March 1, 2025
After two great years in the equity market, 2025 got off to another strong start with the S&P 500
making record highs driven by earnings growth and non-Magnificent 7 stocks. Although the economy is on solid footing with moderate employment gains and continued economic growth, inflation remains higher than the Federal Reserve’s 2% target and so far, the Federal Reserve anticipates only a half percentage-point reduction in the Federal Funds rate this year.
The Magnificent 7; Apple, Microsoft, Alphabet, Google, Amazon, and Meta Platforms, which account for about a third of the S&P 500 index, has lagged while the other 493 stocks have powered the gain. However, except for Meta, these “Cloud Titans” have seen their share value struggle as investors stomach these massive internal spending plans while worrying that future revenue from AI will not fully justify the expense.
As long as earnings stay robust and no Black Swan events arise, the market should be able to advance. Many analysts expect first quarter earnings growth to slow to 8.1% while steadily building as the year progresses, finishing the full year 2025 at 12.7% growth. They are even more bullish for 2026, expecting a 13.9% advance.
Stocks continue to thrive because the economy is on a solid growth path, moderate employment growth and the expectation that inflation will continue to fall. Fourth quarter GDP grew 2.3% and January saw 143,000 new jobs created with the unemployment rate declining to 4.0%. For the week through February 8th, jobless claims fell to 213,000, down from 220,000 a week earlier, and the number of continuing claims fell to 1.85 million from 1.89 million. Employment gains drive wages which provide the cash flow for consumers to spend, signaling that the risk of recession is low.
Year to date, the Dow and S&P 500 remain positive, and the NASDAQ has entered negative territory at 3.05%, 1.24% and -2.4%, respectively. The current yield on the 10-year Treasury note is currently 4.29%, while the yield on the two-year Treasury is at 4.07%.
Tax season is upon us so keep an eye out for final tax documents to arrive shortly.
