Wow! What a scintillating start to 2025 in the markets.
In the piece I wrote on November 15, for success in the markets to continue we need some performance from the other 493 companies in the S&P 500 that are not the Magnificent 7 names. With Nvidia and Microsoft having a tough Monday on DeepSeek news we are seeing that.
“The Good… The success of the markets and index funds the last few years had been led by 7 companies in the S&P 500…. Netflix, Apple, Alphabet etc. The other 493 companies have not contributed much. That has changed the last few months and with the election decided in one day not 6 months so that theme expanded quickly. Banks and financials rallying on the day after, stronger dollar, energy, and industrials rallying. We need more market participation for this bull market to continue in 2025 and so far, we are seeing that. I would say don’t expect the leaders one day in the market year to be the same group that leads moving forward although they have fundamental reasons to do so.”
Year to date the equally weighted Mag 7 ETF is up 1.5%. The Nasdaq is up about 1%, S& P 500 is up 2.2% and the Dow Jones Industrial average is up 4.8%. The broadening out of the market I expected and hoped for is starting to happen.
Interesting top performers so far this year
| Symbol | Name | % Change YTD* |
|---|---|---|
| SPOT | Spotify | 22.97% |
| HUM | Humana | 17.02% |
| CRWD | Crowdstrike | 15.99% |
| DXCM | Dexcom | 12.66% |
| SNV | Synovus Financial | 10.30% |
| NFLX | Netflix | 9.19% |
| HEDJ | WisdomTree Europe Hedged Equity | 8.44% |
| GLD | Spdr Gold Trust | 6.57% |
| VTV | Vanguard Value ETF | 5.00% |
On the downside
| Symbol | Name | % Change YTD* |
|---|---|---|
| NVDA | Nvidia | -7.17% |
| AAPL | Apple | -5.12% |
| CMCSA | Comcast | -11.40% |
Again, as I said in November what worked for last few years is not what is going to work the next 5. Where the puck is going, I think there is opportunity in 2025 and 2026. I always try and look at where demand for owning certain companies will be after a correction/recession or any major disruptions in the market. I expect quite a few this year. If the Deepseek news can cause $1 Trillion is lost market cap on January 27th alone, then what can happen if we have a real economic, market or geopolitical disruption.
The answer is if you believe companies with quality earnings and cash flow and a history of managing thru disruptions in the past then we need to identify those opportunities now, then develop a plan to own/buy them when we see these disruptions or mini corrections. Valuations remain at historical extremes, leaving earnings growth as the main drive of stock price performance.
For this bull market that started in 2022 to continue I think we need some of the following:
- Earnings must continue to on their recent path.
- Lower inflation, higher unemployment (currently at 4.1%), both of which will allow the Federal Reserve to lower rates to stimulate the economy. At the current time, most analysts feel the Fed will be able to lower rates once, maybe twice this year.
- Not everyone’s favorite but a recession could hit refresh on valuations and give the Fed reason to cut rates.
The overall outlook is one of caution. Trim some winners if possible. Most investors are overweight in technology and communication services. Lightening up in those sectors and adding to healthcare, financials, industrials and even energy could be a good way to find some value. International markets and particularly Europe does not have a lot of tech exposure and is off to a good start to 2025 after underperforming for a few years. Cash is not quite King but still a nice place to park some assets at around 4% yield down from 5% last fall.
Here’s to an exciting start to 2025 with many opportunities on the horizon.
