Daily Stock Market Articles

International Dividend Stocks Lag
Thu, Feb 6, 2025

It's been three months since the Presidential election, and in that time the S&P 500 ( SPY) has returned a solid 6.59%. That outperformance has been driven by large cap growth, while value indices have lagged behind. US dividend-focused ETFs have likewise lagged the broad market to a degree, but they are still handily outperforming their international peers. In the chart below, we show the total return of US and International dividend ETFs from multiple families of funds. Of course, each of these ETFs have slightly different methodologies. For example, whereas the SPDR S&P Dividend ETF (SDY) is perhaps the most restrictive, only including stocks that have raised dividends for at least 20 years in a row, others like the Invesco Dividend ETFs (PID and PFM) have easier standards requiring only 5 years of dividend history while the Vanguard High Dividend ETFs (VYMI and VYM) takes the stocks with the highest forecasted yields for the 12 months ahead. Regardless of methodology, there has been a clear distinction between US and internationals save for one US ETF. The SPDR S&P Dividend ETF (SDY) is down 2.5% in the past three months, which is the worst performance of those listed.



As is the case with equities in a broader sense, the recent underperformance of international stocks relative to the US is nothing new and consistent with longer term trends. In the charts below, we show the relative strength over the past five years for US versus international dividend ETFs grouped by their issuer/methodologies. No matter which way it is chopped up, international dividend stocks have underperformed US counterparts for much of the past few years. Currently, those relative strength lines are testing 5 year lows for the likes of the Invesco ETFs and Vanguard High Yield ETFs.

 

Go Chiefs
Fri, Feb 7, 2025

As Super Bowl LIX approaches, Americans are quickly finalizing party plans for Sunday, and this year’s spread of just 1.5 points suggests that Sunday’s game could come down to the final seconds. Not only is this year’s Super Bowl expected to be close, but it will also break what is a tie in each conference’s total number of Super Bowl wins at 29 each. In the early years of the Super Bowl, the AFC dominated, but a 13-year drought from Super Bowl XIX to Super Bowl XXXI put the NFC comfortably in the lead.

After Super Bowl XXXI, the NFC had won 7 more Super Bowls than the AFC, which was its widest ever margin. Since then, there has been much more parity between the two conferences where neither has seen a wide cumulative advantage.



Now for the important stuff. Which teams winning the Super Bowl have historically had the most positive and negative impact on the market? The table below lists every team that has won a Super Bowl (20) along with how many each team won and how the S&P 500 performed for the remainder of the year after each team won. With four championships up to this point, the Chiefs are tied with the Packers and Giants for fifth overall, but if they win Sunday, they will move into a tie with the 49ers and Cowboys for third place overall. The Eagles, meanwhile, are one of five teams with just one Super Bowl championship, and if they win on Sunday, they’ll join four other teams (Colts, Ravens, Rams, and Dolphins) with two each.

In terms of market performance, in the four prior years when the Chiefs won, the S&P 500’s average performance for the remainder of the year was a gain of 12.4% with positive returns 75% of the time. Regarding the Eagles, their only win was in Super Bowl LII in February 2018. After that win, the S&P 500 fell by over 9% through year end. Unfortunately, this year’s game isn’t between the 49ers and the Steelers. Both teams have won at least five Super Bowls over the years, and the S&P 500 has traded higher for the remainder of the year after every one of their wins!



In addition to looking at market performance following which team wins the Super Bowl, we also looked at forward returns following different scenarios in the game. While the S&P 500 has rallied an average of 12.4% after the Chiefs won the Super Bowl, after their two losses, the S&P 500 rallied an average of 18.4%! Overall, though, the best scenario for a bull is a high-scoring game. As shown in the chart, in years when the loser scores at least 28 points, the winner scores at least 35, the total is at least 60, or it’s a blowout (21+ points), the S&P 500’s average rest of year gain has been at least 10%. Conversely, in those years when the total is less than 31, the winner scores less than 21, or the loser scores less than 8, the average rest-of-year performance for the S&P 500 was +5.7% or less.

It should go without saying that the score of the game or even who wins has zero impact on how the stock market will perform for the remainder of the year, but some of these online betting platforms have some even crazier bets people can make. At least these figures will give you something to talk about if the game or commercials start to get boring! Enjoy another Super Bowl Sunday!

 

Positive January Barometer Greatest Outperformance

No other month signals as much upside for the year when it’s up than January. Since 1938, years with a positive January outperformed a down January by 10.6%. Over the following 12 months, the outperformance grew to 11.3%.

 

The Payroll Report Highlights Both Strengths & Weaknesses in the Economy


The economy created just 143,000 jobs in January, well below expectations for a 175,000 increase, and less than half of the gain in December (which was revised up from 256,000 to 307,000).

Over the last three months, job growth has averaged about 237,000 jobs, which is really strong. However, the payroll numbers are messy right now. For one thing, January could have been impacted by snowstorms in the south and the wildfires in California. We also got significant revisions for the prior couple of years. Total job gains in 2023 was revised down from 3.0 million to 2.59 million, while 2024 was revised down from 2.23 million to 2.0 million. Make no mistake, these are strong numbers, and if anything, it tells us productivity growth was actually better than was reported since GDP growth is still fairly strong. Still, there’s a lot of uncertainty with these monthly payroll numbers, more so than usual.

The good news is that readings that are slightly more resilient to revisions, like the various ratios (since both the numerator and denominator get revised) are still looking quite good. The unemployment rate fell from 4.1% to 4.0%, the lowest since last May. The prime-age (25-54) employment-population ratio, which is a way of controlling for demographic effects and labor force participation issues, is 80.7%. That is higher than at any point during the last two expansion cycles (2000s and 2010s) and not far below the recent peak of 80.9%.

The relatively stability of these numbers tells you that most people are employed, more so than we saw over the past two decades. Hiring has certainly eased over the last two years, but fewer workers are quitting their jobs and layoffs are still really low, so net hiring (hiring net of separations) is strong enough to keep up with population growth.



Ultimately, what matters for the economy is consumer spending, and since that’s powered by income growth, that’s where you want to look. Aggregate income growth, across all workers in the economy, is the sum of employment growth, wage growth, and change in hours worked. Over the past three months, that’s running at an annualized pace of 4%. That is not too far below the pre-pandemic average of 4.6% and tells you that the backbone of the economy is strong enough for now.



Elevated Interest Rates Are Not Helping
We are seeing some weakness when looking at the composition of where job growth is happening. Around 69% of jobs created in January were in health care and social assistance (+66,000) and government (+32,000, of which 23,000 was state/local government). A single month can be noisy, but we’ve seen this pattern play out over the last six months as well. Payrolls have grown by 1.1 million during this period, but a majority of that has come from non-cyclical areas, like health care and social assistance (+442,000; 41% of the total) and government (+198,000; 19%). Job growth in leisure and hospitality (+186,000; 17%) and retail trade (+51,000; 5%) were also significant, but these are less important than fields like manufacturing and professional services if you’re looking for an accelerating economy. Manufacturing payrolls fell by 79,000, while professional and business service payrolls fell by 25,000 over the last six months. It tells you that that cyclical areas of the economy are still struggling to get on their feet and are likely weighed down by interest rates.



The one cyclical area that is holding relatively well is construction, despite the obvious headwind of higher rates. Historically, weakness in construction employment has foreshadowed further weakness across the labor market (and recessions), which makes sense because elevated interest rates (and tight monetary policy) have preceded past recessions. If housing remains weak due to elevated rates, we could see construction employment start to pull back. For now, construction employment is rising at a 2.2% year-over-year pace — still healthy, especially relative to the 1.8% increase in 2019, but the current pace is down from 2.5% six months ago. The slowing pace of growth is something we’ll be keeping a close eye on for the next several months. One notable area driving the slowdown is home improvement, where payroll growth has slowed to 0.6% year over year, versus 1.3% six months back.



The big picture right now is that the labor market is in a relatively healthy place. If you have a job, it’s very likely you’ll keep it, as employers are reluctant to let people go. Workers are also seeing their wages grow at a fairly good pace. However, hiring has certainly eased significantly from a year ago, let alone two years ago, and so if you’re looking for job, it’s not that easy to find one. Employers are clearly being very selective, and perhaps more so in the cyclical areas of the economy like manufacturing and professional services.

But therein lies the challenge of interest rates staying elevated for longer — it’s clearly a headwind if you’re looking for further economic acceleration, especially to achieve something like 3% GDP growth. This is exactly what we wrote in our 2025 Outlook, and the January data underline it. And as I wrote earlier this week, this is where the tariff uncertainty really manifests, as it makes it more likely that the Federal Reserve delays additional rate cuts even longer, as they wait for policy clarity (let alone the impact of these policies). Meanwhile, the hope is nothing breaks before that.

 

Small Business Sentiment Wild Ride
Tue, Feb 11, 2025

This morning was light for economic data with the only release of note being the NFIB's Small Business Optimism index. The headline number was expected to pull back following the post election surge, but the decline was larger than expected as it came in at 102.8 versus forecasts of 104.7. That being said, as shown in the chart below, small business sentiment is still up huge since last November's election.



In the table below, we show the readings across the report's sub-indices for January and December, the month over month change, and how those all rank as a percentile of all periods. As shown, the Optimism Index's decline in January was actually quite large falling in the bottom decile of all months' moves. Playing into that were bottom decile declines in a number of inputs like: inventory plans, expected credit conditions, viewing now as a good time to expand, and capital outlay plans. For that last category, the 7-point drop was actually a record single month decline. That is also only one indicator of a number that point to softening capex and labor market conditions which we discussed in today's Morning Lineup.



As shown in the table above, breadth in January was weak on the whole. For all categories (both inputs and non-inputs for the headline index), there were ten indices that fell month over month versus six that rose while another two were unchanged. Looking at the decliners, most of the categories are expectation or plans based. Contrary to that weakness in soft data, hard data indices like actual earnings and employment changes were generally the ones that improved versus December.

In the charts below, we create indices tracking the strength of hard and soft data categories in the report. Following the election, the soft data index soared as expectations and optimism massively improved given small business sentiment has a tendency to favor Republicans. The historically strong readings in that index left more muted hard data in the dust. With that said, January saw the soft data index revert lower although it is still at solid levels in the 63rd percentile of readings. Meanwhile, hard data has continued to improve and is now at the highest level since September 2023.



Again, although the January report showed some moderation in small business optimism, reporting firms are still extremely optimistic. For example, the index of Outlook for General Business Conditions pulled back but remains in the top 2% of readings in the survey's history. Likewise, the share of respondents reporting now as a good time to expand is around some of the highest levels of the past few years.



The NFIB offers a breakdown of reasons given for expansion outlooks. As shown in the second chart below, the strength in positive expansion outlooks has been largely driven by politics. Similarly, those giving uncertain outlooks have less frequently been pointing the finger at politics, however, there was an identical share in January that said costs of expansion was the reason for uncertainty. Unchanged at 7%, that was the highest reading since February 2020. Perhaps most notably, for those reporting an uncertain outlook, a record 22% share blamed economic conditions.



As much as a shifting political landscape has benefitted small business optimism, January did also see an interesting spike higher in the percentage of businesses reporting taxes and government red tape as their biggest issues as the threat of tariffs were quickly introduced. That reading rose to 27% of responses which was the highest since November 2021.



One other indication that Trump's tariff plans have caused some trepidation among small businesses is the Economic Policy Uncertainty index. As shown below, during election years it is normal for this index to rise sharply. This most recent election was a prime example with the largest election year jump to date. While things moderated significantly in the wake of the election with a 24 point decline from the October report through December (also a record for all prior election years), the most recent reading for January showed a 14 point month over month rebound. Not only is that the largest jump of any inauguration month, but it is also the largest month over month increase in the index's history.

 

Usual February Weak Trading

Stocks are suffering from typical midwinter struggles. The market tends to rally the first half of February, but gains tend to fade after mid-month, and even sooner in post-election years.

 

Five Worries We Have That Aren’t Tariffs


“Sometimes the questions are complicated and the answers are simple.” -Dr. Seuss

Yes, we’ve remained in the bullish camp for more than two years now and continue to expect 2025 to see stock gains between 12-15%, but that doesn’t mean we don’t have worries. Of course, like everyone else, tariffs are indeed a big worry (with a huge amount of uncertainty), but we’ve spent enough time on those over the past week and today I’ll go over a few other worries that I’m watching closely.

Year Three of a Bull Market
We noted this in 2025 Outlook: Animal Spirits. Stocks usually see huge gains the first two years of a bull market (just like this bull market did) and the third year can be more choppy and frustrating. Although we expect stocks to do much better than the average third year gain of 2.1%, this is still something to consider in 2025 as a potential issue. End of the day, after the huge gains we saw two years off of the October 2022 lows, it would be perfectly normal to see some consolidation at some point in 2025.



The Philly Curse
This is purely fun, but when a team from the City of Brotherly Love wins a World Series or Super Bowl, very bad things are around the corner.



Lagging Advance/Decline Ratios
An advance/decline (A/D) ratio is simply a cumulative tally of how many stocks go up or down each day on a specific exchange. The way I learned it many years ago was breadth leads price. When A/D lines make new highs, it suggests the indexes will likely continue a bullish phase. We saw A/D lines break down well ahead of the tech bubble bursting 25 years ago and again before the Great Financial Crisis, suggesting there indeed was deterioration under the surface.

Yes, we have many stocks doing well this year (even international and emerging markets are joining the party), but one worry I have is various A/D lines have yet to breakout to new highs. There is still time here, but I’d classify this as a yellow flag for the bulls right now. Should these improve and eventually breakout (like I predict), then the bull would be back in a big way. Here’s a nice chart my friend Cam Hui shared recently showing exactly what I mean.



Year of the Snake
Another fun one (and please don’t ever invest based on this) is stocks have done quite poorly in The Year of the Snake, which is exactly the Chinese zodiac sign for 2025. Similar to when Philly wins something, this is totally random, but it is interesting.



The December Low Indicator
Last and certainly not least, here’s one of my favorite indicators. This is called the December Low Indicator and it is fairly straightforward. When the S&P 500 doesn’t close beneath the December low close in the first quarter, good things have tended to happen the rest of the year. The opposite, of course, is when the December lows are violated in the first quarter. To refresh your memory, the past two years they didn’t break the December low and those were great years, while a break in early 2022 was one subtle clue that the odds were elevated that the rest of the year could be dicey. Well, sorry to be the bearer of bad news, but stocks indeed broke their December low about a month ago.

Interestingly, since 1950, stocks held above the December lows 38 times while they broke the lows 37 times. Talk about even-steven. Those are some pretty big sample sizes, and sure enough, the takeaway from the historical results are very clear.

Those 38 times the December lows held? The full year was up an incredible 36 times and up an average of 18.9%. The times it failed? The full year was down 0.2% on average and higher less than a coin flip.



If you want to investigate things more closely, here are all 38 times the S&P 500 held above the December lows. Hard to look at this any other way than in the years this has happened, it was a major clue the bull was alive and well.



Here’s the other side to things and unfortunately where things stand in 2025. What happened when the December low was violated? Once again, the full year returns were plain and simple much weaker. Just a quick glance and some of the worst years ever saw the December lows broken. Years like ’73, ’74, the tech bubble, ’08, and ’22 all made this infamous list. This doesn’t mean 2025 will be like those years. Still, this is one thing that undoubtedly is in my worry column.



So there you have it, some worries I have that have nothing to do with tariffs. I’ll be honest, it was nice not to talk about tariffs for a change.

 

Friday Before Presidents’ Day Weekend: S&P 500 Up 10 of Last 14

Trading before Presidents’ Day Weekend used to be horrible. However, there has been a noticeable improvement over the last 14 years. The longer-term track record of the market’s performance ahead of Presidents’ Day weekend from 1990 through 2010, shows DJIA, S&P 500 and NASDAQ suffered numerous and sizable declines especially on Friday. However, more recently, since 2011, the Friday before Presidents’ Day has been improving (shaded in light grey in table below). DJIA on Friday has the best record over the last 14 years, up 11 times with an average gain of 0.18%. S&P 500 has been nearly as strong, up 10 times, with an average gain of 0.19%.

 

DC, We Have a Problem


Over the last two years, markets have been able to tune out a pretty dour national mood, with the S&P 500 gaining 25%+ in 2023 and 2024. In fact, real GDP growth clocked in at 2.9% annualized over the last two years, above the pre-pandemic trend. Sentiment was downbeat, but this didn’t really crimp consumer spending. In our 2025 Outlook, we wrote that we expected this momentum to continue into 2025, with a potential boost coming from a turn in the national mood, i.e. “Animal Spirits.” We weren’t exactly calling for unleashing of these animal spirits but saw an opportunity for it to materialize. Well, we’re now close to Valentine’s Day, and animal spirits are yet to show up. Ryan wrote about a few market-based indicators that are flashing a yellow sign (beyond tariffs and the Eagles winning the Super Bowl!). Beyond those, the surveys are also not showing a pickup in confidence.

The University of Michigan Index of Consumer Sentiment pulled back over 3 points in February, falling to 67.8. That’s the lowest level since last August, and more than reverses the post-election bounce. The index is currently sitting well below the lows we saw during the height of the pandemic in April – May 2020. Another consumer confidence measure released by the Conference Board tells the same story. We have yet to get updated February numbers, but it fell 5.4 points in January to 104.1, the lowest level since last September.



Consumer expectations of their financial situation have risen significantly over the past year, but they’re still well below what we saw pre-pandemic and we haven’t seen a post-election surge in optimism about the future. Via a household survey from the New York Federal Reserve:

• 6% of respondents expect finances to be “somewhat better off” or “much better off” a year from now — higher than 34.2% a year ago, but below the 42.9% in February 2020.
• 21% expect finances to be “somewhat worse off” or “much worse off” a year from now — down from 23.5% a year ago, but well above the 10.5% in February 2020.
• The difference between the two was 15.6%-points — better than the 10.6%-point difference a year ago, but well off the 32.4%-point difference in February 2020.

Expectations appear to have plateaued, and simply put, that’s not great for animal spirits.



It looks like uncertainty over regulations and tariffs are hitting business confidence and outlooks as well. 146 out of 302 S&P 500 companies have referenced tariffs in their earnings calls so far, the most since Q2 2019. Most of them have yet to quantify the impact of it in their guidance, but that underlines the uncertainty, since we don’t have much clarity around tariffs. Half of the companies that reported also brought up currency issues in their earnings calls, saying that a strong dollar is putting pressure on overseas revenues (40% of S&P 500 company revenues originate outside the US). This is a risk we highlighted in our Outlook, i.e. a strong dollar (on the back of elevated rates and tariff rates) threatening S&P 500 profits.

A recent WSJ piece highlighted that tariff news (and whipsaws) have hit business leaders’ confidence. Priorities have shifted now to navigating tariffs and other policy issues, including settling new supply routes. They have to decide whether or not to raise prices, and remember, all this is before we have any idea of eventual policy that will be implemented (or lack thereof).

Uh, Oh Inflation
The consumer price index (CPI) rose 0.5% in January, above expectations, partly driven by a massive 15% increase in egg prices in just one month. Egg prices are up a whopping 53% since last year, thanks to a worsening bird flu situation. Even Waffle House went so far as to explicitly add an egg price surcharge of 50 cents on their menus. Energy prices have also crept higher, rising 1.1% in January. It’s still up just 1% since last year (gas prices are actually slightly lower), but households are never happy when energy prices go up, along with food prices.



Consumer expectations of inflation, as measured by the frequently cited University of Michigan survey, surged in February. One year ahead inflation expectations rose to 4.3%, the highest since November 2023 and only the fifth time in 14 years we’ve seen such a large 1-month increase. Five-year ahead expectations didn’t see a similar surge, rising from 3.2% to 3.3%, but even that is well above levels we saw before the pandemic.

Now one big issue with this survey is that it’s “contaminated” by politics. If you separate 1-year ahead expectations of inflation by party affiliation, this is what it shows:

• Democrats: 5.1% (up from 1.5% in October)
• Republicans: 0.0% (down from 3.6% in October)

In short, Democrats are expecting a big surge in inflation, whereas Republicans appear to be expecting a deflationary recession, which would be the scenario under which inflation hits 0% (though people who answer the survey probably don’t realize it’s an implied recession call).

Expectations for independents may hold a bit more signal here. They expect 1-year ahead inflation to be 3.7%, the highest level in a year. Usually, you see this kind of move only when gas prices surge, but nationwide average gas prices have risen just 10 cents to $3.14 since the beginning of the year. More likely, it’s the uncertainty about tariffs.



At the same time, a more robust survey from the New York Federal Reserve shows a more benign picture of inflation expectations. The sample size for this survey is larger, amongst other robust methodology choices. This survey showed that median 1-year and 3-year ahead inflation expectations were unchanged at 3%. That’s not too far above what we saw in 2019 (when it averaged about 2.5%). Still, things are on the upper edge of what would likely be comfortable for the Federal Reserve, which pays close attention to inflation expectations and see it as a key potential driver of future inflation.



Market expectations of short-term inflation expectations have also been rising recently. 1-year ahead inflation expectations have moved up to 2.8%, the highest since March 2023. I also calculated 1-year/1-year forward inflation expectations, which is inflation expected in the second year from now (roughly 2026). That’s risen to 2.7%, the highest since November 2022. “Normal” levels, at least going back pre-pandemic levels, were around 2.2-2.3%. Again, as I pointed out above, this is not because of higher oil prices (which have hovered in a fairly tight range recently). Instead, this is likely where the tariff uncertainty is being manifested. Interestingly, we didn’t see a similar increase in 2018 – 2019 amid the trade war, but this time around markets may be sensitive to the fact that we’re in a generally higher inflationary regime.



The good news is that longer-term inflation expectations, which is what the Fed cares more about, are consistent with their 2% target, though embedded into these is the expectation that the Fed will have to keep rates higher for longer. And that gets to the January CPI report, which was hot across the board on both headline and core measures (which excludes food and energy). Yet, the big picture is that inflation remains elevated due to lagged shelter and motor vehicle insurance data. Within shelter, it’s really owner’s equivalent rent (OER) that is problematic (the ”implied rent” that homeowners pay, which is based on market rents rather than home prices). OER makes up a big part of the CPI basket, as you can see in the table below, and it’s adding 0.44%-points to excess CPI and 0.54%-points to excess core CPI (excess relative to December 2019). Motor vehicle insurance is adding the rest of what’s excess for both headline and core CPI, while all the remaining categories are neutral.



We’re going to just have to wait for the disinflationary housing trends that show up in more real-time private measures be reflected in the official data. The problem is that this is going to keep the Fed on hold too, as they wait for official inflation data to get closer to their target. Again, the tariff situation only adds to this sense of uncertainty. Markets now expect the first rate cut only in July, with just about coin toss odds for a second cut in 2025. That’s still better than expectations for no cuts at all in 2025, but if the markets start to sniff out that no cuts are forthcoming in 2025, expect more volatility.

All in all, the mood seems dour, whether for consumers, businesses, or even at the Fed. That’s not what we need for a lift in animal spirits. It doesn’t mean the economy will go into a recession — we still believe underlying strengths will overcome some of these headwinds. But it could be the difference between an ok year versus a great year. And it’s not over yet by any means. Positive news on the tariff side, plus progress on a tax bill in Congress, could lift spirits. But that needs to happen first.

 

Longer-Term Weakness on Tuesday after Presidents’ Day Returns

Following a six-year streak of strength from 2012 to 2017, the market appears to have returned to its longer-term trading pattern on the Tuesday following the long Presidents’ Day holiday weekend. S&P 500 has been the weakest on Tuesday, down 6 of the last 7 with an average loss of –0.63%. DJIA and NASDAQ have one additional positive day, but their respective average losses exceed S&P 500 at –0.71% and –0.69%.

Going back to 1990, Tuesday after Presidents’ Day has been strongest for the S&P 500 with 18 gains and 17 losses with a median gain of 0.07% but with an average loss of –0.30%. DJIA is slightly weaker on the Tuesday after, but NASDAQ is a net loser down 22 of 35 years with an average loss of –0.57% and a median loss of –0.34%.

Wednesday is all red for all three major averages. NASDAQ and S&P 500 have more losses, but DJIA is a loser as well. On the Wednesday after the Presidents’ Day holiday DJIA is down 18 of 35 with an average loss of –0.10% and a median decline of –0.10%. S&P 500 is down 21 of 35, average –0.07%, median –0.10% and NASDAQ is down 20 of 35, average –0.11%, median –0.18%.