3/2/25

Weekly Market Recap

One of the themes we've seen this year is international stocks outperforming U.S. stocks. This is notable because it hasn’t happened in a long time. That trend continued last week. Although developed international markets lost 0.5% for the week, U.S. large caps, as measured by the S&P 500, fell nearly 2%. This puts developed international markets about 5% ahead of the S&P 500 on a year-to-date basis. Sentiment among U.S. investors continues to weaken. The American Association of Individual Investors (AAII) conducts a weekly survey asking where investors think the market is headed in the next six months. Last week, 61% of respondents took a bearish stance, meaning they believe the market will decline, while only 19% were bullish (positive) and 20% were neutral. This is noteworthy because it’s rare for so many investors to be bearish. In fact, these are the levels of negative sentiment seen during the global financial crisis. The S&P 500 is only 3% below its all-time high, and typically, investors need to experience much larger declines before becoming this negative. My takeaway is that this negative sentiment could drive prices lower in the short term, but sentiment indicators can quickly shift from very negative to very positive. If an investor is in a properly globally diversified portfolio, these low sentiment levels shouldn’t cause panic. The areas of the market hit hardest in recent days include many of the investments that performed exceptionally well in 2024. Therefore, this is a good reminder of the importance of rebalancing.

Chart of the Week

Our chart of the week is a long-term chart of the S&P 500 index, showing over a century of market returns. Two things are clear: stocks have performed very well over long periods, but there can also be extended periods when stocks move sideways. The green line highlights this. Unfortunately, there have been lost decades when U.S. stocks went nowhere for 10 years—examples include 2000 to 2013, the stagflation of the 1970s, and the period during World War II. Notice how long it’s been since our last lost decade, leading some investors to ask, “Why not go all-in on the S&P 500?” This chart answers that question. It’s another reason why international stocks shouldn’t be ignored. International stocks can also experience lost decades, but if you own both U.S. and non-U.S. stocks, the chances of both markets going through a lost decade simultaneously are lower than one market experiencing it on its own.

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:

FactSet, NBER, Robert Shiller, J.P. Morgan Asset Management.
Data shown in log scale to best illustrate long-term index patterns. Past performance is not indicative of future returns. Chart is for illustrative purposes only.
Guide to the Markets – U.S. Data are as of December 31, 2024.