Solid earnings help push equities higher last week. So far, 16% of S&P 500 companies have reported 4th quarter earnings and 80% have beat estimates.
To-date, companies not in Mag 7 have generated earnings growth of at least 9.7%. Even among the S&P's top 10 earnings contributors, a few are outside of Mag 7 - such as J.P. Morgan, Citigroup, Bank of America, and Merck. However, if we consider the movement in bonds, there is additional room for concern. The world's bell weather bond, the U.S. 10-year Treasury, has been on a losing streak of late. In fact, it's had its worst performance trend in the past 90 years. Much of this has to do with what the Fed has done with regard to fighting inflation. However, the fact that the government flooded the market with easy money during COVID, investors have been acting like stocks can't go down, leaving bond in unpopular territory.
Asset valuations and concentrations in equities should be of some concern to investors.
Investors should consider moving into those asset classes where valuations may not be
as much of a concern, as volatility will certainly harm highly appreciated assets that are over-valued most. In addition, rebalancing after periods of excessive gains can also help keep things in perspective and reduce risk over time. With the considerable gains in equities over the past few years, a 60:40 portfolio that is not rebalanced would have a very different risk profile than when it was initially implemented. The emergence of some roadblocks could derail stocks this week. The Bank of Japan hiked interest rates on Friday which could reignite the Yen "carry trade" of last August. In addition, there is the emergence of DeepSeek, a Chinese AI company that has invested far less in its application, yet appears to have equal or better performance than the leading AI engines. Markets may be a little shaky to start the week.
Disclosures
The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.
Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.
Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.
Past Performance does not guarantee future results.
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