Topic: Market Outlook

  • Market Recap: Q3 2025

    A Review of Investment Trends and Insights

    Record Concentration

    • Federal Reserve reduced interest rates for the first time since 2024 following weakening labor market data.
    • Declining interest rates helped drive US small cap stocks and bond markets higher during the quarter.
    • Investment in artificial intelligence drove the S&P 500 to record concentration levels as leadership narrowed in the Third Quarter.

    What Happened in the Third Quarter?

    The first interest rate cut since the end of 2024 and why it happened were important events in the Third Quarter of 2025. The Federal Reserve had been consistent with their messaging – interest rate cuts would largely be determined by any weakness in the labor market. During the quarter, there became signs the labor market was slowing down. There were large revisions to previous estimates of job creation, showing that the economy had created fewer jobs than first assumed. With inflation still comfortably above their 2% target, Federal Reserve officials were still comfortable reducing the Federal Funds Rate by 0.25% in September, reflecting the slowing jobs market. During the lead-up to the interest rate cut, equity markets were led by interest-rate sensitive markets such as small caps, which had strong results during the quarter (Russell 2000 TR Index rose +12.39%). Bond markets also benefitted from the decrease in interest rates, with the Bloomberg Barclays US Aggregate Bond TR Index rising +2.03% during the quarter. Leadership within the S&P 500 Index narrowed again during the quarter, as the largest companies (and most exposed to artificial intelligence investments) drove the index higher – detailed more below.

    Index Diversification in the Spotlight One defining characteristic of the past three-to-five years in the US equity markets is the increasing concentration in the S&P 500.  The degree to which the S&P 500 has narrowed has led to many investors asking “is an S&P 500 Index investment still diversified?”. By any measure – the S&P 500 Index is more concentrated in the largest companies than any other time since at least the mid-1960’s.

    The top 10 companies in the S&P 500 make up 40% of the index market capitalization- meaning for every $1 invested in the S&P 500 Index, $0.40 goes into 10 companies. This compares to an average top 10 concentration closer to 23% over the past 30 years. Similar measures reflect the magnitude of concentration: Nvidia became the first 8% or greater position since IBM in 1969, Top 5 companies reached almost 28% of the index (highest since at least 1966).

    The “why” of index concentration is also an important question- JPMorgan and Berkshire Hathaway are the only two Top 10 members that aren’t technology/technology-related companies. The significant capital expenditures related to artificial intelligence has shaped market composition: Magnificent 7 companies have doubled their annual capital expenditures since 2023. Investors will continue to be focused on the return-on-investment of this record investment, as well as the benefit to the other 490+ companies in the equity market.

    Impact of US Dollar Trends

    After falling almost -11% in posting its worst first half of a year since 1973, the US dollar rallied mildly during the Third Quarter. The weakness in the dollar has been a tailwind for international assets, such as international equities in investor portfolios. Converging growth rates and interest rate differentials globally, along with the high starting value of the US dollar heading into this year, leaves the possibility for an extended period of weakness, similar to 2002-2008. This period was also the last time international equities outpaced US equities for an extended period of time. Outside of currency trends, unlike the S&P 500 the international markets have a much lower degree of concentration in the largest companies: MSCI EAFE Index has roughly 12.7% of its market capitalization in the Top 10 holdings.

    What’s Ahead for the Fourth Quarter?

    Monetary policy is squarely in investors’ focus heading into the Fourth Quarter of 2025, with two subjects in focus. First, the path of interest rate cuts: what is the likely hood of additional interest rate cuts in 2025? With weakening in job market data in September, investors were assigning a high likelihood of rate cuts (0.25%) during the October and December Federal Reserve Open Market Committee meetings. This would mean an additional 0.50% reduction in short-term interest rates by the end of 2025, which would lower the yield on cash/cash-related investments (i.e. money market investments). Second, the composition of the Federal Reserve is also in focus, via both terms ending and attempts to replace members prior to the end of their respective term. This will have a significant impact on additional interest rate cuts heading into 2026.

    Markets in Review

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    William Winkeler

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  • Federal Reserve Cut Rates – Now What?

    As expected, the Federal Reserve reduced the Federal Funds rate by 0.25% today, the first rate cut since December 2024. What can investors expect going forward following the reduction in short-term interest rates? First off, some of the impact is “priced in” in advance of the actual rate cut, as investors and financial markets are forward-looking. That being said, there are some general reactions to expect:

    Short-Term Savings and Liabilities

    • There will be a very tangible effect here – the yield or interest on short-term savings vehicles such as money market funds will drop relatively quickly to reflect the lower rate from the Federal Reserve.
    • Floating-rate loans (i.e. home equity lines of credit, securities-based loans, credit card loans) are often based on Secured Overnight Financing Rate (SOFR) (replaced LIBOR), which tracks Federal Funds rate closely. There should be a reduction in the interest on floating rate loans.

    Mortgage Rates

    • Fixed rate mortgages are the dominant structure in the United States, and the impact of lower Federal Funds rate can be limited on 15-year and 30-year mortgages.
    • These types of fixed mortgages are based off the yield of longer-term Treasuries, plus a risk spread associated with underwriting and issuing the mortgages.
    • Longer-term Treasuries reflect expectations for future economic growth and inflation and are not set by the Federal Reserve.
    • This is also an example of investors pricing-in future events: 30-year mortgage rates hit their lowest level of the year before the interest rate cut was announced.

    Stock and Bond Investments

    • The impact on the stock market can vary- certain sectors and size companies have a greater sensitivity to short-term interest rates. The catalyst for the rate cut is more important for the stock and bond markets- i.e. are the rate cuts due to an impending recession?
    • For example, small cap stocks use significantly greater floating rate financing compared to large cap stocks. Falling short-term interest rates are expected to boost small cap stock earnings. This is one reason why small cap stocks have outperformed large cap stocks in the US since June 30th.
    • Bond investments will generally benefit from the interest rate cuts but like fixed mortgages, the exact impact is more nuanced. When prevailing interest rates fall, the value of existing bonds increases in value. The benefit for bond investments will be reduced if longer-term yields stay higher or increase, similar to what happened after the rate cuts in 2024.

    Rate cuts bring both opportunities and challenges, and staying informed and proactive can help you navigate the shifts with confidence. Since every situation is unique, we’d be glad to review how these changes may affect your goals—let’s start the conversation.

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    William Winkeler

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  • Market Recap: August 2025

    A Monthly Review of Investment Trends and Insights

    Month in Review

    • Increased likelihood of an interest rate cut in September helped to push stocks higher, along with another quarter of strong earnings. The S&P 500 TR Index finished August +2.03% higher.
    • US small cap stocks led all equity markets higher, as the combination of inexpensive valuations and potential interest rate cuts proved to be a tailwind in August. The Russell 2000 TR Index rose +7.14% in August, bringing the return since 6/30/2025 to +9.00%.
    • Reversing July’s rally, the US Dollar fell again in August, providing an additional boost for international stocks denominated in US dollars. The MSCI EAFE NR USD Index rose +4.26% for the month, taking the YTD 2025 rally to +22.79%.
    • The likelihood of a September interest rate cut pushed short-term bond yields lower, helping to drive a +1.20% monthly rally for major bond markets (Bloomberg Barclays Aggregate Bond TR Index). It is important to note that longer-term bond yields actually rose slightly during the month.

    Small Caps Shine in August

    US small cap stocks, which are in the midst of one their longest period of underperformance versus US large caps, rallied sharply in August (Russell 2000 TR Index +7.14%, S&P 600 TR Index +7.06%). The primary reason – clarity around the now widely expected interest rate cut in September.

    US small cap stocks have significantly greater exposure to short-term interest rates, having nearly 5x the amount of floating rate debt compared to the S&P 500 (chart below). Given that the Federal Funds Rate, the anchor for floating rate debt rates, has been above 4% since December 2022, small cap debt service costs have also been elevated. Effective annual debt cost for the Russell 2000 Index is closer to 7%, significantly higher than the effective rate for the S&P 500, which had more companies issue longer-term, fixed rate debt.

    The nearly 12-year period of underperformance versus large caps has driven small caps to represent less than 4% of the overall US stock market, much lower than the 7% long-term average. The start of an interest rate cutting cycle is one element that could benefit small cap stocks. Their valuations are also much lower than US large cap stocks, which could also be a tailwind if the economy continues to expand, and catalyze increased representation of small caps.

    What’s on Deck for September?

    • The Federal Reserve Open Market Committee (FOMC) announces their decision to change interest rates on September 17th. As of August 31st, markets are assigning a roughly 90% probability that the FOMC reduces the Fed Funds Rate by 0.25%.
    • The Federal Reserve staffing is also in the spotlight. In August, President Trump announced intentions to remove Fed governor Lisa Cook, on allegations of mortgage misrepresentation. No Fed governor has been fired since creation of the Federal Reserve in 1913. The outcome will be watched closely by investors as there are implications for Fed composition and approach to monetary policy. 

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    William Winkeler

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  • Market Recap: July 2025

    Month in Review

    • Strong US earnings powered markets higher in July (+2.24%, S&P 500 TR Index), led by Technology and growth stocks. Microsoft joined Nvidia in becoming the second $4tn market cap company in history.
    • US large cap growth stocks finished the month up +3.78% (Russell 1000 Growth TR Index), pushing concentration higher in US large cap indices. The top 10 companies in the S&P 500 Index now represent nearly 40% of the index, the most concentrated in at least 50 years.
    • Nvidia’s 8% weight in the S&P 500 as of 7/31/2025 is unusually high relative to the history of the index. For comparison, the 8% weight of the single company is nearly equal to the weight of the entire Industrials Sector in the S&P 500 index.
    • International stocks fell -1.40% (MSCI EAFE NR USD Index) during July, as the US Dollar rose sharply against most major currencies. The MSCI EAFE NR USD Index still stands at +17.77% YTD.
    • Major bond markets fell slightly in July (-0.26%, Bloomberg Barclays Aggregate Bond TR Index), as investors digested the outlook for the economy and monetary policy.

    Diversification with Bonds

    The sharp increase in inflation rates in 2021-2022 not only resulted in a significant drawdown for bond indices, but also sharply shifted the relationship between stock and bond prices. The correlation of US stocks and bonds increased to the highest level in 30 years in 2022, which had real implications for investors: the bond allocation did not provide a ballast during the equity market volatility.

    Historically, periods of sustained higher inflation have resulted in a positive correlation between US stocks and bonds (meaning a reduced diversification benefit). From 2001 to 2022, the short- and long-term correlation between US stocks and bonds stayed negative, meaning bond prices rose when stock prices fell. After resetting higher to positive territory in 2022, recent short-term correlation measures have recently shifted negative again, as the Federal Reserve has begun to normalize monetary policy.  

    The chart illustrates the one-year correlation between US stocks and bonds, annotated with monetary policy developments. As investors have become more comfortable with the inflation outlook, the diversification benefit of bonds is beginning to return to portfolios.

    What’s on Deck for August?

    • Second quarter of 2025 earnings reports will wrap-up in August. Through July 28th, 32% of the S&P 500 companies had reported, 77% beat earnings estimates with a reported earnings growth of +5.5% year/year.
    • The Federal Reserve Open Market Committee (FOMC) left interest rates unchanged in July. The Committee does not have a regular committee meeting in August; rather they have their annual symposium at Jackson Hole. Investors will be monitoring the meeting and communication for any insight as to the likelihood of an interest rate cut in September.
    • Trade policy will again be front-of-mind as the August 1st deadline approaches for trade deal negotiations.

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    William Winkeler

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  • Market Recap: June 2025

    Month in Review 

    • Easing geopolitical and trade pressures helped to lift equities higher in June, as corporate fundamentals continued to show signs of improvement.  
    • The US Dollar (DXY Index) fell -10.8% for the year ending June 30th, marking the sharpest first half decline for the currency since 1973. This provided a boost to US investors holding international assets, as detailed below.  
    • The S&P 500 completed its recovery from its roughly -19% decline, making new all-time highs and standing at +6.20% YTD (S&P 500 TR Index). In June, US small cap stocks (Russell 2000 TR Index) and US large cap growth (Russell 1000 Growth TR Index) stocks rose +5.44% and +6.38% respectively.  
    • Long-term interest rates declined from highs during the month, which helped to push major bond markets higher. The Bloomberg Barclays Aggregate Bond TR Index rose +1.54% during the month of June.  

    Income Opportunity in International Equities  

    International equity markets are enjoying a strong start to 2025, with the broad-based MSCI All Country World Ex-USA Index (“MSCI ACWI Ex-USA”) returning +17.90% in 2025 through June 30th. The depreciation of the US dollar has provided a significant boost to US investors holding US dollar denominated international exposure, adding over 9% to YTD 2025 results versus local currency international equities (MSCI ACWI Ex-USA Local Currency).  

    In addition to the benefits of currency diversification, there are attractive income opportunities for growth and income investors. The MSCI ACWI Ex-USA has a trailing dividend yield of 2.86%, compared the S&P 500’s trailing dividend yield of 1.28%. The S&P 500’s dividend yield is below its long-term average, reflecting underlying trends within the index. Within the S&P 500, only 14.7% of the Index has a yield greater than 3%, compared to 27.7% for the Russell 1000 Value and 45.8% for the MSCI ACWI Ex-USA Index. This largely reflects the increased concentration in more growth-focused sectors such as Technology and Communication Services within the S&P 500.  

    The currency diversification and higher dividend yield offered by international equities complements more growth-focused US equity exposure, a key tenant of maintaining diversified portfolios for long-term investors.  

    What’s on Deck for July?  

    • As of time of writing, there is an early July deadline for re-negotiating outstanding trade deals. Progress on trade will be followed closely by investors.  
    • The Federal Reserve Open Market Committee (FOMC) meets on July 29th and July 30th to decide any changes to policy and short-term interest rates. As of 6/30, there is a 21% chance of a 0.25% rate cut at the July meeting. The so-called “dot plots” released on June 18th indicate the FOMC is expecting to cut rates by 0.25% twice in 2025.   
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Market Pulse Monthly: April 2025

    Month in Review

    • April was a volatile month for stocks, bonds and currencies as investors digested the implications of rapidly changing trade policies.
    • After hitting a high level for 2025 on February 19th, the S&P 500 fell nearly 19% through April 8th. The index recovered from those levels, ending April down just -0.68% for the month and ending April at -4.92% YTD.  
    • Other equity markets finished April on a stronger note, such as Developed International (MSCI EAFE NR Index) equities. The MSCI EAFE continued its strong 2025 through April, finishing the month up +4.58%, bringing YTD 2025 returns to +11.76%.
    • Outside of equity markets, the bond market recovered after a choppy start to April, with the Bloomberg US Aggregate Bond TR Index finishing April +0.39%, illustrating diversification benefits from bond allocations in portfolios.

    US Dollar Decline

    One surprise in 2025 has been the US dollar and the price movements versus other major currencies. Unlike major stock and bond markets which have recovered from late March/early April, the US dollar continues to fall versus major currencies. The US dollar depreciating, while US stocks are down, is a shift in behavior over the past 15-20 years: the US dollar had largely strengthened during times of uncertainty. The decline of the US dollar has had a significant impact on equity markets already in 2025: year-to-date international equities have outperformed the U.S. by the largest margin since 1993 (roughly 14%). While international valuations were cheaper, the shifting economic outlook and change in the US dollar made significant contributions to strong results YTD for international equities.

    Investors are also weighing the impact of reduced international trade, something that is likely contributing to the US dollars decline. Any long-term reduction in trade could lessen demand for US dollars, another major long-term trend that could be shifting.

    What’s on Deck for May?

    • Earnings for the first quarter of 2025 will be reported through May, with investors focusing on forward guidance given the changes in trade policy in 2025.
    • The Federal Reserve meets on May 7th, but markets are not expecting any change to interest rate policy at this meeting.
    • Ahead of the July extension, investors will be monitoring for any new trade deals.
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    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Market Pulse: Quarter 1, 2025

    The first quarter of 2025 has been a period of dynamic shifts in global financial markets, marked by evolving economic policies, heightened uncertainty, and increased volatility equity markets. In this edition of Market Pulse, we analyze key investment trends, including the broad rotation from growth to value stocks, the resurgence of international equities, and the stabilizing role of fixed income markets.

    Despite market volatility, history reminds us that corrections are a natural and expected part of long-term investing. The recent pullback in the S&P 500, while significant, aligns with historical trends, reinforcing the importance of diversification and disciplined investment strategies. International markets, buoyed by fiscal stimulus measures, have provided investors with new opportunities, while fixed income markets have continued their recovery.

    Looking ahead to the second quarter, trade and fiscal policy developments will remain critical factors shaping investor sentiment. By maintaining a strategic and diversified approach focused on their objectives, investors can navigate uncertainty and capitalize on emerging opportunities. On behalf of Confluence Financial Partners, we thank you for your continued trust and confidence.

    Bill Winkeler, CFA, CFP®
    Chief Investment Officer

    Diversification Renaissance


    • Uncertainty around the implementation of new policies and softening economic data weighed on markets
    • S&P 500 had its worst quarter since 2022 and its first correction (> 10% decline) since October 2023, an event that historically happens roughly 1.5 years
    • This sparked a rotation away from Magnificent 7 and Technology stocks to Value and International stocks, with international stocks posting their best relative quarter in over 25 years

    What Happened in the First Quarter?


    Investors spent the first three months of 2025 digesting the implementation of new policies, along with a shifting outlook for the economy. While “uncertainty” is often over-used, measures of uncertainty around trade and outlook for the economy spiked to very high levels, as investors sought more clarity around tariffs and related trade policies. The increase in uncertainty, combined with some softening of economic data (for example a mild increase in unemployment), helped to drive the first correction (decline greater than -10%) in the S&P 500 since October 2023. Previous market leaders – the “Magnificent 7” growth companies in the S&P 500 Index, were hit harder than the rest of the market, falling roughly -15% during the quarter. Importantly for investors, other equity markets and fixed income markets provided diversification benefits in the first quarter, and S&P 500 earnings expectations for 2025 have remained largely stable.

    Diversification Means “You’re Always Having to Say You’re Sorry”
    The old adage for diversified investors was invoked frequently in 2023 and 2024, in an equity market led by a handful of US large growth companies. Early in 2025, diversified investors have had the chance to say “thank you”, as investors have rotated away from US large cap growth companies, into large cap value stocks, international stocks and bonds. Even within the S&P 500 Index, the Magnificent 7 Stocks fell roughly -15%, while the remaining 493 stocks in the S&P 500 Index were flat for the quarter.

    Sources: Morningstar, Average S&P 500 Stock = S&P 500 Equal Weighted TR Index, US Large Caps = S&P 500 TR Index, US Large Cap Value = Russell 1000 Value TR Index, US Large Cap Growth = Russell 1000 Growth TR Index, US Small Cap = Russell 2000 TR Index, Developed International = MSCI EAFE NR Index, Emerging Markets = MSCI Emerging Markets NR Index, Core Bonds = Bloomberg US Agg Bond TR Index

    The start to 2025 for international stocks has been one of the strongest in the past 25 years, as US investors benefitted from both rising foreign stock prices and the depreciation of the US dollar. International equities have been inexpensive but lacking strong fundamental catalysts, which began to change during the quarter. In Europe, Germany introduced a very large fiscal spending package to stimulate their economy, the largest in their history (exceeds the Marshall Plan and Reunification). The changing attitudes towards spending by European countries has been well received by investors.

    Results for fixed income investors continued the positive trend in the first quarter of 2025 as well. After the worst calendar year in its history in 2022 (-13.01%, Bloomberg US Aggregate Bond TR index, data back to 1926), the bond index posted a gain of +2.78% in 1Q2025. This follows consecutive calendar year gains in 2023 (+5.53%) and 2024 (+1.25%). Interest rates have declined across the yield curve, with the 10-year Treasury yield finishing the quarter at 4.23%, down from intra-quarter highs of 4.79%.

    Very Average Correction

    In the previous edition, we noted that 2023 and 2024 were very strong years for the US equity market “The strong year for the S&P 500: 57 new all-time highs and consecutive +25% calendar year gains, was thanks in very large part to the largest companies in the index.” Early in 2025, investors were reminded that volatility is a very normal and common feature of equity market investing. From February 19th, the S&P 500 fell over -10% in less than 30 days, making it the 11th fastest correction since 1928. Quickness aside, the frequency was very average – 60th correction since 1926, the first since October 2023, right on the historical average frequency. Investors may be wondering if this will turn into a bear market (a decline greater than -20%): while no one has a crystal ball, out of the 59 previous corrections since 1926, only 17 ended up turning into a bear market (roughly 29%). The S&P 500 recently experienced a bear market in October 2022.

    Source: First Trust, Bloomberg. Data from 4/29/1942 – 2/28/2025. Past performance is no guarantee of future results. For illustrative purposes only and not indicative of any actual investment. Investors cannot invest directly in an index.*Correction cycles are determined by identifying market declines in excess of the minimum declines noted above. The cycle ends when there is a recovery of the magnitude of the minimum decline needed for that correction size (i.e., a recovery of greater than 5%, 10%, 15% or 20%). After that recovery is noted, the algorithm begins searching for the next decline to start the cycle again. **Measures from the date of the  market high to the date of the market low. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance.

    Corrections and bear markets, along with normal intra-year declines, are the toll investors pay for the long-term results of equities. Since 1980, the S&P 500 TR Index has had average annual declines of roughly 14% every year but still finished the calendar year in positive territory 75% of the time. This illustrates the importance of staying invested during volatility and ensuring that your investment portfolio is aligned with your objectives and financial plan.

    What’s Ahead for the Second Quarter?

    Changes to trade policy are having a tangible effect on investor and consumer sentiment, with the potential to negatively impact economic growth. Both investors and the Federal Reserve are looking for greater clarity on how additional tariffs could be implemented, which will play a key role in any changes to the Federal Funds Rate in 2025. Within fiscal policy, any changes to tax policy in the United States are trending towards happening later in 2025, but developments there will be watched closely by investors. As discussed, international equities have benefitted from a strong fiscal impulse from Europe, with the implementation likely to be in focus during 2Q2025.

    Markets In Review

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    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Stock Market Recap – February 2025

    Month in Review

    • After a positive start to 2025, equity markets were choppy in February following mixed economic data and increasing uncertainty.
    • In February, large cap stocks (S&P 500 TR Index) fell -1.30%, dragged slightly lower by large cap growth stocks (-3.59%, Russell 1000 Growth TR Index). Small cap stocks in the US also fell, with the Russell 2000 TR Index declining -5.35% in February.
    • Stock and bond markets were led by core bonds (+2.20%, Bloomberg US Aggregate Bond TR Index), developed international stocks (+1.94%, MSCI EAFE NR Index), and large cap value (+0.41%, Russell 1000 Value TR Index) during the month.

    Broadening Participation in the Bull Market

    With two months in the books, early in 2025 investors have seen signs of broadening participation in the bull market that started in October 2022. From an asset class lens, developed international stocks (MSCI EAFE NR Index) are off to a strong start this year, rising +7.30%, compared to +1.44% for the S&P 500 TR Index. Value stocks are also leading growth stocks in 2025, with the Russell 1000 Value TR Index rising +5.05% versus large cap growth (Russell 1000 Growth TR Index) falling -1.69%.

    Early in the year, investors can also see a shift within the S&P 500 Index itself. After being responsible for over 50% of the calendar year returns in 2024, 2023, and 2022, the so-called “Magnificent 7” stocks are trailing the rest of the index. In 2025, the S&P 500 excluding the Magnificent 7 stocks is up +3.2% YTD, and the average stock in the index is up +2.87% (S&P 500 Equal Weight TR Index), ahead of the overall index. One reason for this shift is the trade-off between the high valuations of the Magnificent 7 and the leveling-off of their earnings growth.

    Source: FactSet, Standard & Poor’s, J.P. Morgan Asset Management. The top 10 S&P 500 companies are based on the 10 largest index constituents at the beginning of each quarter. As of 2/28/2025, the top 10 companies in the index were AAPL (7.2%), NVDA (6.1%), MSFT (5.9%), AMZN (3.9%), GOOGL/GOOG (3.6%), META (2.9%), BRK.B (1.9%), AVGO (1.8%), TSLA (1.6%), and JPM (1.5%). The remaining stocks represent the rest of the 492 companies in the S&P 500.

    The largest companies in the S&P 500 are still expensive relative to their history at 27.3x forward earnings, even after seeing their valuations fall in 2025. Investors have started the year favoring opportunities with cheaper valuations, a trend that has helped diversified investors. 

    What’s on Deck for January?

    • As of February 28th, 97% of the S&P 500 had reported earnings for 4Q2024. Roughly 75% of the companies beat their earnings estimate and 63% exceeded their revenue estimates. Earnings growth for the quarter was a strong +18.2% year-over-year.
    • Investors will be watching for more certainty around the new trade policies being rolled out by the Trump administration.
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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  • Stock Market Recap: January 2025

    Month in Review

    • Markets started off 2025 on a positive note, led by a broader set of equity markets. For the month, developed international (MSCI EAFE NR USD) returned +5.26% and large cap value (Russell 1000 Value TR Index) returned +4.68%, leading all markets.
    • There were pockets of volatility during the month, caused by developments in artificial intelligence and changing trade policies.
    • Overall, diversified investors enjoyed January. Participation in the market broadened: the average stock (Equal-Weight S&P 500 TR Index) finished January +3.50%, ahead of market cap weighted index’s 2.78% return (S&P 500 TR Index). Large cap value finished +4.68% (Russell 1000 Value TR Index), ahead of large cap growth’s +1.98% return (Russell 1000 Growth TR Index).

    Stocks are Rarely Average

    Last year marked the second consecutive year the S&P 500 returned over 25%, making it only the fifth time since 1926 that the index has produced consecutive results of that magnitude. While there have been positive developments in 2025, the fact still remains that the S&P 500 is very concentrated in the top 10 companies, which have pushed the S&P 500’s valuation to above-average levels. How should investors think about this data?

    History is a great starting point, with over 100 years of various market conditions, recessions, and geopolitical headlines. History shows that stocks typically have “better-than-average” and “great” years in clusters, much like the S&P 500 has experienced recently. Since 1926, the S&P 500 has averaged 10.4% per year; during that period, it has only posted calendar year returns around the average (8% to 12%) in 6 years. This shows that over longer periods, fundamentals drive stock prices, not year-to-year price fluctuations- the benefit of being a long-term investor.

    In addition to understanding historical trends, investors should recognize the broadening out in the current bull market. In January, the S&P 500’s Technology sector was the only sector to fall during the month; the average stock also finished ahead of the index. Investors should view developments such as these favorably as the current bull market continues ahead.

    Source: Morningstar as of 12/31/24. U.S. stocks are represented by the S&P 500 Index from 3/4/57 to 12/31/24 and the IA SBBI U.S. Lrg Stock Tr USD Index from 1/1/26 to 3/4/57, unmanaged indexes that are generally considered representative of the U.S. stock market during each given time period.

    What’s on Deck for February?

    • Earnings season for the fourth quarter of 2024 will continue. As of February 2nd, 32% of S&P 500 companies have reported, with 74% beating earnings estimates and 62% beating revenue estimates.
    • The new Administration will continue to roll-out new policies, in addition to Congress working on budget and tax legislation.

    William Winkeler

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    William Winkeler

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  • Market Pulse: Quarter 4, 2024

    We are excited to share the inaugural version of Confluence Financial Partner’s Market Pulse: A Quarterly Review of Investment Trends and Insights. We aim to succinctly recap key investment trends and events on a quarterly basis, while providing insightful and actionable outlooks for the coming months. 

    Q4 2024 Insights: Three Key Takeaways

    Policy Shift: 2024 saw the Federal Reserve shift gears and lower interest rates, ending the rate hiking cycle that began in June 2022 and featured 9 rate hikes.

    Mega Leadership: Mega cap stocks, the largest companies in the US, pulled the S&P 500 to a second consecutive +25% annual gain, outpacing smaller stocks, international stocks, and bonds.

    High Concentration: The mega cap leadership resulted in a very narrow market by historical standards: the top 10 stocks in the S&P 500 represent over 38% of the index (highest in over 40 years).

    Download the Full Report
    William Winkeler
    About the Author

    Bill has more than 15 years of experience in the investment industry, most recently as Managing Director of Investments at a private wealth management firm. In his role at Confluence, Bill chairs the Investment Advisory Committee and develops and implements investment strategy for clients of the firm, as well as communicates investment content with clients.

    Pittsburgh

    724-719-6600
    bill.winkeler@confluencefp.com
    Email Bill

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    William Winkeler

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