long run, it will always win. Playing the tables is gambling. Owning the tables is investing. 

Investors have shrugged off geopolitical stress and slowing growth signals. The threat of a "negative wealth effect" due to a lower stock market is lifted. While strong fund flows may keep stock prices buoyant, our conviction is low near term. With a stock market P/E of around 23x, price is not on our side. We remain overweight equities but also hold some reserves and alternatives to ensure portfolio durability. With reserves yielding 4%+ and alternatives offering expected returns between 7% to 10%, the opportunity cost of having some defense is low. 

Focus List

We are no longer sharing the Focus List on our website. If you wish to see it, please email us or call the office at 626 578 5700.

Follow Up – from our letter one year ago

"Is the narrow market a major risk? Not really."
- Both equal- and cap-weighted S&P 500 indexes posted solid double-digit gains. Market narrowness did not manifest as risk.

"This feels reminiscent of 1999–2000. Is AI another dotcom bubble?"
- We disagreed then, and the market has supported that view. NVIDIA is not Cisco. It didn’t crash—and neither did the market.

"The Focus List is built on companies with strong balance sheets, competitive advantages, and reasonable valuations."
- That philosophy has continued to work, especially in volatile conditions.

NOTE: Now in addition to ALL our quarterly letters, on our website is a tab with just the Follow Ups.

About HALL CAPITAL

HALL CAPITAL, LLC is a registered investment advisor and was formed by Principals from Arcturus Capital in 2010.
For more information, contact Donald Hall 626 578 5700 x101 dhall@hallcapitalmanagement.com

HALL CAPITAL | 199 S. Los Robles Ave | Suite 535 | Pasadena | CA | 91101