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After several reductions to the IT sector, Communications Equipment was purchased as a new group holding in the Select Industries equity portfolio.

While the policy regimes in both the U.S. and China are likely to support risky assets, today’s level of optimism doesn’t allow much of a cushion for disappointment.

Overall, most patterns suggest a decent year for global equity markets. Expectations are already very high, though, and that leaves much less room for error. We strongly caution against extrapolating U.S. equities’ 2024 performance into 2025.

We present our favorite charts from the past year and examine some of the key developments poised to have a significant impact in 2025.

The Equal Weighted and Cap Weighted S&P 500 turned in eerily similar absolute returns for the past two years. The real shocker being the yawning, but nearly identical relative gap between the two from year to year (12.4% and 12.7%). The 29% performance void is the largest 23-month gap we can calculate since 1990. The next closest being April 1998 to March  2000 (27.9%).

Over the past two calendar years: Royal Blue Growth +73%, RB Value +29%. The P/E multiple for our RB Growth segment now sits a tick above is previous contemporary high of 45.0x (Q4-2021). In the aftermath of that high point three years ago, the P/E multiple collapsed to 30.1x over a span of three quarters.

Our Ratio of Ratios ends 2024 in the middle of its range for the year (21-29% Small Cap discount). We enter another new year with this vignette advising that Small Caps can be purchased at a steep discount to Large Caps. Of course, this study said the same thing in January 2020, 2021, 2022, 2023, and 2024.

The Up/Down ratio is 1.36—the best “final” quarterly figure we’ve logged for this vignette since Q3-21. After two years of readings that are normally associated with recessions, YOY EPS growth has certainly become more common thus far in 2024, with three quarters’ reports in the books.

Our previous update reported that eight of ten factors outperformed the S&P 500, leading us to hope that maybe, just maybe, the market was broadening out from its narrow focus on mega-cap growth. Those hopes were dashed in the fourth quarter, as only two of ten factors managed to outperform the index.

The turning of the calendar is a time to reflect on the past year’s returns and analyze the relative performance of various asset classes. For 2024, no matter what equity theme is under the microscope, the yearly recap is bound to point to the very same explanation—Nvidia and mega-cap tech.

The S&P 500 lost 2.5% in December but fared far better than both Mid- and Small-Cap Indexes (S&P 400 -7.3%; S&P 600 -8.1%). From today’s level, the S&P 500’s potential downside to its 1957-forward median is -43%.

Read the latest MTI update

Read this week's Major Trend.

A Collateralized Loan Obligation is a special purpose vehicle designed to hold a portfolio of highly leveraged corporate loans in a structure that modifies the risk profile of the underlying loans.  A CLO funds its asset purchases by issuing securities backed by the loan portfolio.  These liabilities are layered in tranches defined by seniority and credit protection, ranging from AAA to B with a final equity buffer at the base of the capital structure.  CLOs have historically been the province of large asset managers, and it is only in recent years that smaller investors have been able to access CLOs simply and easily through an exchange traded fund.  Viewing CLO ETFs as a new option in our fixed income toolbox, we felt a deeper investigation was in order.

Read this week's Major Trend. 

Select Industries surged 7.3% in November, driven by post-election gains in Financials and small caps. Key moves included new investments in Precious Metals and the launch of a thematic group, DOGI, targeting stocks impacted by regulatory shifts. Portfolio changes remain rooted in data-driven GS Scores, ensuring disciplined, unbiased decision-making.

Read this week's Major Trend. 

Valuations on the MSCI World Ex-USA Index relative to the MSCI USA Index have faded to shockingly low levels. The trailing P/E ratio, P/E on 5-year average EPS, and Price/Cash Flow have sunk to near 50% discounts, while Price/Book and Price/Dividend are even lower.

Many factors are apt to limit the bull’s lifespan. A big one is simply the fact that the economy was doing just fine when it began. In the four other times a bull launched without a preceding recession, its gains were solid (+48% to +80%) but never spectacular. 

Sharply rising projections for EPS are a reason this market doesn’t seem quite as bubbly as its price tag suggests. Barring a sudden collapse, 2024 will be just the third year in which forward earnings estimates and the forward P/E multiple both increase by more than 10%.