Market Pulse

August 2025

Stocks continued their strong run in July, up for the third month in a row, as the S&P 500 and Nasdaq reached new highs. Positive momentum was fueled by a strong start to the earnings season, the passage of the One Big Beautiful Bill Act and the easing of tariffs and trade tensions. The data continues to reflect a resilient macroeconomic backdrop, including moderating inflation. The tariff levels, even after negotiated deals, are much higher than seen since the 1930s, yet the expected impact on the economic and inflation data has not played out. However, investors are taking notice of the softness starting to show in the labor market. Artificial intelligence continued to dominate the headlines and boost market sentiment, leading the technology heavy Nasdaq to rise by 3.7% while the S&P 500 rose by 2.2% for the month of July. Small-cap stocks (Russell 2000) were up 1.7% as investors preferred large-cap stocks in this environment. International stocks (MSCI ACWI ex USA) were lower by 1.1% for the month, but still outpace U.S. equities for the year, up 17% year-to-date. Yields bounced around during the month but were relatively unchanged, which led to bonds (U.S. Aggregate Bond Index) finishing the month down by a modest 0.3%.

Inflation was higher in June, as the first signs of the administration’s tariffs are slowly starting to impact segments of the economy. The Consumer Price Index (CPI) increased by 0.3% in the month, bringing the 12-month inflation rate to 2.7% according to the Bureau of Labor Statistics. This was in line with expectations, but still higher than the 2.3% 12-month inflation rate recorded in April and higher than the Federal Reserve’s (the Fed) 2% target. Excluding volatile food and energy, core inflation rose by 0.2% in the month and 2.9% on an annual basis. Vehicle prices fell in the month, which could be attributed to a rush to purchase cars prior to tariffs going into effect. Additionally, tariff sensitive apparel prices rose by 0.4% and household furnishings (influenced by tariffs) increased by 1% for the month of June. Shelter prices increased by only 0.2% for the month but remained the largest contributor to the overall increase in prices, bringing the 12-month shelter inflation to 3.8%. Energy prices rose by 0.9%, still down modestly from a year ago, and food prices increased by 0.3% resulting in an annual gain of 3%. Although June saw a reversal of the previous several months’ trend of lower CPI prices, levels remained relatively tame. The Fed kept rates unchanged in June, leaving the Fed Funds target range at 4.2-4.5%. The Fed continues to be patient, needing more time to determine if the administration’s tariff policy will impact prices and drive inflation higher.

Earnings season is underway, as 66% of the S&P 500 companies have reported results for Q2 2025. Results have been strong with 82% of S&P 500 companies reporting a positive earnings per share (EPS) surprise, which is above both the five- and 10-year averages of 78% and 75% respectively. For Q2 2025, the blended year-over-year earnings growth rate for the S&P 500 is 10.3% according to FactSet, which would mark the third consecutive quarter of double-digit earnings growth for the index. Earnings growth continues to be led by technology and communication services companies, as these sectors are the center of artificial intelligence capital expenditures spending. On the other hand, consumer discretionary and healthcare sectors are the clear laggards in EPS growth. Investors continue to focus on earnings guidance given the uncertainty surrounding the economy and the administration’s economic agenda. For Q3 2025, 30 S&P 500 companies have issued negatives EPS guidance, while 27 S&P 500 companies have issued positive EPS guidance. The market continues to trade at higher multiples than recent averages with the forward 12-month price earnings (P/E) ratio at 22.2 above the five-year average (19.9) and 10-year average (18.5).

Volatility is likely to escalate as we move into the summer months, which has generally been a seasonally weak period for markets. Investors seem to favor risk assets despite a weakening labor market, tariff concerns and the inability for businesses to plan beyond the next few months. We have yet to see the full impact of tariffs and who will ultimately bear the burden, but the consumer is likely to see higher prices on goods imported from outside the U.S. We believe mega-cap stocks will most likely continue to dominate the market, driving the returns for the S&P 500, which will increase the magnitude of volatility in a market downturn. Despite the concentration in a handful of stocks, we continue to find opportunities across regions and sectors while participating in the artificial intelligence theme. Fixed income remains appealing, with historically high yields providing a cushion for potential moves higher in interest rates. We expect markets to be dynamic; therefore, our portfolios are built to withstand volatility and allow investors to stay invested during uncertain times.

Source: Earnings Insight, FactSet, Aug. 1, 2025

July 2025: Q2 recap

Authored by Melissa Santas Peterson

The changing economic and geopolitical landscape kept investors on their toes during the quarter. Markets were shocked in early April by a surprise tariff announcement, hailed as the “Liberation Day” tariffs. Uncertainty over the potential impact of these new costs dominated headlines, sparking volatility and raising concerns over global growth. Against this backdrop, the S&P 500 dropped 12% in a week, and bond yields spiked. However, markets quickly rebounded as policymakers moved to suspend tariffs, initiate trade talks and diminish recession fears.

Furthermore, the Federal Reserve adopted a wait-and-see approach, holding rates steady to maintain the target range of 4.25-4.5%. They cited mixed economic data and the need to balance concerns over tariff-driven inflation and slowing economic growth. Despite the turbulent start, the S&P 500 ended the quarter up 11%, boosted by healthy gains in large cap technology stocks. While technology stocks remain in focus, we're encouraged to see broader participation across the U.S. market as investors seek opportunities with more compelling valuations. The performance differential between U.S. and international equities narrowed significantly, with developed and emerging markets outperforming the U.S. by less than 1% for the quarter. In the bond market, investor focus shifted from expectations of interest rate cuts to concerns over the sustainability of government debt, resulting in muted performance across the credit spectrum.

Equities

U.S. equity performance was driven by strong returns in the technology and communications sectors as investor appetite for some of the high beta stocks returned and Q1 earnings results were robust. MSCI ACWI, which represents predominantly large- and mid-cap global stocks, was up 11.5% in Q2. Growth companies outperformed their value counterparts for the quarter as investor enthusiasm for stocks with exposure to AI returned. International stocks outperformed U.S. for the quarter due to their attractive valuations and more supportive fiscal and monetary backdrop. Emerging markets were up 12% for the quarter, helped by weakness in the U.S. dollar.

Bonds

Although uncertainty around Fed policy and broader economic conditions caused volatility and produced tepid returns in fixed income overall, it also provided opportunities. Bond markets provided stability amidst the uncertainty. The Bloomberg Barclays Aggregate Bond Index, which is comprised mostly of government credit and U.S. Treasuries, was up 1.2% in Q2. Investment-grade corporates were up 2.5% for the quarter. High yield bonds were up 3.3% in Q2, while bank loans were up 2.3%. Credit-sensitive and floating rate securities performed well, supported by a strong technical backdrop and high demand.

Alternatives

Alternatives posted mixed results, with REITs posting a slightly negative return for the quarter and gold continuing to rally due to a weaker U.S. dollar, persistent inflation and strong central bank demand.

Summary

While the market’s speedy rebound from recent lows may encourage complacency, we believe maintaining diversification and thoughtful positioning remains essential. There seems to be a disconnect between headlines and economic data. Uncertainty will most likely persist, with unresolved tariff issues, ongoing geopolitical conflicts and the delayed passage of the “One Big Beautiful Bill” continuing to pose potential risks. However, inflation, unemployment and GDP data continue to trend in the right direction. As we look ahead, gaining greater clarity related to tariffs, tax cuts and potential deregulation should create positive momentum for the markets.

As economic conditions continue to shift, diversified portfolios will help investors mitigate the risks of concentrated exposures while maintaining participation in areas with attractive valuations and the potential to outperform going forward. This quarter has illustrated how important it is to remain invested despite volatility and ambiguity.

Source: Morningstar Direct

June 2025

Authored by Jeremy Robert

Markets extended their recovery in May despite the uncertainty caused by the administration’s tariff policies, which seemed to change by the hour. Stronger than expected earnings, easing inflation and improving consumer sentiment allowed investors to look beyond the tariffs for the time being. However, concerns regarding the high level of tariffs in place, signs of weakness in the labor market and heightened geopolitical risk persist. Against this backdrop, the S&P 500 rose by 6.2%, while the Nasdaq posted gains of 9.6% as mega cap technology stocks rebounded after delivering strong earnings and reemphasizing their focus on artificial intelligence. Small-cap stocks also experienced a healthy rebound, with the Russell 2000 Index delivering a return of 5.2%, boosted by the proposed tax and regulatory changes in the U.S. budget reconciliation bill. Although U.S. markets outperformed for the month, developed international stocks (MSCI EAFE index) continued to post healthy gains, rising by 4.8%. Emerging markets (MSCI EM Index) rose by 4%, propelled by a weaker dollar. Interest rates continued to rise in May after a credit rating downgrade by Moody’s, a weak 20-year auction and investor attention returned to the significant fiscal deficit. This led bonds (U.S. Aggregate Bond Index) to finish lower by 0.6%.

Inflation continued to trend lower in the month of April, as the Consumer Price Index (CPI) registered a modest increase rising by 0.2% for the month, and 2.3% over the past 12 months. Year-over-year inflation continued to show signs of cooling, reaching the lowest level since February of 2021, according to the Bureau of Labor Statistics. The largest contributor to the increase in April’s inflation was shelter costs, which rose by 0.3% and accounted for more than half of the total increase in the CPI. Energy costs rose by 0.7% due to increases in natural gas and electricity prices, though gasoline prices declined by 0.1% from March. The much talked about egg prices fell by 12.7%, though they were still 49% higher than a year ago. While the recent CPI data has been relatively tame, the market continues to worry about the impacts the Trump tariffs will have on future inflation, especially given that not much progress has been made in trade negotiations. The recent inflation data and tariff uncertainty has the Federal Reserve in a wait and see mode, although we have started to see signs of weakness in the labor market. If we see the labor market deteriorate and no change in tariff policy, the Fed will likely have to choose between their dual mandate of stable prices and full employment.

Earnings season has just about wrapped up with 98% of S&P 500 companies having reported results. Corporations continued to perform above expectations with blended year-over-year earnings growth for the S&P 500 coming in at 13.3%, which would mark the second straight quarter of double-digit earnings growth for the index according to FactSet. 78% of S&P 500 companies have reported a positive earnings per share (EPS) surprise and 64% reported a positive revenue surprise reflecting companies’ ability to deliver strong results against an uncertain backdrop. However, we understand that earnings are backward looking and do not reflect the current tariff policy of the administration. Therefore, guidance was mixed for Q2 2025, with 51 S&P 500 companies issuing negative EPS guidance, 43 issuing positive guidance and many giving no guidance at all. Despite the strong earnings in the rear-view, analysts lowered EPS estimates by 4% from March 31st to May 29th. After the strong rebound by the S&P 500, the forward 12-month P/E ratio is 21.3, above the five-year average of 19.9 and 10-year average of 18.4.

Investors favored risk assets in May, encouraged by the partial rollback of tariffs, which helped to reduce fears of a recession. However, the current ambiguity causes challenges for corporations, consumers and investors as they seek to make plans for the future. In this environment, we expect our globally diversified portfolios comprised of high-quality businesses with strong fundamentals and management teams to perform well. We continue to own fixed income at these attractive yields understanding the importance of locking in a healthy level of income generation going forward. Lastly, we think it is advantageous to follow a disciplined investment approach as this will allow you to remain invested throughout the volatility, ensuring you are capturing the upside of the markets’ best days, which often occur shortly within its worst days.

Source: Earnings Insight, FactSet, May 30, 2025

May 2025

Authored by Jeremy Robert

Volatility increased significantly during April, as confusion surrounding the administration’s tariff policy rollout caused high levels of uncertainty. Because tariff levels were much higher than anticipated, the announcement was followed by a sharp market sell-off. This reaction led the administration to call for a 90 day “pause,” resulting in an immediate massive recovery in the U.S. equity market. Although economic data has not reflected any weakness yet, consumer sentiment surveys are telling a different story, showing that consumer confidence has plummeted due to economic uncertainty and inflation worries. Against this backdrop, the S&P 500 fell by 0.7% in April, while the technology heavy Nasdaq climbed by 0.9% for the month. As investors continued to look overseas for diversification and cheaper relative valuations, international stocks outperformed U.S. stocks as the MSCI EAFE Index rose by 3.7%, and emerging markets (MSCI EM) were flat for the month. Regarding fixed income, yields across the curve were volatile and spreads began to widen out for both investment grade and high yield debt. Bonds as represented by the U.S. Aggregate Bond Index were modestly higher by 0.4%.

The annual inflation rate in the U.S. was lower for the second consecutive month in March 2025, the lowest since September 2024. The Consumer Price Index (CPI) rose 0.2% for the month, bringing the annual inflation rate to 2.4%, lower than the 2.8% of the previous month and below forecasts of 2.6%. Gasoline prices declined 6.3% from February to March, while food prices (particularly groceries) saw an increase of 0.5% for the month, neutral from the prior month. Additionally, the core CPI, which removes volatile food and energy prices, fell from 3.1% to 2.8%, marking the lowest level since March 2021. Shelter is the largest component of inflation and continues to show progress, easing to 4% in March, the smallest increase since November 2021, according to The Bureau of Labor Statistics. Although the backward-looking data shows progress on inflation, the data does not reflect the impact of the current administration’s tariff policies which were enacted at the beginning of April. Economists believe that tariffs will likely lead to a “one time price hike” rather than continued acceleration of prices.

Earnings season is in full swing for Q1 2025, with 72% of S&P 500 companies having reported actual results. According to FactSet, the blended year-over-year earnings growth rate for the S&P 500 is 12.8%, which would mark the second straight quarter of double-digit growth for the index. Of the S&P 500 companies who have reported results, 76% reported a positive earnings per share (EPS) surprise, while 62% reported a positive revenue surprise. We continue to see the resilience of corporations in the U.S.; however, management teams have taken a more cautious tone in their forward-looking guidance since “Liberation Day,” noting the uncertainty that the administration’s tariff policies may have on business. Many companies have stopped providing guidance altogether or are providing multiple outlooks dependent on recessionary scenario versus the status quo. The forward 12-month price earnings ratio (P/E) for the S&P 500 is 20.2, which is above the five-year average (19.9) and 10-year average (18.3).

Looking ahead, we continue to see ambiguity in the economy which is impacting the behaviors of both corporations and consumers. We expect growth is likely to slow due to the impact of tariffs; however, the administration’s decisions going forward will determine how much GDP growth will slow. We have yet to see the “pro-growth” policies that were expected from this administration, policies like extending and enhancing tax cuts and decreasing regulation, which could revive positive momentum in the second half of the year. Investors can always find reasons to stay on the sidelines and therefore be hesitant to invest in the markets. However, strong recovery days have very closely followed the worst days in the market, so it is important to follow a disciplined investment plan. Our focus on maintaining globally diversified portfolios and strategically adjusting our fixed income positioning has helped manage through the volatility.

Source: Earnings Insight, FactSet, May 2, 2025

April 2025

Authored by Melissa Santas Peterson

Uncertainty surrounding government policies, rising global tensions and fears of an economic slowdown made for a turbulent start to the year. Concerns were exacerbated by the likely enactment of tariffs, leaving investors to speculate as to how this administration’s strategy will play out. Furthermore, the Federal Reserve decided to remain on the sidelines, maintaining the target 4.25-4.5% range, citing mixed signals, like strong labor market conditions, low unemployment, but elevated inflationary pressures. Against this backdrop, performance was mixed across global markets. The S&P 500 posted its worst quarterly performance since Q3 2022, experiencing a correction of more than 10% since its February peak. Negative returns were concentrated in the technology, communications and discretionary sectors, as investors continued to rotate out of growth stocks. The remaining eight S&P 500 sectors posted a positive performance. Conversely, international markets posted positive returns buoyed by fiscal stimulus, monetary support and improving economic backdrops. Bonds also had a strong quarter, as investors sought stability amid ongoing economic uncertainties.

The optimism we had heading into this year has waned a bit, as we consider the likelihood of persistent uncertainty hindering consumer spending and business investment in the short-term. To understand how the markets will move, the focus going forward will be on tariff policy, the labor market and earnings growth. We anticipate sizeable daily market swings will continue to be the norm, as perceptions change quickly in reaction to headlines. Speculating as to the impacts tariffs will have on the global economy will continue, all while investors hope for the roll-out of market-friendly priorities like deregulation, tax code changes and more supportive fiscal policy which could fuel economic growth.

It is natural to be concerned about the future of the U.S. economy and its impact on the market; its trajectory remains uncertain—as it always does. Risks are always present in the market, but during times like these, it is important not to let fear of losses drive one’s investment actions. Investing in a diversified portfolio, comprised of high-quality companies, and staying true to your strategic approach, can be an effective way to navigate choppy and ambiguous markets. Furthermore, for those who have a long-term horizon, volatile markets can present opportunities to put new money to work or rebalance portfolios.

March 2025

Authored by Jeremy Robert

U.S. stocks moved lower in February, as uncertainty around Trump’s trade policies weighed on consumer and corporate sentiment. The narrative shifted away from an economy running too hot to an economy showing signs of stagflation. Against this backdrop, large cap stocks (S&P 500) fell 1.3%, while small cap stocks (Russell 2000) took the brunt of investor apprehension, falling 5.4%. Technology stocks showed some chinks in the armor, with the Nasdaq falling 3.9% despite earnings remaining strong, though growing at a slower pace than expectations. Investors were drawn to international stocks given attractive valuations, a market-friendly election in Germany and no tariffs leveraged against Europe at the time. Developed international stocks (MSCI EAFE Index) rose 2% while emerging markets were up modestly by 0.5%. Fixed income provided some offset to equity volatility as the Bloomberg Aggregate Bond Index rose by 2.2% bringing the year-to-date return for the index to 2.7%.

Inflation continues to show signs of heating up. The Consumer Price Index (CPI) rose by 0.5% for the month of January, bringing the 12-month inflation rate to 3%. This marks the fourth consecutive month of increases in the annual inflation rate. Energy and food prices posted increases in January with gasoline prices higher by 1.8%, while the food index rose by 0.4% month over month, the sharpest pace in two years. Egg prices were part of the story, seeing a rise of 15.2% for the month due to the ongoing avian flu. Shelter inflation increased by 0.4% in January contributing to 30% of the increase in CPI, but on a year-over-year basis, the index rose by a more modest 4.4%. The consumer continues to worry about high inflation according to the University of Michigan Consumer Survey, which revealed respondents expect the inflation rate to be at 4.3% a year from now, a whole percentage point higher than in January.

Earning season for Q4 2024 wrapped up with 97% of S&P 500 companies having reported results. Earnings strength was broad with 75% of S&P 500 companies reporting a positive earnings per share (EPS) surprise, and 63% of companies reporting a positive revenue surprise. According to Factset, the blended year-over-year earnings growth rate for the S&P 500 is 18.2%, which would mark the highest year-over-year growth rate since Q4 2021. Against an uncertain economic and political backdrop, company executives were more cautious with 58 companies issuing negative EPS guidance, and 40 companies issuing positive EPS guidance. Concerns about inflation and tariffs have caused analysts to lower EPS estimates for the S&P 500 companies, with Q1 EPS estimates decreasing by 3.5% from Dec. 31 to Feb. 27. The forward 12-month price-earnings ratio for the S&P 500 is 21.2, higher than the five-year (19.8) and 10-year average (18.3).

As we expected, uncertainty regarding growth, inflation and tariffs have caused volatility in the market to increase dramatically. It is important to avoid overreacting to short-term swings in the market or to headlines in the news. During times of ambiguity, we continue to be disciplined in our approach, stress testing our portfolios to better understand how our strategies will navigate multiple market scenarios. Though we believe that the U.S. will remain the envy of the investing world, there are opportunities to diversify across regions and geographies. The past few months have been a good reminder to investors of the benefits to owning fixed income, as yields have provided a way to dampen volatility within portfolios. We like to remind investors that generally a successful investment strategy focuses on “time in the market, not timing the market.”

Source: Earnings Insight, FactSet, March 7, 2025

February 2025

Authored by Jeremy Robert

Following a tough end to 2024, markets rebounded in January, with broad gains across asset classes and regions. January was a busy month as the Federal Reserve put rate cuts on pause, a Chinese-created AI model triggered a sell-off in AI related stocks and President Trump imposed tariffs. However, optimistic investors focused on deregulation, and the potential for lower taxes drove stocks higher. Although we saw wider participation in the market stall last month, the softness in mega-cap technology stocks resulted in the equally weighted S&P 500 rising 3.4%, outperforming the market-cap weighted S&P 500, up only 2.7%. Small-cap stocks represented by the Russell 2000 were up 2.5% for the month as yields moved modestly lower. Developed international stocks (MSCI EAFE) gained 4.8% as President Trump focused his tariffs on Canada, Mexico and China. Despite this rhetoric, emerging markets (MSCI EM) were up 2.2%. Fixed income investors received some relief as yield moved slightly lower during the month, causing the U.S. Aggregate Bond Index to rise a modest 0.52%.

The Consumer Price Index (CPI) rose by 0.4% for the month, putting the 12-month inflation rate at 2.9%, which was in line with expectations. The rise in prices for December was largely due to a gain in energy prices, higher by 2.6% for the month, and responsible for 40% of the CPI index’s gain. Core CPI, which strips out volatile food and energy, was 3.2% on an annual basis, slightly better than the forecast for 3.3% after a rise in core CPI of 0.2% for the month. Shelter saw slowing increases in prices, rising by only 0.3% in December and 4.6% from a year ago, which was the smallest one-year gain since January of 2022. Many economists had warned that the real time data for shelter was lower than the lagged data the CPI index tracks. There has been meaningful progress on inflation, but the Fed continues to forecast a slower rate cut cycle, given that labor market and economic data continue to show signs of strength. The Fed now awaits the new administration’s policies, including the impact that potential tariffs and immigration reform will have on key economic metrics.

Earnings season is underway, with 36% of S&P 500 companies having reported actual results. Results have been strong thus far as 77% of those S&P 500 companies reported a positive earnings per share (EPS) surprise, and 63% of companies reported a positive economic surprise, according to FactSet. The Q4 2024 blended earnings growth rate for the S&P 500 is 13.2%, which would mark the highest year-over-year growth rate reported since Q4 2021, showing that corporations continue to deliver strong results. Earnings expectations are elevated, with analysts now projecting a 14.3% growth rate for 2025 and 13.7% in 2026. The market will continue to focus on mega-cap technology company earnings; however, with the market showing signs of broadening out, investors will be closely watching earnings results for the 493 companies outside the magnificent seven. Valuation on the S&P 500 remains rich relative to history with the forward 12-month P/E at 22, higher than the five-year average of 19.8, and the 10-year average of 18.2.

January provided us with a glimpse of the heightened volatility this new administration and their bold ideas will bring for the coming years. The economic data continues to show strength, and so far, corporations have been able to deliver strong results. The strong momentum behind the AI technology theme temporarily halted on the announcement of DeepSeek, a Chinese AI model claiming to have been developed with far less capital. Though we have doubts about the cost and details, it is important to recognize how rapidly dynamics can change with such innovative technology. Investors will likely have many reasons to sell based on headlines this year, but staying invested and being diversified is generally more successful than trying to time the market.

Source: Earnings Insight, FactSet, Jan. 31, 2025

January 2025

Authored by Jeremy Robert

Markets stalled in December as investors struggled to digest conflicting information. On one hand, the economy and labor markets continued to show resilience. On the other hand, fears of sticky inflation and concerns over the new administration’s potential policies dampened forward expectations. Furthermore, the Federal Reserve cut the fed funds rate by 25bps and recalibrated the prospect for rate cuts in 2025 from four cuts to only two. This hawkish message from the Fed caused the yield on the 10-year treasury to rise more than 40bps for the month. With interest rates moving higher, fixed income investors saw price declines as reflected in the Bloomberg U.S. Aggregate Bond Index, finishing 2.2% lower for the month. Against this backdrop, investors gravitated back towards mega-cap technology stocks causing the Nasdaq to rise 0.6%, while the S&P 500 fell 2.4%. Small-cap stocks were hit the hardest, tumbling 8.3% for the month. After posting healthy returns for much of the year, large-cap value stocks, as represented by the Russell 1000 Value, fell by 6.9%.

Inflation continues to be a concern for Wall Street, as consumer prices increased at a faster annual pace in November. The Consumer Price Index (CPI) rose by 0.3% for the month of November, bringing the annual inflation rate to 2.7%, according to the Bureau of Statistics. The annual rate was 0.1% higher than in October. Shelter costs rose by 0.3% in November, accounting for nearly 40% of the monthly increase in CPI and rising 4.7% on a year-over-year basis. We continue to see strong progress on inflation, especially the continued deflation of core goods prices and a slowing pace of core services prices. However, inflation remains above the Federal Reserve’s inflation target of 2%. The Fed delivered a 25bps cut in December, but signaled they would remain data dependent and suggested a slower pace of rate cuts for 2025. The market reacted negatively to the hawkish message from the Fed and continued to re-adjust expectations for rate cuts throughout the month of December.

Q4 earnings season is quickly approaching, and investors are eager to know whether businesses are seeing any signs of a pullback by the consumer or a slowdown in CapEx spending, both of which were tailwinds for corporate earnings in 2024. Expectations are high for Q4 2024, with the estimated year-over-year earnings growth rate for the S&P 500 at 11.9%, which would mark the highest growth rate for the S&P 500 since Q4 2021 according to FactSet. On September 30, 2024, analysts anticipated the growth rate to be 14.5%, so expectations have been lowered over the past few months. Corporate executives have been cautious when issuing guidance, with 71 S&P 500 companies having issued negative earnings per share (EPS) guidance, versus 35 S&P 500 companies that have issued positive EPS guidance. The bar remains high for the technology sector, and if we begin to see earnings growth accelerate outside of technology, it could be a catalyst for the market performance to broaden beyond technology. The forward price earnings ratio (P/E) for the S&P 500 is 21.4, which is above the five-year average of 19.7 and the 10-year average of 18.1.

Unfortunately, the market did not end the year on a high note, but it is important to remember how far we have come. The S&P 500 has posted 20+% returns in back-to-back years with relatively low volatility, during a time when many predicted the U.S. economy would be in a recession. We acknowledge that a large portion of those returns were generated by a handful of stocks, but we see this as an opportunity for the rest of the market to perform. We remain mindful that the market is constantly trying to predict the future, which often results in overreactions on both the upside and downside. The data continues to show a strong economy, supported by healthy corporations delivering strong earnings. Furthermore, higher yields now present an attractive alternative for investors looking for income generation. Looking ahead, we expect volatility to increase as the Trump administration begins to roll out their agenda. Therefore, investors should take the time to rebalance their portfolios to ensure they are comfortable with their exposure across asset classes, regions and sectors.

Source: Earnings Insight, FactSet, Jan. 3, 2025