Every quarter Michael and I record a market and portfolio update video for our clients at Ritholtz Wealth.
We talk about what happened, why it happened, go over the impact on client portfolios and share a bunch of charts and data from our research team.
Our research team — Sean and Matt — did such an amazing job this quarter that I decided to share some of the charts.
Let’s take a look.
The bull market charged on yet another year but so did fundamentals:
The market keeps getting more concentrated. Corporations keep getting bigger. But so do earnings. It was another good year for earnings growth, which nearly matched the gain in the S&P 500.
This is good news.
Speaking of fundamentals, check out the difference in forward PE ratios between the Mag 7 and the rest of the S&P 500:
Here’s the hard part about gauging the fundamentals of the stock market today: valuations are much higher for big tech stocks than the rest of the market.
But these are also the biggest, most profitable companies in history. They deserve to have higher valuations. So when does it become a concern?
It really depends on the embedded expectations and what happens with earnings from here. That seems like a cop out but it’s the truth.
There’s a much lower margin of safety in mega cap tech than everything else:
The biggest bull case for smaller stocks is the fact that valuations and thus expectations are lower. It’s not going to take much good news for smaller companies to close this gap.
Maybe small caps will be the international of 2025. The country performance numbers last year were quite surprising:
The U.S. stock market was close to the bottom of the list. No one saw this coming heading into last year.
Why did international stocks have such a good year? Here’s the attribution broken out by fundamentals, currency moves and emotions:
The falling dollar was a tailwind for foreign stocks last year but earnings growth was good too. Everything went right for foreign stocks last year.
Will it last? I don’t know.
It’s also interesting to look at the divergence in factor performance between American and international markets:
Value stocks underperformed in U.S. markets last year. But look at value, shareholder yield and low vol stocks overseas — they crushed!
This is why diversification can be so maddening and eye-opening — you never know where the outperformance will come from.
Let’s finish with the boring but necessary stuff.
The bond market is healing:
For the last few years short-term yields have been higher or on par with longer-term yields. That’s not the normal state of the risk-reward relationship.
The yield curve is starting to look normal again.
It’s been a terrible decade for bonds but yields are in a good place right now for fixed income investors.
What does this mean?
Returns going forward for bond investors should be decent since the best predictor of future returns are starting yields:
Bond yields are still pretty decent today.
Returns in the future should be too.
If you want to learn more about what it’s like to be a client of Ritholtz, reach out here.
Further Reading:
Historical Returns For Stocks, Bonds, Cash, Housing and Gold
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