1/26/25

Weekly Market Recap

We continue into 2025 with more gains for U.S. stocks. The S&P 500 index has gained about 3.73% for the year, marking a new all-time high by surpassing the previous high reached in mid-December. It has been a fairly broad rally in terms of sector participation this year. All sectors are positive, except for consumer staples. Industrials, energy, and materials are the top performers so far. President Trump made headlines when speaking at the World Economic Forum in Switzerland. To quote him directly, Trump said, “I'll demand that interest rates drop immediately. And likewise, they should be dropping all over the world.” However, it’s important to remember that the Federal Reserve does not have to follow the President's orders. While Trump may call for lower rates, Jerome Powell is not obligated to comply. The Fed is set to announce a rate decision next Wednesday, with market participants predicting a 99.5% chance of no change in rates and a 0.5% chance of a 25 basis point cut. In other words, the market expects no rate cut. In a previous newsletter, I mentioned that earnings would likely drive market performance in Q1. So far, earnings have been very strong. According to FactSet, 16% of S&P 500 companies have reported Q4 earnings, with 80% posting better-than-expected results. The forward price-to-earnings ratio for the S&P 500 remains elevated at 22.2x, above the five-year average of 19.7x and the 10-year average of 18.2x.

Chart of the Week

The chart of the week illustrates the importance of rebalancing a portfolio. The bar on the left shows the starting weights for different asset classes in a portfolio consisting of 60% stocks and 40% bonds. Over the past six years, stocks have performed well, outpacing bonds. Additionally, U.S. growth stocks have significantly outperformed U.S. value stocks and international stocks. If this portfolio were never rebalanced, it would become significantly overweight in U.S. growth stocks relative to other asset classes. While this isn’t inherently a problem, a portfolio with a large allocation to U.S. growth stocks will have a much different risk profile compared to a traditional 60/40 moderate portfolio. During a market downturn, the un-rebalanced portfolio is likely to suffer a larger loss than the original 60/40 allocation. This is why rebalancing is important—without it, investors may take on more risk than they initially intended.

Written by:

Ben Rones, CFA®

Senior Analyst at R&R Financial

The commentary in this newsletter is for informational purposes only and should not be taken as personalized investment advice

Chart of the week Source: Bloomberg, FactSet, MSCI, Russell, Standard & Poor’s, J.P. Morgan Asset Management.Standard asset allocation at the start of 2019 assumes 60% weight to global equities and 40% to U.S. fixed income. U.S. Value: Equal-weighted Russell 1000 Value and Russell 2000 Value. U.S. Growth: Equal-weighted Russell 2000 Value and Russell 2000 Growth. International: MSCI ACWI ex-US. Fixed Income: 10% Bloomberg Global HY Index and 30% Bloomberg U.S. Aggregate. Past performance is not indicative of future returns. Guide to the Markets – U.S. Data are as of January 23, 2025.