2/16/25

Weekly Market Recap

A great deal of economic data was released last week, offering mixed signals about the state of the economy. Inflation for January rose by 0.5%, raising the year-over-year inflation rate to 3%. While a 3% inflation rate shouldn’t raise any red flags, the upward trend in inflation is concerning. At the same time, retail sales fell by 0.9% in January, suggesting a slowdown in economic activity. However, January is typically a weak month as some consumers cut back on spending to pay off holiday bills. The U.S. stock market appeared untroubled by these data points, with the S&P 500 ending the week up 1.47%. Every sector of the S&P 500 is positive on a year-to-date basis, with communication services, financials, and materials leading the way. International stocks are also giving U.S. stocks a run for their money, with the stock indexes of Germany, Italy, and France posting double-digit year-to-date gains, compared to a 4% gain in the U.S. market.

Chart of the Week

Our chart of the week highlights the combined buyback yield and dividend yield for various stock markets. Most investors are familiar with the concept of a dividend yield—simply put, dividends are profits companies distribute to shareholders, one of the most direct ways shareholders benefit from owning stock. Buybacks are another way investors gain value from owning stock. A buyback occurs when a company repurchases some of its shares, effectively increasing the value of the remaining shares. The idea is straightforward: imagine a company whose ownership is split across 100 shares. If you own one share, you hold 1% (1/100) of the company. If the company reduces the number of shares outstanding to 90 by buying back 10 shares, your single share now represents 1.11% (1/90) of the company. Looking at the combined dividend yield and buyback yield of a stock or group of stocks can provide a forecast of expected returns. Based on these metrics, the UK, Europe, and Japan all appear more attractive than the U.S. Of course, this doesn’t guarantee these markets will outperform the U.S., as this is just one factor that affects a shareholder's total return. Dividends and buybacks can also change rapidly if the economic environment in these regions weakens.

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: MSCI, J.P. Morgan Asset Management. (Left) Bloomberg, Russell. EM Asia tech: MSCI EM Asia Information Technology Index, European Luxury Goods: MSCI Europe Textiles Apparel and Luxury Goods Index, U.S. growth: Russell 1000 Growth Index, Europe biotech: MSCI Europe Biotechnology Index. (Right) *Total yield for S&P 500 is as of the latest available. Bloomberg, FTSE, Standard & Poor's. U.S.: S&P 500, Europe ex-UK: MSCI Europe ex-UK, UK: FTSE 100, EM: MSCI EM, Japan: TOPIX. Net buyback yield adjusts for share issuance. Past performance is not a reliable indicator of current and future results.Guide to the Markets – U.S. Data are as of February 13, 2025.