In This Month's Issue:
You can read the full Investment Perspectives here.
S&P 500 Index Exceptionalism
Mark Luschini, Chief Investment Strategist
Many have held a longstanding belief in American exceptionalism. Proponents of that view hold that the United States has a differentiated and distinguished position in the world. Similarly, many investors have come to believe that the U.S. stock market, commonly proxied by the S&P 500 Index, is exceptional, given its stellar performance over the past decade-plus when compared to the rest of the world. To be sure, the U.S. equity market has produced attractive returns over much longer periods of time, as have many other foreign stock markets.
However, an increasingly common refrain today is when, if ever, is the demonstrably superior performance that we have seen since 2013 versus the rest of the world going to end? Catalyzing that question is not only the rich valuation hosted by the S&P 500 index at about 22 times 12-month forward estimates of earnings, but also the widening disparity in valuations between the U.S. equity market and its foreign bourse counterparts.
4 Key Issues for 2025
Guy LeBas, Chief Fixed Income Strategist
As an annual follow-up to our Year in Review issue of Investment Perspectives, this second issue of 2025 highlights four themes that will shape bond markets and broader financial conditions.
In 2024, we focused on productivity gains, policymakers’ personal risk aversion, CTA-driven market trends, and private credit expansion. Some of these played a major role, while others had a smaller impact. The AI-driven productivity boom clearly lifted economic growth, a trend likely to continue. Policymakers, particularly Fed Chair Powell, exhibited noticeable risk aversion and resisted aggressive rate cuts to guard against inflation risks. Private credit expanded to become a market force, but the sector remains a sideshow to the broader bond markets. And finally, CTAs reinforced momentum trades in fixed-income markets, leading to periods of trending interest rates throughout 2024.
For 2025, we focus on policy-driven inflation risk, corporate profit growth, mean-reverting interest rates, and the maturation of private credit as key drivers of financial markets.
A Trend Is Not Always Your Friend
Gregory M. Drahuschak, Market Strategist
Punxsutawney Phil cast a cold shadow on prospects for a quick end to winter as his February 2, 2025, appearance on Gobbler’s Knob suggested winter’s chill will be with us for six more weeks. Phil is an American institution that led the governor of Pennsylvania to name him the “official state meteorologist” last year. Phil’s meteorological acumen, however, has been mediocre at best, as history shows that he has been correct only slightly more than a third of the time. In a tongue-and-cheek context, coming as Groundhog Day does in February, the context might extend Phil’s warnings of a chilly environment to the stock market.
Of the 137 years when Phil ventured from his burrow to offer a weather prediction, he suggested an early spring only 20 times. In 2000, Phil predicted an extended winter. That year, the stock market suffered through a severe cold spell, and from February 24 through March 23, the S&P 500 index dropped 34%.
You can read the full Investment Perspectives here.
