Daily Stock Market Articles

Why This Valentine’s Day Wasn’t Red, It Was Green


“There are no bad assets, only bad prices.” Howard Marks, Co-chairman of Oaktree Capital Management

As of last Friday, the S&P 500 was only 0.07% away from yet another new all-time high. It is up a very solid 4.0% year to date, after gaining 23% last year and 24% in 2023. (Both were over 25% if you include dividends.) What stands out to me is how broad this rally has been, with all 11 sectors up on the year and seven outperforming the S&P 500. We’ve been in the camp that this year would see more broadening out and we fully expect this to continue. It isn’t about only seven companies anymore.



Beware the Calendar
Let’s get the bad news out of the way. Be aware the calendar isn’t doing anyone any favors right now. We’ve noted recently that February in a post-election year tends to be quite weak, but it is really the second half of the shortest month of the year when most of the pain comes. We are still quite bullish overall, but our take here is to be open to some choppy markets over the coming weeks, as that would be perfectly normal.

Here are two ways to show what I’m trying to say, with both showing things tend to turn right around Valentine’s Day.





The table above is always a fan favorite and it is good to see that my birthday (October 28) is still the most bullish day of the year.

The Valentine’s Day Indicator
Now for the good news. Stocks are up more than 3% year to date as of Valentine’s Day (+3.97%) and this is historically a great sign. We dubbed this one the Valentine’s Day Indicator and it suggests a good deal of green could still be in store in 2025.

We found 32 other times the S&P 500 was up more than 3% YTD as of Valentine’s Day and the rest of the year was up an incredible 30 times with an average return over the rest of the year of nearly 14%! This is well above the average rest-of-year return of less than eight percent.



Take a closer look at the table above and you’ll see the past seven times the Valentine’s Day Indicator triggered, the rest of the year was up double digits every single time. Yes, this is just one indicator, but this does little to change our stance of remaining overweight equities with a full year forecasted return of 12–15% for the S&P 500.

 

Post-Election Year Q1 Weak Spot Volatility Happens

China’s DeepSeek AI panic is just another trigger for a market selloff in the Q1 weak spot of Year 1 of the 4-Year Cycle. Following the solid gains of typical pre-election and election years, the flat to mildly negative Q1 of post-election years is a notable transition. Breaking the 4-year cycle down by quarterly performance in this bar chart gives a clear view of Q1-post-election-year weakness.

Potential reasons for this lull in the 4-year cycle are numerous, but the uncertainties of a new administration coming to Washington, D.C. are high on the list. The obvious reset of the cycle is a strong possibility. Two years of solid gains, fueled by election spending, result in elevated market valuation. This combination of big gains and an uncertain outlook has led to profit taking in the past and it is playing a role now. Not to mention economic, geopolitical, and monetary policy concerns.

But prospects for 2025 remain encouraging. Post-election years have improved since WWII and since 1985 DJIA averages a gain of 17.2% with eight up years and two down. This is the best average gain of the four-year cycle over this period. Despite today’s selloff my Base Case 2025 Forecast scenario is still the most likely with full-year 2025 gains of 8-12%. But gains are not as likely to be as free flowing as they were over the past two years and volatility is likely to remain elevated.

 

February Monthly Options Expiration: Bullishness Fading

February’s monthly option expiration week has had a bullish lean over the past 31 years, but it has faded over the last five years. Weekly average gains fall in a range of 0.26% by S&P 500 and NASDAQ to 0.42% by DJIA. Based upon the number of positive weeks, DJIA has the best track record. From 2006 through 2019, S&P 500 was up 12 of 14, but has been down the last five straight during February’s monthly expiration week. Monthly option expiration Friday and the week after have a bearish record with average losses over the last 31 years.

 

When S&P 500 is Up in January and February Full-Year Record Nearly Perfect

As of today’s new all-time high close S&P 500 is up 1.72% so far this February. Should S&P 500 hold onto its gains this February, odds for a solid full-year further improve as its historical performance after a positive January (+2.7% this year) followed by a positive February have been nearly perfect with just one fractional loss in 32 years and only two declines in the last 10 months of the year since 1938.

 

Animal Spirits Are Flagging, but There’s Plenty of Time to Get Back on Track


Let’s get it on the table. Of all the charts that raise concerns for me about the economy right now, despite a still solid base case, the one below worries me the most. Not for what it represents in itself but for what it says about where we are in the cycle in general. The unemployment rate has been rising. When it rises, it could mean trouble. At the same time, it should not be misconstrued. Economic momentum remains well in place, policy still has strong potential to keep that momentum going, and we still have strong conviction that the expansion continues in 2025.



But there is increasing risk that some of the opportunity from a rise in animal spirits that we discussed in our Outlook 2025 may be squandered. But even so, that likely would mean just an ok rather than a good economy, as discussed yesterday in a thoughtful post by our Global Macro Strategist Sonu Varghese, “DC, We Have a Problem.” And an ok economy would be plenty to support profit growth and equity markets.

Still, there is some risk at the margin that an uncertain policy environment actually suppresses animal spirits, and policymakers, including the Federal Reserve, Congress, and the president, should be mindful of this chart. We are not in late 2016, when unemployment was falling but a slowing economy had created an economic springboard that amplified the impact of a business-friendly policy environment. To the contrary, unemployment has already started rising while the economy over the last few years has actually been pretty good. Despite short-term interest rates rising to their highest level in over 20 years, the US economy grew robustly in 2023 – 2024, outpacing (by just a small margin) the pre-pandemic period from 2017 – 2019. The levers for policy to have an impact are there, but it won’t be as easy this time around and policymakers should stay laser focused on the economy.

This chart does warn that rising unemployment off its low can have a snowball effect, but there are also times when the unemployment rate has remained relatively stable at a low level for years or even made a new low. Still, you’re at greatest risk of a snowball effect when you’re at the top of a hill, not the bottom. The economy is strong right now and that creates some vulnerability to shocks because there’s a lot to potentially unwind if things get rolling. At the same time, we do not see the extended extremes in confidence, borrowing, or spending that mark the most vulnerable economies.

For some context, since 1950 the unemployment rate has reached its low a median of seven months before the start of a recession, but has been as early as just being coincident (2020) and as delayed as 16 months early (1990). Be careful with that stat, because we don’t know for sure that we won’t still establish a new low for the cycle. The current low of 3.4% was reached in April 2023, 21 months removed from the latest data point. But rather than taking that as a warning that a recession is “due,” we should take it as a sign that there are some risks but there have also been some stabilizers in place, some of which we highlight in our Outlook. Economic expansions don’t die of old age, but the longer it goes on, the greater the likelihood that complacency, and perhaps excesses, build up.

In fact, that’s what markets have been telling us as well. To show that we should never get too caught up in one signal, the unemployment rate low has historically roughly coincided with the market peak before a recession. Markets are forward looking and often very good at sussing economic risks and they have often detected when good news is bad news. That’s not what markets have been telling us in the current expansion. Markets have been sending a strong signal that economic risks are still fairly muted. In fact, the last S&P 500 all-time high was on January 23 and we may get a new one today (and believe it’s likely we see additional gains throughout the year).



So we take this all to be more of a cautionary tale. The flurry of activity from the Trump administration since inauguration day on January 20 has increased uncertainty for businesses in the near term, making it more difficult for them to plan and more reluctant to take risk. Because of that, as discussed in Sonu’s piece, we have actually seen signs of the initial surge in animal spirits become more muted. However, more pro-cyclical fiscal policy lies ahead and could be significant. At the same time, we think the Trump administration, Congress, and the Federal Reserve should be aware of economic risks and more focused on supporting the economy. Right now it feels a little like Republicans are making the same mistake that led to Democrats losing the presidency and Senate in 2024. Democrats neglected to put the economy at the center of their platform. Surprisingly, Republicans seem to be doing the same thing, just from the perspective of the other side of the aisle. But it’s still early and there’s plenty of time to get back on track.

 

Get Invested: There's Always Light...
Fri, Feb 21, 2025

Through wars, assassinations, bankruptcies, and crashes, the US stock market has always gone on to make new highs. A wise investor once said: “Never bet on the end of the world, because it only happens once.”



Get Invested: Embrace Market Declines
Mon, Feb 24, 2025

Emotions and investing don’t mix. Emotional investors tend to sell when the market is going down and buy when the market is going up. They should be doing the opposite. As shown below, if you only owned the US stock market on the day after up days since SPY began trading in 1993, your cumulative gain would be just 44%. If you only owned the market on the day after down days, you’d be up 851%!

 

Streaky
Mon, Feb 24, 2025

Lost amid all the selling in equities last week was the fact that crude oil and gold both closed out the week with significant streaks of losses and gains. For crude oil, last week's decline of 0.5% was only modest, but it extended the current streak of declines to five weeks in a row. As shown in the chart below, this is the longest streak of weekly declines for black gold since December 2023 and just the 26th losing streak of five or more weeks since 1985.



Ironically, even though crude oil is down five weeks in a row, the total decline has been less than 10%. The ETF that tracks crude oil - USO - was near a 52-week high earlier this year, but even after the recent declines, it closed out last week right in the middle of its trading range and sandwiched between the 50 and 200-day moving average. Coupled with some of the weak economic data, though, the weakness in crude is adding to concerns that the economy is slowing down.



Unlike crude oil, which has been moving lower, gold has surged. Last week capped off the eighth straight week of gains, which is the longest winning streak since July 2020. Additionally, since 1985, there have only been five other streaks that lasted eight or more weeks and only three lasted longer.



A look at recent trading in the Gold ETF - GLD - shows that a ninth week of gains may be harder to achieve. As the price of gold has surged, the rally has taken its price to the top end of its trend channel that has been in place since last spring. That doesn't mean it can't keep rising, but it just illustrates how extended gold has gotten on a short-term basis.

 

A Time For Market Patience Turn Turn Turn

Buying the dip? Mega cap techs? Perhaps waiting makes sense. It feels like a correction is in the works. Note typical seasonal February and Post-election year Q1 weakness in the charts. S&P hit an ATH last week with poor breadth. President Trump is shaking things up like never before. Meanwhile, we are not even down 5% yet (except for R2K) and a retest of the election gap would only be a 6% correction for SP500.

 

Mighty Mid-Caps


Mid-Cap stocks have had a strong start to 2025. The iShares Russell Mid-Cap Growth ETF (trading under IWP) has outperformed both the S&P 500 and the Nasdaq 100 ETFs so far this year. In fact, the recent surge in this index is reaching historical levels, with concentration in the index at a decade-high. This heightened concentration is driven by a handful of explosive companies in the index.

The Mid-Cap Growth Index (proxied by IWP) has outpaced broader market indices so far in 2025. Through February 20th, according to FactSet data, IWP has returned just over 6%, compared to a 5% return for the Nasdaq 100 ETF (QQQ) and 4% for the S&P 500 ETF (SPY). Prior to a decline on February 20, IWP had posted even stronger gains, with more than five percentage points of outperformance leading into last week.

The recent increase in the index’s volatility may be partly attributed to its historic concentration. Due to the index’s annual rebalance in June, its more volatile constituents can drive significant price swings between rebalancing dates. Currently, the three largest holdings in the index account for 9.94% of its total weight (as of 1/31/2025, FactSet data)! That represents the highest index concentration, by this measure, in the last 10 years, and nearly three times the 2015 – 2023 average of 3.8%. This marks a historic surge for some of the index’s top constituents.



Powering the index’s recent move are Palantir (PLTR) and AppLovin (APP), currently the two largest stocks in the index. Palantir, best known for its data analytics software, delivered a strong earnings beat in its February 3rd report, sending the stock soaring nearly 24% the following day. While Palantir may trade at a high valuation, stock price movements often reflect a “better or worse” dynamic rather than a simple “good or bad” assessment. In that sense, Palantir’s recent large upward revision in earnings estimates signal a significantly better outlook than previously expected. Since June 2024, Palantir’s 2025 earnings per share expectations have increased by 35%, while 2026 estimates have increased by 45%, according to FactSet consensus estimates.



AppLovin has experienced a similar surge. The company, known for its mobile gaming advertising business, has thrived following Apple’s IDFA tracking changes. The company’s 2025 earnings per share expectations have increased 77% since June 2024, with 2026 expectations soaring by 110%, according to FactSet consensus estimates. Both companies demonstrate the potentially higher earnings growth that investors look for when investing outside of larger market indices.



The Mid-Cap Growth Index’s recent outperformance has been fueled by high-growth stories. With index concentration at its highest level in a decade, investors may benefit from understanding the growth drivers behind its largest constituents. Palantir and AppLovin have powered much of the index’s gain, and their rising earnings expectations appear to be a key catalyst. With the index’s annual rebalancing scheduled for June, the Mighty Mid-Caps may remain volatile until the reshuffling occurs.

 

Get Invested: Odds That Can Beat "The House"
Tue, Feb 25, 2025

Our "Get Invested" series is a simple yet powerful resource designed to help anyone understand why investing in stocks for the long term is one of the best financial decisions they can make. The slide below from our Get Invested piece is titled "Odds That Can Beat The House."

Casinos make money making sure bettors eventually lose more often than they win. The stock market is the opposite. The longer you play, the better your odds. Historically, the odds of the S&P 500 being up over all one-month periods has been 63%. Over a year, the odds of a gain jump to 75%, and they jump to 94% over six years. Since 1928, all 16-year time frames have seen positive returns.

 

Get Invested: Time Heals
Wed, Feb 26, 2025

Our "Get Invested" series is a simple yet powerful resource designed to help anyone understand why investing in stocks for the long term is one of the best financial decisions they can make. The slide below from our Get Invested piece is titled "Time Heals."

The stock market can be very forgiving if you give it time. The four worst times to buy equities over the last forty years were in September 1987 (before the 1987 crash), March 2000 (before the dot-com peak), October 2007 (before the Financial Crisis peak), and February 2020 (before the COVID crash). Since each of those four ill-fated buy points, US stocks have still returned at least 7.7% on an annualized basis and have outperformed bonds over all four spans.