By Tami Luhby, CNN, 1/2/2025
MarketMinderâs View: It is a new year, but some old ghostsâlike the debt ceilingâare hovering. (Also note, MarketMinder is nonpartisan, and our analysis focuses on politicsâ economic and market effects only.) âThe new ceiling is the amount of debt outstanding at the end of the previous day. That figure stood at just under $36.2 trillion earlier in the week, up from $31.4 trillion in June 2023, when the cap was suspended as part of the bipartisan Fiscal Responsibility Act. But in a technical quirk, the nation wonât actually be at the limit on Thursday, allowing the Treasury Department to continue borrowing for a little longer to pay the federal governmentâs bills in full and on time.â As Treasury Secretary Janet Yellen detailed in a letter to congressional leaders, the US wonât hit the limit until later this month. Yet even then, the Treasury Department can take âextraordinary measuresâ to slow the governmentâs spending rate and keep debt below the limit. The upshot: Treasuryâs cash on hand and extraordinary measures (not to mention Aprilâs upcoming tax receipts) mean the US may not hit the hard ceiling until midyear or even a little later. Now, we have spilled many pixels over the years explaining why the debt ceiling is a big nothingburgerâhitting the limit doesnât increase Americaâs default riskâbut donât be surprised if politicians use that language to push for their desired issues. Preparing yourself now can pay dividends later should pundits begin warning a potential US default looms because of debt ceiling shenanigans. For more, see our 2021 commentary, âA Comprehensive Guide to the Debt Ceiling.â
Ukraine Just Stopped Russian Gas Flows to Europe. Hereâs Whoâs Most at Risk
By Sam Meredith, CNBC, 1/2/2025
MarketMinderâs View: While the titular development may be a milestone in European energy market history, it isnât a surprise to any of the parties involved directly or indirectly. Neither Ukraine nor Russia moved to renew a five-year transit agreement amid their ongoing war, and Europe has been preparing accordingly. âThe latest data compiled by industry group Gas Infrastructure Europe shows the EUâs gas storage facilities are around 73% full. In Germany, Europeâs biggest economy and largest gas consumer, inventories are currently at nearly 80%.â Even nations most at risk from the stoppage (e.g., Slovakia and Austria) have viable alternative energy sources. As one analyst interviewed here pointed out, Poland, Germany, Lithuania and Italy could forward liquefied natural gas to countries in need. In our view, the adaptations and adjustments discussed here illustrate a useful concept: Companies, governments and individuals donât wait for well-known deadlines to act. Rather, they start preparing and make contingency plans ahead of time to minimize potential disruptionsâand Europeâs weaning off Russian energy while avoiding feared blackouts over the past three years is a glowing example of that. If supply disruptions were a major risk, benchmark European gas prices would be soaring. Instead, though up, they remain below pre-war levels and over 80% below their peak at the height of shortage fears.
Hopes for a âSanta Claus Rallyâ Fade on Wall Street
By Krystal Hur, The Wall Street Journal, 1/2/2025
MarketMinderâs View: âAfter a gangbusters year for the S&P 500, traders have been watching for a rally heading into 2025 to put the cherry on the cake. Stocks tend to rise in what is known as a âSanta Claus rallyâ over the period that spans the last five trading days of the year through the first two of the next. But things arenât looking so jolly this time around. Over the first five days of that stretch, the S&P 500 has fallen 1.5% and is poised to miss out on a Santa Claus rally for a second straight season.â Wait a secondâif stocks miss out on a Santa Claus rally for a second time in a row, shouldnât that be reason to be bullish considering markets enjoyed a strong 2024? We kid, of course, but these inconsistencies show the problems with seasonal adages. They work enough times to have staying power, but treating them as market crystal balls can be a huge and costly mistakeâparticularly if it means exiting stocks during a bull market. Remember the standard investment disclosure: Past performance doesnât determine future returns. What stocks did in 2024, 1974 or 1924 wonât determine what they will do in 2025. For more, see this weekâs commentary, â2024 in Review: Seasonality Edition.â
In these twilight days of 2024, it is a time to look back and reflect on the year that was. Yet we are also a day shy of having full-year returns, making it a mite too early for a proper report card of sector and regional performance. But there is one thing we do have juuuuust about enough data to discuss: seasonality. Whatever else happened in 2024, this year showed once again that seasonal sayings donât predict. When covering seasonality, we usually focus on the big four. There is The January Effect, which holds that as January (or its first five days) goes, so goes the year. Sell in May and Go Away, which holds that selling at the beginning of May and staying out either until the St. Leger horserace or Halloween is the way to avoid a slump. September Is the Worst Month, which is as it sounds. And The Santa Claus Rally, which supposedly predicts a rollicking good time in December (or its final five trading days plus Januaryâs first two). None of these is a reliable indicator. All work some of the time, enough to confirm the popular biases. But not with any regularity, and in any given year, you might have some, all or none work. This year, with one trading day left to go, they get an F. The January Effect half-worked. The S&P 500 returned 1.7% that month, and given it is up 25.5% on the year through Mondayâs close, it seems safe to say an up January predicted an up year.[i] Hip hip! But the first-five-days version didnât work. The S&P 500 closed down -0.1% for the year on Januaryâs fifth trading day.[ii] Sell in May was a clear-cut dud. From April 30 through September 13âthe day before the St. Leger Stakesâthe S&P 500 rose 12.3%.[iii] From April 30 through Halloween, it jumped 14.1%, generating over half the full yearâs return.[iv] The seasonal myth says this six-month stretch is historically the yearâs weakest, but that wasnât the case in 2024. Rather, of the six-month samples in the books ...
More DetailsA common theme this year? The US economy, while not perfect, sidestepped a recession again while largely surpassing expectations. The slate of November dataâretail sales, industrial production and business inventoriesâmirrored this: Not gangbusters, but continuations of trends that have been good enough for stocks this year. November Retail Sales Beat Expectations. The Census Bureauâs latest report showed US retail sales rising 0.7% m/m in November, their third consecutive monthly rise and ahead of analystsâ estimates. Core sales, which exclude automobiles, gasoline, building material and food services, met expectations with a 0.4% m/m jump.[i] Under the hood, strong sales for autos and online retailers offset a -3.5% m/m decline in the catch-all âmiscellaneous storesâ category. Now, auto sales have been quite volatile post-pandemic tied to seasonal adjustment difficulties, which could be at play here. But robust online sales suggest holiday shoppers opted to buy more presents on the Internetâa long-running theme. And for all the punditsâ chatter over âa tapped US consumerâ paring spending back to only the essentials this holiday season, November didnât support their case. Sales growth concentrated in discretionary categories like autos, furniture and sporting goods, while the essentialsâfood and beverage and clothing storesâstruggled. Overall, Novemberâs report continued a nice run for retail salesâOctoberâs were revised up, too.[ii] Good news, but donât overrate the broader economic effect here. The majority of consumer spending is on servicesâthink insurance, gym memberships, healthcare, utilities or landscapingâmost of which arenât captured here. Plus, these data arenât inflation-adjusted, making retail sales but an incomplete preview of the full consumer spending report. That came out during the holiday home stretch: Novemberâs ...
More DetailsWith 2024 wrapping up and 2025 providing a fresh, clean sheet, here is how those nearing or in retirement can start the New Year strong. Save Moreâand Easily! As we mentioned earlier, several provisions from 2022âs Secure 2.0 Act take effect in 2025 that are worth being aware of. Among the most important, in our view: the big bump in the 401(k) catch-up contribution limit for those turning ages 60 to 63. This is fairly substantial and, as such, may require advance planning. In addition to the standard $23,500 limit, those aged 50 or older can top off with a $7,500 catch-up contribution. But starting in 2025, there is an added twist: 60- to 63-year-olds get a supersized catch-up: $11,250âpotentially allowing them to sock away as much as $34,750 into tax-advantaged retirement accounts. But to do it, you need to notify your plan administratorâand budget accordingly. And the sooner you start, the better: It would ease the impact on your take-home pay to divide the sum across more paychecks. 2025 also brings some other notable retirement plan upgrades: Automatic enrollment for all 401(k) or 403(b) plans, with the initial amount set to at least 3% of paychecks, but no more than 10%, and rising one percentage point each year to at least 10% or a maximum of 15%. Part-time employees working 500+ hours annually are eligible to participate in their employersâ 401(k) or 403(b) with two years of work experience (down from three). While not yet up and running, a federal Retirement Savings Lost and Found database should launch in 2025, letting people search for funds they may have lost track of (e.g., from job changes). Check Your Withholding Also look out for your W-2 and check your withholding (W-4). Employers must send workersâ W-2 tax forms by January 31. When you get yours, the tax filing clock starts ticking. You will want to ensure there arenât any errors and that it matches your records, but beyond that, how much did ...
More DetailsHappy Boxing Day! Traditionally, this is the day the âdownstairsâ portion of the house would spend with their families to celebrate the season after serving âupstairsâ on Christmas. And being your humble servants, what better day for us to open your Qs and, hopefully, give you some As? Who are the largest holders of US government debt? US investors and the Fed. Current gross public debt is about $36.2 trillion.[i] Of this, the US government owns about $7.3 trillion, via the Social Security trusts and other government vehicles.[ii] This is money Uncle Sam owes himself, which effectively cancels, leaving net public debt at $28.9 trillion.[iii] As of September, the latest data available, foreign investors (governments and private investors) owned $8.7 trillion (with $3.9 trillion owned by governments and the rest of the âofficial sectorâ and the rest by investors).[iv] This leaves just over $20 trillion with Americans and the Fed.[v] Among foreign holders, the largest is Japan at about $1.1 trillion.[vi] China is number two at $770 billion, followed closely by the UK.[vii] So for all the headline talk about China owning our debt, it is actually a bit player in the grand scheme of things. And for all the fear of it selling spiking US debt costs? A decade ago, direct holdings were nearly $1.3 trillion.[viii] It steadily sold over that span, cutting holdings by roughly $500 billion. Did you notice? How should I allocate my portfolio during a bear market? There isnât a one-size-fits-all solution, alas. All bear markets are different, and it also depends on the outlook for fixed income markets at the time. If you see a high likelihood there is a deep, long downturn ahead of you, reducing equity exposure probably makes sense. But whether you would want to emphasize cash, bonds or other securities would generally depend on interest ratesâ likely trajectory and inflation (which erodes cash returns). If you identify a bear market ...
More DetailsAre rate cuts finally set to arrive in Australia? According to the common interpretation of the Reserve Bank of Australiaâs (RBA) early December meeting minutes, the answer is yes. While RBA Governor Michele Bullock didnât, of course, explicitly say as muchânor did any of the other participantsâmany pundits read into commentary involving the trend of inflation proceeding back to target as expected. They see this as a sign long-awaited cuts the bank has seemingly flip-flopped on several times loom in 2025. Our question: What evidence suggests the Lucky Countryâs stocks need cuts? And in that is a broader lesson: Donât overrate monetary policy. Many economists, including the RBAâs, argue Australia is among the developed worldâs most rate-sensitive nations. On the demand side, the evidence is rather compelling. According to the RBAâs February 2023 Statement on Monetary Policy, Australia trailed only Norway in the share of variable-rate mortgages, with nearly 70% of outstanding home loans carrying floating interest rates.[i] Canada is next highest at around 35%, followed by the UK at roughly 15% and the US around a measly 5%. This, of course, hits when rates and inflation riseâas they did over the past few years. In April 2022, when tightening had yet to begin, outstanding Australian mortgages carried an average 2.9% interest rate. Today it is north of 6%.[ii] (Is âhigher thanâ ânorth ofâ Down Under?) With the majority of households paying variable rates, this transmits a higher ratesâ punch on household finances quite rapidly. Far faster, say, than in America, where the preponderance of 30-year fixed home loans means rising rates donât affect existing homeowners with a mortgage at allâan issue that may have chilled existing home sales and cut inventory, but also limits financial pressure on them.[iii] We are sure many Aussie households are feeling financial pressure ...
More DetailsIt is December 23, and you know what that means: Well, yes, two days to Christmas and Hanukkah! Yes, yes, three until Kwanzaa. And, yes, yes, yes, only eight days remain in 2024. But there is something moreâsomething that deeply resonates with us huge fans of most things 1990s: December 23 is Festivus. And here we intend to bring you a traditional Festivus âairing of grievancesâ in which we share our chief gripes with things we have read in the financial press this year. It is a way we aim to enter the new year unburdened by what has been, if you will forgive us invoking Vice President Kamala Harris. For the uninitiated, the story of Festivus starts in 1966, when author Daniel OâKeefe dreamed up a holiday repudiating what he saw as the holiday seasonâs increased commercialization. He launched a family tradition involving nailing a clock in a bag to the wall, eating a turkey or ham and then âairing the grievancesââtelling friends and family all the things they did to annoy you that year. The popularity took off in December 1997, when his son Danâa television writerâworked on a now-famous episode of Seinfeld that turned the clock-in-bag into an aluminum âFestivus pole,â the dinner meat to meatloaf ⊠but kept the grievance-airing. As the legendary Jerry Stiller kicked it off, âI got a lot of problems with you peopleâand now youâre going to hear about it!â In that noble spirit, we have a lot of problems with some of the financial punditryâs work ⊠and you can read all about it! State Market Movement in Percentages! When markets hit turbulence last Wednesday, headlines predictably shrieked âDOW FALLS 1,100 POINTS!â Earlier, on the upside, many hyped bitcoin breaching $100,000. We have long had a bone to pick with âpointâ or value metrics. The reason: Is that big? Is it supposed to be big? Without context, you canât know. And ...
More DetailsEditorsâ note: MarketMinder is nonpartisan, favoring no party nor any politician. Political bias can blind and drive investing mistakes. Our focus is only on political eventsâ potential market ramificationsâor lack thereof. While most talk in America fixates on the incoming Trump administrationâor maybe the wobbling probability of a holiday season government shutdownâpolitics are seeing much more action outside America. Wednesdayâs political headlines dwelled on Brazilâs budget wrangling and talk of a speculative attack on the real, which strikes us as an overblown reaction to deficit worries. More significant developments happened elsewhere in recent days: Germanyâs government lost a confidence vote, setting up a February snap election; Canadaâs finance minister resigned, placing its government on shaky ground; and South Koreaâs president was impeached, although that wasnât exactly startling. What to make of it all? Read on! Unwieldy German Coalition Proves ... Unwieldy On the heels of Franceâs government dissolutionâand reformationâGermany is following suit. As expected, Chancellor Olaf Scholzâs minority Social Democrat-Green Party coalition lost a confidence vote Monday, triggering a February 23 snap vote that many have penciled in for a while. This was all more or less known in early November when the formerly tripartite coalition lost a member, leading the opposition Christian Democratic Union (CDU) to call a confidence vote. The electionâs timing was basically the sole unknown. Prior discussions pointed to March. Now we have an earlier date. While the CDU and its sister partyâthe Christian Social Union (CSU)âare currently leading polls, their 30% support implies they would likely need at least one other party to form a government. With Social Democrats polling in the high-teens alongside the far-right Alternative for Germany (AfD), and Greens in the ...
More DetailsThe Fed cut its benchmark short-term interest rate by another -0.25 percentage point Wednesday, which investors seemingly wanted. And in his post-meeting press conference, Fed head Jerome Powell called the economy âstrong,â which we reckon investors should also want. So naturally, the S&P 500 fell -2.9% on the day.[i] As always, we suggest not reading into Fed chatter and daily swings, no matter how big. Far be it from us to pin market movement on any one thing. But in this case, given the volatility was concentrated in the trading dayâs final two hoursâand the nature of all the typical accompanying commentary that overthinks all things Fedâit seems safe to say traders fixated on the prospect of fewer rate cuts next year. Some pointed to the Fedâs infamous âdot plotâ of membersâ interest rate projections, which showed the median projection is now two cuts in 2025. Most pointed to Powellâs comments, which included these nuggets: âIf the economy remains strong and inflation does not continue to move sustainably toward 2 percent, we can dial back policy restraint more slowly,â and, âFrom here, itâs a new phase, and weâre going to be cautious about further cuts.â[ii] The general consensus is that, absent a renewed inflation slowdown, the Fed will moderate its rate-cutting pace. So let us sum all this up for you: The economy is stronger than the Fed previously expected, which logically should support profit growth, but investors owning a slice of those future earnings dumped shares because we may get one or two fewer -0.25 percentage point rate cuts. This is the illogic of sentiment-driven moves illustrated, in our view. Powellâs words allude to an economy that is growing fine and doesnât need Fed âhelp.â Nothing in Powellâs comments implied the Fed sees an economy at risk of overheating. It was all kind of bland, maybe even Goldilocks. Not a ...
More Details2024 has been a busy year in the UK, with politics stealing much of the attentionâfrom the summertime snap election to Chancellor Rachel Reevesâs October Budget. But there are other developments worth checking in on for investors, in our view. Here is a rundown. Motor Finance Pulls Up to the Supreme Court The UK Supreme Court agreed to hear an appeal in a landmark case alleging improper sales practices involving car loans. The case involves British lendersâ standard practice of paying car dealers to sell their loansâsometimes without buyersâ knowledge. In 2021, the Financial Conduct Authority (FCA) banned this âdiscretionary commission,â and the issue has since gone to the courts. This past October, the UKâs Court of Appeal ruled it illegal for banks to pay the commission to a car dealer without consumer consent. The court decision was a surprise and roiled the car finance industry, prompting many banks to pause their auto finance lending as they assessed needed disclosures and paperwork changes, as well as potential exposures. The biggest issue, in our view, was the timing. Normally, a change like this goes through a long process involving a drawn-out rule writing and public comment period before a gradual implementation. Making a historically commonplace arrangement illegal overnight didnât give lenders any time to review contracts and ensure compliance. The Supreme Court will now hear this appeal by mid-April next year and likely make a decision by summer or autumn 2025, which should ease uncertainty. Though this episode roiled sentiment in one corner of the Financials sector, the macroeconomic fallout is limited, in our view. Car dealers did feel an immediate pinch, but it was short-lived. Analysts have begun estimating compensation fees lenders may face (anywhere between ÂŁ10 billion and ÂŁ38 billion), and banks arenât sitting on their hands waiting to prepare. Lloyds Banking Group, the ...
More DetailsWith the holidays in full swing, we are loving this season of opening joyous things. Cookie tins. Festive drink bottles. Beautifully wrapped packages. And ⊠the MarketMinder mailbag! It isnât quite time for our monthly Q&A, but feedback on last weekâs personal finance rundown suggests to us a sequel focusing on the nitty gritty of yearend financial housekeeping is in order. So, what are the Is to dot and the Ts to cross as we wind toward New Yearâs Eve? Read on. Check Your Contributions For all those who love compound growth and hate paying more taxes than you need to, tax-deferred retirement accounts are a major blessing. If you have the means to do so, maxing them out yearly is a wonderful way to reduce your taxable income and put more of your money to work toward your long-term goals. And with contribution limits a moving target, we think it is always wise to take a look before yearend to ensure you are socking away as much as you can. On the IRA front, contribution limits rose from $6,500 to $7,000 in 2024, with the catch-up amount remaining at $1,000 for the 50+ crowd. Eligibility for tax deferral is a smidge complicated, depending on your income, marital status and whether you have access to a workplace planâthe IRS has all the details here, along with the rules on Roth IRA eligibility for 2024. While the year is winding down, you still do have time to make those contributions if you are eligible: While it may be beneficial to plow it in as soon as possible, you technically have until April 15 to make a prior-year contribution. Now, for workers with 401(k)s, your ability to top up contributions to the $23,000 2024 limit may be harder, since contributions are made chiefly through salary deferral. But there is news to be aware of here, too, and action you can take: While next yearâs IRA contribution limits will match 2024âs, there are some bigger changes coming in the 401(k) world. The main contribution limit will ...
More DetailsPolitical uncertainty has been a bit of a headwind for eurozone stocks lately, as we noted yesterday. From government collapses in France and Germany to a corruption scandal that continues threatening to bring down Spainâs government, investors have had plenty to digest. Yet, gradually, stocks are getting some clarity on a couple of fronts. Here is the latest. Is the Fourth Time the Charm? France got a new prime minister Friday, its fourth in a year, a dizzyingly fast-spinning leadership ârevolving door.â Replacing the deposed Michel Barnier is François Bayrou, a centrist former mayor. In selecting him, President Emmanuel Macron appears to be repeating the gambit he took with Barnier, selecting someone from the center right in hope of finding enough common ground with the populist National Rally (NR) to push through key legislationâmost notably, 2025âs budget. Whether it works better this time remains to be seen. First up, he must form a government, which the leftist alliance New Popular Front says it wonât join. Therefore, winning a confidence vote will require the NRâs support. Now, many say NR has a rosier view of Bayrou, as he helped get its leader, Marine Le Pen, on presidential ballots some years ago against opposition. However, getting their support now probably still requires offering more flexibility on the 2025 budget than Barnier did. If the olive branch works and Bayrou gets confirmed, he will then have to come up with a budget that both satisfies the eurozoneâs deficit police[i] and has the NRâs support. Technically, this needs to happen by yearend to avoid a government shutdown. But Parliament is reportedly drafting a bill to roll 2024âs budget into next year, which would buy him more time to negotiate. So while we at least know who will head Franceâs next government, uncertainty lingers. Crucially, however, stocks donât need perfect clarity. That never really exists. ...
More DetailsA lot has changed in 2024, but one thing remains: Investors remain irrationally and unnecessarily obsessed with central banks. Headlines are at it again this week, first cheering that the benign inflation report could tee up another supposedly bullish Fed rate cut next week, then bemoaning that the ECBâs cut on Thursdayâits fourth this yearâis too little, too late. To us, this all smacks of recency bias. Rate cuts arenât inherently bullish ⊠or inherently feckless, in the eurozoneâs case. Rather, we think they are well known and priced in, little dots that donât interrupt the longer trends. Exhibits 1 â 3 show you this with S&P 500, MSCI UK Investible Market Index (IMI) and MSCI Economic and Monetary Union (EMUâaka the eurozone) Index returns year to date. In the US, stocks were enjoying a rollicking bull market run before the Fedâs first cut in September ⊠which has continued since. The trend just extended after the cuts. Ditto for the UK, where initial post-election optimism in the summer gave way to Budget uncertainty in the autumn. And in the eurozone, where political uncertainty in France and Germany contributed to choppy returns since May and an autumn correction (sharp, sentiment-fueled drop of -10% to -20%). At no time this year did rate cuts coincide with a change in stocksâ broader direction. Exhibit 1: Rate Cuts and the S&P 500 Source: FactSet, as of 12/12/2024. S&P 500 total return in USD, 12/31/2023 â 12/11/2024. Exhibit 2: Rate Cuts and UK Stocks Source: FactSet, as of 12/12/2024. MSCI UK IMI return with net dividends in USD, 12/31/2023 â 12/11/2024. Exhibit 3: Rate Cuts and Eurozone Stocks Source: FactSet, as of 12/12/2024. MSCI EMU Index return with net dividends in USD, 12/31/2023 â 12/11/2024. Something else you probably noticed: Non-US stocks havenât shone as brightly as US stocks. UK and eurozone stocks are both ...
More DetailsâTis the season for making a list and checking it twice ⊠and not just for Santa in his quest to find out who is naughty and nice. You might also find it helpful to knock out a personal finance checklist during yearend downtime. What to include? Read on! First, consider whether your financial goals and needs have changed. Various life eventsâa new job, a marriage or divorce, a new home or retirementâcan trigger changes to your moneyâs primary purpose (your goals) or how long your investments must work toward your goals (your time horizon). Either or both could make it sensible to revisit your asset allocationâthe blend of stocks, bonds, cash and other securities comprising your portfolio. First, check in on your goals. Generally, this is growth, cash flow or some combination of the two. To know the best balance for you, consider your primary purpose for investing and if it has changed. Are you newly retired or about to? Are major new expenses about to start, such as funding long-term care? That may mean your primary purpose has shifted to generating cash flow. Have you promised to help pay your new grandbabyâs college tuition in 18 years? That may put more emphasis on long-term growth. The two, though, arenât mutually exclusive in most cases. Folks who need cash flow very often still need growth to defray inflationâs impact or generate enough return to ensure their portfolioâs longevity, especially with things like medical costs potentially rising late in life. The key in an annual checkup is simply to identify and weigh whether something has shifted and what that means. Some of these may also trigger changes to the second main consideration, time horizon. Plans to leave money for a younger spouse, heirs or a charity would extend your time horizon past your own lifetime. Did you get married this year? Have new grandchildren you want to support after you are gone? Think about how changes to your family ...
More DetailsWith a booming 2024 now winding down, some pundits are starting to get fearful of heights based on lofty valuations. Across the board, many say price-to-earnings (P/E) ratios and other metrics are elevated. Yet valuations alone donâtâand canâtâpredict where stocks will go, as history shows. High valuations can always go higher (and low ones lower). Fronting the police lineup of allegedly worrisome valuations are the usual suspects: Trailing, cyclically adjusted and forward P/Es. As Exhibit 1 showsâand many pundits are pointing outâthe S&P 500 sits at 31 times its last 12-month earnings, which approaches April 1999âs then-record high 34x (dashed red line). Given that mark preceded March 2000âs bull market peak, pundits sense foreboding now. Exhibit 1: Trailing P/Es Donât Foretell Stocksâ Future Source: Multpl.com, as of 12/10/2024. S&P 500 price index and 12-month trailing P/E ratio, January 1926 â November 2024. Left-hand y-axis in base-2 logarithmic scale, which plots the same-sized percentage moves in equal increments graphically. While stocks were arguably overvalued when the 2000 â 2002 bear market began, and spiking valuations were an indication of this, they werenâtâand arenâtâa timing tool. Turning bearish in April 1999 would have left hefty returns on the table, and staying bullish the next March because valuations were then falling would also have been folly. Then, too, what about March 2002âs 47x, May 2009âs 124x and December 2020âs 39x? Those all occurred well into recessions when earnings wipeouts caused multiples to soarâand in the case of 2009 and 2020, sky-high trailing P/Es happened early in a new bull market. Forward-looking stocks didnât care about past profits, which is why there has never been any particular trailing P/E that corresponds with bear (or bull) markets. Sharp P/E spikes can be telling about ...
More DetailsWith 2024 winding down, we have officially reached forecast season. That time of year when pundits assess not just how the broad market will likely do, but which corners of the market are likely to lead. We will, of course, share our view in the coming weeks, once we have dotted our Is and crossed our Ts. But in the meantime, we think it can be helpful to assess some of headlinesâ claims not on whether they are right or wrong, but whether their underpinning is sound. In that vein, let us explore why calls for high-dividend stocks to lead have a shaky foundation. The argument for dividend payersâ ascension largely amounts to claiming their leadership is due after a fallow stretch. Because they havenât done so hot, it is time for them to be hot. Now, we award some points for the acknowledgment that leadership rotates and every category has its day in the sun as well as the rain, but nothing here is a timing tool. There is no preset amount or duration of category laggardship that makes leadership automatic. Shifts are irregular and, in our experience, often more of a gradual, three steps forward two steps back kind of thing. Not a switch markets flip decisively with a degree of predictability. Moreover, the performance comparisons underpinning this thesis strike us as suspect. One article making the rounds Tuesday compared year-to-date returns for the S&P 500 Index and the S&P 500 Dividend Aristocrats. The Dividend Aristocratsâ returns, to date, are a smidge less than half the S&P 500âs. Yet this isnât exactly the fairest comparison. The Dividend Aristocrats index consists of âS&P 500 companies that have increased dividends every year for the last 25 consecutive years.â[i] That is a long horizon, and it doesnât guarantee inclusion of todayâs top dividend payers. It automatically excludes companies born this century, as well as companies that, for whatever reason, might have started paying ...
More DetailsBy Tami Luhby, CNN, 1/2/2025
MarketMinderâs View: It is a new year, but some old ghostsâlike the debt ceilingâare hovering. (Also note, MarketMinder is nonpartisan, and our analysis focuses on politicsâ economic and market effects only.) âThe new ceiling is the amount of debt outstanding at the end of the previous day. That figure stood at just under $36.2 trillion earlier in the week, up from $31.4 trillion in June 2023, when the cap was suspended as part of the bipartisan Fiscal Responsibility Act. But in a technical quirk, the nation wonât actually be at the limit on Thursday, allowing the Treasury Department to continue borrowing for a little longer to pay the federal governmentâs bills in full and on time.â As Treasury Secretary Janet Yellen detailed in a letter to congressional leaders, the US wonât hit the limit until later this month. Yet even then, the Treasury Department can take âextraordinary measuresâ to slow the governmentâs spending rate and keep debt below the limit. The upshot: Treasuryâs cash on hand and extraordinary measures (not to mention Aprilâs upcoming tax receipts) mean the US may not hit the hard ceiling until midyear or even a little later. Now, we have spilled many pixels over the years explaining why the debt ceiling is a big nothingburgerâhitting the limit doesnât increase Americaâs default riskâbut donât be surprised if politicians use that language to push for their desired issues. Preparing yourself now can pay dividends later should pundits begin warning a potential US default looms because of debt ceiling shenanigans. For more, see our 2021 commentary, âA Comprehensive Guide to the Debt Ceiling.â
Ukraine Just Stopped Russian Gas Flows to Europe. Hereâs Whoâs Most at Risk
By Sam Meredith, CNBC, 1/2/2025
MarketMinderâs View: While the titular development may be a milestone in European energy market history, it isnât a surprise to any of the parties involved directly or indirectly. Neither Ukraine nor Russia moved to renew a five-year transit agreement amid their ongoing war, and Europe has been preparing accordingly. âThe latest data compiled by industry group Gas Infrastructure Europe shows the EUâs gas storage facilities are around 73% full. In Germany, Europeâs biggest economy and largest gas consumer, inventories are currently at nearly 80%.â Even nations most at risk from the stoppage (e.g., Slovakia and Austria) have viable alternative energy sources. As one analyst interviewed here pointed out, Poland, Germany, Lithuania and Italy could forward liquefied natural gas to countries in need. In our view, the adaptations and adjustments discussed here illustrate a useful concept: Companies, governments and individuals donât wait for well-known deadlines to act. Rather, they start preparing and make contingency plans ahead of time to minimize potential disruptionsâand Europeâs weaning off Russian energy while avoiding feared blackouts over the past three years is a glowing example of that. If supply disruptions were a major risk, benchmark European gas prices would be soaring. Instead, though up, they remain below pre-war levels and over 80% below their peak at the height of shortage fears.
Hopes for a âSanta Claus Rallyâ Fade on Wall Street
By Krystal Hur, The Wall Street Journal, 1/2/2025
MarketMinderâs View: âAfter a gangbusters year for the S&P 500, traders have been watching for a rally heading into 2025 to put the cherry on the cake. Stocks tend to rise in what is known as a âSanta Claus rallyâ over the period that spans the last five trading days of the year through the first two of the next. But things arenât looking so jolly this time around. Over the first five days of that stretch, the S&P 500 has fallen 1.5% and is poised to miss out on a Santa Claus rally for a second straight season.â Wait a secondâif stocks miss out on a Santa Claus rally for a second time in a row, shouldnât that be reason to be bullish considering markets enjoyed a strong 2024? We kid, of course, but these inconsistencies show the problems with seasonal adages. They work enough times to have staying power, but treating them as market crystal balls can be a huge and costly mistakeâparticularly if it means exiting stocks during a bull market. Remember the standard investment disclosure: Past performance doesnât determine future returns. What stocks did in 2024, 1974 or 1924 wonât determine what they will do in 2025. For more, see this weekâs commentary, â2024 in Review: Seasonality Edition.â