February 2025
The following facts and statistics describe the financial situation in the United States from January 1st to February 7th, 2025:
The S&P 500 is up 2.45 percent for year-to-date and was up 23.31 percent for all of 2024.
The S&P 500’s P/E ratio currently stands at 30 for the trailing 12 months and has a forward P/E, based on issued guidance, of 22.1 (the 5-year average forward P/E is 19.8, and the 10-year average is 18.2).
The NASDAQ is up 1.1 percent year to date and rose approximately 25 percent in 2024.
The Dow Jones Industrial Average is up 4.13 percent year to date and gained 13.3 percent in 2024.
RECENT STATISTICS AND ECONOMIC DATA THAT AFFECT INVESTMENT DECISIONS
The following statistics and data are important factors to consider when making investment decisions:
For Q4 2024, with 62% of S&P 500 companies reporting, 77% have posted positive EPS surprises, and 63% have exceeded revenue expectations. The blended year-over-year earnings growth rate is 16.4%, the highest since Q4 2021. Initially estimated at 11.8%, earnings growth has been revised upward, with eight sectors showing stronger-than-expected results. Looking ahead to Q1 2025, 34 companies have issued negative EPS guidance, while 21 have provided positive guidance.
As of December 2024, the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's preferred inflation measure, increased by 0.3% from the previous month, marking the largest rise since April. On a year-over-year basis, the PCE Price Index advanced 2.6%, the highest in seven months.
The core PCE Price Index, which excludes food and energy prices, rose by 0.2% in December and was up 2.8% compared to the same month the previous year.
These figures indicate that inflation remains above the Federal Reserve's 2% target, suggesting that the Fed may be cautious about implementing further interest rate cuts in the near future.
As of the fourth quarter of 2024, the U.S. economy expanded at an annualized rate of 2.3%, following a 3.1% growth in the third quarter. For the entire year, real GDP increased by 2.8%, slightly below the 2.9% growth observed in 2023. The fourth-quarter growth was primarily driven by a 4.2% rise in consumer spending, marking the fastest pace since early 2023. However, business investment declined during this period. Inflation pressures persisted, with the personal consumption expenditures (PCE) price index rising to 2.3% in the fourth quarter, exceeding the Federal Reserve's 2% target.
In January 2025, private sector employment increased by 183,000 jobs, with annual pay rising 4.7% year-over-year, according to the ADP National Employment Report. Nela Richardson, ADP's chief economist, noted that while consumer-facing industries drove hiring, job growth was weaker in business services and production sectors.
The number of job openings decreased to 7.6 million on the last business day of December and was down by 1.3 million over the year. The job openings rate, at 4.5 percent, decreased over the month. The number of job openings decreased in professional and business services (-225,000), health care and social assistance (-180,000), and finance and insurance (-136,000). Job openings increased in arts, entertainment, and recreation (+65,000).
As of January 2025, the U.S. unemployment rate decreased to 4.0%, marking its lowest level since May 2024. The number of unemployed individuals stood at 6.8 million, with little change over the month.
The labor force participation rate remained steady at 62.6%, and the employment-population ratio was unchanged at 60.1%. Notably, the number of long-term unemployed (those jobless for 27 weeks or more) remained at 1.4 million, accounting for 21.1% of all unemployed individuals.
The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.4 percent on a seasonally adjusted basis in December, after rising 0.3 percent in November, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.9 percent before seasonal adjustment.
The index for all items less food and energy rose 0.2 percent in December, after increasing 0.3 percent in each of the previous 4 months. Indexes that increased in December include shelter, airline fares, used cars and trucks, new vehicles, motor vehicle insurance, and medical care. The indexes for personal care, communication, and alcoholic beverages were among the few major indexes that decreased over the month.
As of January 16, 2025, the advance estimate for US retail sales in December 2024 was $729.2 billion, a 0.4% increase from the previous month. This was a 3.9% increase from December 2023.
The yield curve between the 2-year and 10-year Treasury Bonds has turned positive and is currently at +0.2.
Nonfarm business sector labor productivity increased 1.2 percent in the fourth quarter of 2024, as output increased 2.3 percent and hours worked increased 1.0 percent. From the same quarter a year ago, nonfarm business sector labor productivity increased 1.6 percent in the fourth quarter of 2024. Annual average productivity increased 2.3 percent from 2023 to 2024.
As of February 5, 2025, the Federal Reserve's total assets were $6,810,935. This is down from $7.630 trillion one year ago.
QUESTION FOR CONSIDERATION
How can understanding the psychological phases of a bull market help investors navigate market fluctuations and make informed decisions?
THE BOTTOM LINE
“Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” This quote from John Templeton, one of the great investors of the 20th century, offers an insight into the psychological phases of a bull market. Templeton, who founded the Templeton Growth Fund in 1954, understood better than most that the stock market's fluctuations are as much about investor sentiment as they are about economic fundamentals.
A bull market doesn’t begin simply because indices hit record highs or analysts say it has. It’s technically defined by specific criteria. For example, Standard and Poors (S&P) defines a bull market as a 20% rise in the S&P 500 from a previous low. Other analysts add that the market must stay above that low for at least six months. Some even argue that a bull market isn’t confirmed until the market surpasses its prior all-time high.
As of 2025, we are in the third year of this bull market, which fits historical trends. On average, bull markets last around 3.8 years, though the longest, from March 9, 2009, to February 19, 2020, lasted 11 years. That bull market began after the Financial Crisis of 2008, and marked a significant period of recovery and growth. These markets typically pass through stages: born in pessimism, growing in skepticism, maturing in optimism, and peaking in euphoria.
There have been 26 bull markets since 1928, and on average, stocks gain 112% during a bull market. Understanding these phases helps investors navigate fluctuations. As we approach the third year of this bull market, having gained 73% from the October 2022 lows, growing optimism suggests we're nearing the later stages. However, signs of euphoria, a warning signal of market peaks, should encourage caution.
It is crucial for investors to understand the dynamics of a bull market. Recognizing the emotional phases and historical trends can help guide decision-making and prevent overreaction to market fluctuations. While the current bull market may seem to be following the typical path, it's important to remain cautious, as markets can change unexpectedly due to macroeconomic factors — such as inflation, interest rates, employment data, GDP, and consumer confidence — or due to unforeseen events or shifts in investor sentiment.
As of now, the S&P 500 is trading at a trailing 12-month price-to-earnings (PE) ratio of 30, significantly higher than the historical average of 16, meaning the index is priced at a premium of 87%. The forward PE, based on guidance for the S&P 500, is currently 22, which, while lower than the trailing PE, still suggests elevated valuations. However, for long-term investors, this period of high valuation could still offer opportunities to position portfolios for future growth, particularly if the market experiences a correction and returns to more attractive price levels.
For investors with a long-term horizon, the end of a bull market and the onset of a bear market shouldn't be feared; it should be embraced as a buying opportunity. While the transition to a bear market can be unsettling, it often presents a chance to acquire high-quality assets at lower prices, setting the stage for future gains when the market eventually recovers. This approach refers to a key principle in the investing philosophy of John Bogle, the founder of Vanguard, who famously said to "Stay the Course." It emphasizes maintaining a long-term investment strategy and avoiding frequent changes to your portfolio based on short-term market fluctuations. In other words, it's about "buy and hold" with discipline and patience, regardless of market volatility.
While both bull and bear markets present growth opportunities, investors should remain aware of emotional cycles and historical trends to make informed decisions. During a bull market, it's easy to get swept up in optimism and chase high returns, but as the market matures, it’s crucial to recognize when conditions may be changing. Similarly, in a bear market, fear can lead to panic selling, but it also offers opportunities to acquire quality assets at discounted prices. Understanding these market phases—along with the emotional tendencies that can influence decisions—can help investors avoid excessive risk-taking and emotional reactions. Being aware of when the market is due for a correction can protect investors from unnecessary losses, helping them stick to their long-term strategy and that’s The Long and Short of It!