2/23/25

Weekly Market Recap

The US stock market started last week without much excitement. However, things took a dip heading into Thursday, and losses accelerated into Friday. There has been a shift in sentiment among some investors, which can drive markets in the short term. The University of Michigan publishes a monthly survey on Consumer Sentiment, and the index fell from 67.8 to 64.7. This simply means consumers are starting to feel a little less optimistic about the economy. To put things into perspective, this index dropped as low as 50 in 2022 when everyone was expecting a recession. Therefore, while the current level of consumer sentiment is not alarming, the downward trend is concerning. I like to remind people that US stocks started the year at very high valuations. It is difficult for stocks to perform well when expectations are already sky high. The rest of the world is doing relatively well, in part due to starting from much lower valuations. On a YTD basis, US stocks are up about 2.50%, developed international stocks are up close to 8%, and emerging market stocks are up around 7.25%. Bonds are also performing well YTD, so even though large-cap US stocks are taking a pause, there are still plenty of areas of opportunity in the markets.

Chart of the Week

There is a lot of concern around geopolitical events right now. This is adding to investor uncertainty and might explain some of the volatility we have been seeing. Unfortunately, geopolitical tensions tend to really scare investors, leading some to drastically change their strategy. This is usually not a good idea. This week’s chart shows a variety of geopolitical events going back to 1973 and the associated market sell-offs. While it’s true that these events generally spark a sell-off, the magnitude and length of the drawdowns tend to be minimal. Notice that the average sell-off is just 5.6%, and the average time to recover is only 13 days. There are a few exceptions (mainly the oil embargo in 1973), but the general rule for geopolitical events is a short, sharp drawdown, followed by a quick recovery. This is not to downplay these issues. These geopolitical events had massive implications for our society and many people’s lives, but the impact on stock prices has historically been minimal.

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:

Standard & Poor's, Deutsche Bank, FactSet, J.P. Morgan Asset Management. Past performance is not a reliable indicator of current and future results.
Guide to the Markets – U.S. Data are as of December 31, 2024.