View from the Observation Deck

Today's blog post is for those investors who want to drill down below the sector level to see what is performing well in the stock market. The S&P 500 Index was comprised of 11 sectors and 127 subsectors on 3/28/25, according to S&P Dow Jones Indices. The 15 top-performing subsectors in the chart posted total returns ranging from 30.48% (Gold) to 15.62% (Insurance Brokers). Click here to view our last post on this topic.

• As indicated in the chart above, the Communication Services and Financials sectors were tied for most top-performing subsectors (3) on a year-to-date (YTD) basis. Semiconductors, which are part of the S&P 500 Information Technology Index, are notably absent from today’s chart. Semiconductors were among the top-performing subsectors in each of our last seven posts on this topic (dating back to 3/21/2023).
  
  
• With respect to the 11 major sectors that comprise the S&P 500 Index, Energy posted the highest total return for the period captured in the chart, increasing by 10.21%. The second and third-best performers were Health Care and Consumer Staples, with total returns of 6.54% and 5.23%, respectively. The S&P 500 Index posted a total return of -4.28% over the period.
  
  
• As of 3/28/25, the most heavily weighted sector in the S&P 500 Index was Information Technology at 29.78%, according to S&P Dow Jones Indices. For comparison, Financials and Health Care were the next-largest sectors with weightings of 14.58% and 11.14%, respectively.
  
  
• Using 2025 consensus earnings estimates, the Information Technology and Energy sectors had the highest and lowest price-to-earnings (P/E) ratios at 31.14 and 15.98, respectively, as of 3/31/25 (excluding Real Estate). For comparison, the S&P 500 Index had a P/E ratio of 22.64 as of the same date.

Takeaway: With a total return of 10.21%, the S&P 500 Energy Index is the top-performing S&P 500 Index sector YTD. Despite this feat, not a single Energy subsector made its way into today’s chart, suggesting the sector’s gains have been well-distributed across its five subsectors. We wrote about energy in a post on 3/20 (click here), suggesting that burgeoning demand for natural gas and U.S. crude oil were unlikely to weaken in the near-term. The Gold subsector sits at the top of today’s chart, propelled upward by record highs in the price of its underlying metal. The price of one troy ounce of gold stood at a record $3,123.57 on 3/31/25. As we see it, persistently high inflation and a worsening U.S. economic outlook may explain gold’s 19.02% price increase YTD. The Information Technology Index is notably absent from today’s chart, marking the first time the sector has been missing from this post in over two years.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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View from the Observation Deck

While many have predicted that petroleum usage will decline over the long-term, global oil demand remains resilient, increasing by 1.9% and 0.8% in 2023 and 2024, respectively, according to the International Energy Agency (IEA). That said, the IEA reported that oil accounted for less than 30% of total energy demand for the first time ever in 2024, suggesting a potential long-term shift in global energy supply may be underway. Today’s post contrasts the price per barrel for West Texas Intermediate (WTI) crude oil to U.S. crude oil production, measured in thousands of barrels per day (b/d), on a weekly basis. We begin the chart on 3/4/22, several days before oil’s most recent peak which occurred on 3/8/22.

• The price of WTI crude oil stood at $68.28 per barrel at the close of trading on 3/21/25 (end of chart), down 40.98% from its closing price of $115.68 on 3/4/22 (start of chart), according to data from Bloomberg.
• The average daily price of crude oil was $81.44 per barrel during the period captured in the chart. The highest and lowest daily closing prices were $123.70 and $65.75 per barrel on 3/8/22 and 9/10/24, respectively.
• For comparative purposes, the S&P 500 Energy and S&P 500 Indices posted average annual total returns of 10.93% and 10.92%, respectively over the same time frame. The top-performing energy subsector, of which there are five, was the S&P 500 Oil & Gas Storage & Transportation subsector, with an average annual total return of 25.28%.
• U.S. oil production surged from 11.6 million b/d on 3/4/22 to 13.6 million b/d as of 3/21/25, according to data from the U.S. Department of Energy.

Takeaway: On 3/21/25, the price per barrel of WTI crude oil stood at $68.28, 44.80% below its most recent high of $123.70 which occurred on 3/8/22, just after Russia’s invasion of Ukraine. As we see it, several factors account for oil’s precipitous price decline. First, there is the fundamental issue of supply. Supply constraints, including sanctions against oil from Iran and Venezuela as well as production cuts by members of OPEC+ and its allies, were largely offset by U.S. production, which surged to a record 13.2 million b/d, on average, in 2024. Notably, OPEC+ announced it will increase its supply in April of this year, potentially adding 2.2 million b/d to global production by September 2026. As a result, the IEA forecasts global oil supply will total 104.7 million b/d in 2025, up from 103.5 million b/d in December 2024. Second, oil consumption and economic progress exhibit a strong positive correlation. In January 2025, the IMF forecast that global growth will total 3.3% in 2025 and 2026, well short of the historical average of 3.7%. Declining oil prices may reflect these deteriorating economic expectations. Stay tuned!

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P 500 Energy Index is a capitalization-weighted index comprised of 500 stocks representing the energy sector. The S&P 500 Energy Index is comprised of five subsectors.

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View from the Observation Deck

Today's blog post highlights the disparities that often exist between the equity returns posted by mining companies and the spot price performance of physical gold and silver. Since precious metals tend to be priced in U.S. dollars, we also included a column that tracks the relative strength of the U.S. dollar against a basket of other major currencies.

• Precious metals have historically been considered potential inflation hedges by investors. From 1926-2024, the 12-month rate of change on the Consumer Price Index (CPI) averaged 3.0%, according to data from the Bureau of Labor Statistics. It stood at 2.8% at the end of February 2025, down from its most-recent high of 9.1% set in June 2022.
  
  
• The price of gold has been surging, setting multiple record highs. The spot price of one ounce of gold stood at a record $3,047.79 on 3/19/25, up 41.26% year-over-year.
  
  
• The spot price of silver has also grown by a considerable amount, increasing 14.29% in 2025 alone (thru 3/21). That said, unlike gold, the spot price of silver has not recovered to its all-time high. The price of one ounce of silver stood at $33.03 on 3/21/25, below its all-time high of $49.45 set on 1/18/80.
  
  
• The spot price of the U.S. Dollar Index declined by 4.05% YTD through 3/21. 
  
  
• From 2010 through 2024, the Philadelphia Stock Exchange Gold & Silver Index posted a positive total return in seven of the 15 calendar years. Six of them occurred from 2016 through 2024. It is solidly in positive territory YTD (see table).

Takeaway: In our last post on this topic (click here), we wrote that we expected the value of safe haven assets to continue increasing in the face of elevated geopolitical turmoil, economic deterioration, and stubbornly high inflation. Our view remains unchanged in that regard. Additionally, the recent devaluation of the U.S. dollar (-4.05% YTD thru 3/21) could stoke further demand for these metals. Demand for gold has been seemingly insatiable. The World Gold Council reported that global demand for gold stood at a record 4,975 tons in 2024. Of that total, 1,180 tons were held for investment purposes, up 25% year-over-year. Retail gold consumption generally accounts for a significant portion of global demand. That said, demand remains elevated among the world’s central banks, which purchased 1,045 tons of the metal in 2024. The figure marks the third year in a row where central banks purchased greater than 1,000 tons of gold. We expect the recent surge in the value of safe haven assets may continue if global risks to stability persist.

The chart and performance data referenced are for illustrative purposes only and not indicative of any actual investment. The index performance data excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. There can be no assurance that any of the projections cited will occur. The Philadelphia Stock Exchange Gold & Silver Index is a capitalization-weighted index comprised of the leading companies involved in the mining of gold and silver. The U.S. Dollar Index (DXY) indicates the general international value of the dollar relative to a basket of major world currencies. The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services.

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View from the Observation Deck

Today's blog post compares the performance of energy-related stocks to the broader market, as measured by the S&P 500 Index, over an extended period. Given global dependence on oil, natural gas, and electricity, the prices of companies in those industries are subject to a myriad of influences. Click here to view our last post on this topic.

The U.S. Energy Information Administration (EIA) estimates that U.S. electricity consumption will total a record 4,215 billion kilowatt hours (kWh) in 2025, up from the previous record of 4,097 billion kWh in 2024. 

Electricity demand is surging as resource-intensive workloads such as training AI models, electric vehicle charging, and electric appliances are introduced into more U.S. homes. As we see it, the disparity in trailing 12-month returns for energy companies (2.80%) compared to Utilities (27.51%) reflects this phenomenon. That said, the EIA estimates that natural gas will account for 40% of total U.S. power generation in 2025, requiring increased inventories and production. Colder than expected weather in January and February resulted in declining natural gas inventories. The EIA forecasts inventories will fall to less than 1.7 trillion cubic feet in March, 10% below the 5-year average for the metric. As a result, natural gas prices continued to surge, increasing by an astonishing 137.93% over the trailing 12-month period ended 3/18/25.

Year-to-date (YTD), the Energy Index has outperformed the Utilities Index by 278 basis points (see table).

Energy stocks remain among the top-performers YTD despite growing concern that the U.S. economy could fall into a recession. With a total return of 6.74%, the Energy Index is the second-best performing sector in the broader S&P 500 Index YTD thru 3/18/25. The S&P 500 Health Care Index was the only sector to outperform it, increasing by 6.81% over the period. From our perspective, much of this performance has been driven by the emergence of the U.S. as a global leader in energy production. Data from the EIA reveals that the U.S., which accounts for the largest share of worldwide oil production, produced a record 13.2 million barrels of oil per day in 2024. The figure marks the seventh year in a row where the U.S. produced the largest share of global crude oil. Additionally, the U.S. is also the world’s largest exporter of liquefied natural gas (LNG), shipping 4.37 billion cubic feet of LNG throughout the globe in 2024.

Takeaway: The specter of a U.S. recession, growing geopolitical tensions, and potential tariff wars have been unable to quell investors’ appetite for energy stocks in 2025. We expect many will find this data surprising, as the energy sector is typically quite volatile when faced with these headwinds. That said, segments of the energy sector appear to be undergoing foundational shifts which could upend traditional near-term expectations. The emergence of the U.S. as a global leader in crude oil production and LNG exports is a relatively new phenomenon, as is the increase in electricity demanded by AI, electric cars, and electric household appliances. The fact that natural gas is expected to account for 40% of U.S. electricity production this year further solidifies the point. As a capstone, the current administration appears to have taken an energy friendly stance. Utilities, which are often seen as safe havens during market turmoil, could benefit from the recent tailwinds discussed today as well, in our opinion. Will the Energy Index continue to outperform its peers in the Utilities Index this year? We will update this post with new information as warranted.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The S&P 500 Energy Index is a capitalization-weighted index comprised of 21 companies spanning five subsectors in the energy sector. The S&P 500 Utilities Index is a capitalization-weighted index comprised of 29 companies spanning five subsectors in the utilities sector. 

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View from the Observation Deck

Today’s blog post is intended to provide insight into the movement of bond prices relative to changes in interest rates. For comparative purposes, the dates in the chart are from prior posts we’ve written on this topic. Click here to view our last post in this series.

Five of the eight bond indices we track saw prices decline since our last post. That said, prices for six of the eight indices increased above their time series lows from February 2024.

Notably, these price declines occurred despite the Federal Reserve (“Fed”) announcing three rate cuts totaling 100 basis points (bps) at the end of 2024. As this data is atypical (fixed income prices and yields generally move in opposite directions), several explanations warrant investigating. First, fixed income markets are forward looking. We believe the increase in fixed income prices between our posts on 2/9/24 and 8/13/24 reflect that. At that time, interest rate cuts were just a rumor, but investors felt increasingly certain that rate reductions were forthcoming. Prices increased as a result. That certainty has been whittled away in recent months amidst growing threats of recession, resurgent inflation, tariffs, and geopolitical strife, in our opinion. Second, as interest rates fall, companies often become more profitable, which can increase their attractiveness relative to fixed income. Case-in-point, the S&P 500 Index increased by 4.60% (total return) between 8/13/24 and 3/14/25.

A few notes on inflation.

While down significantly from its most recent high, inflation, as measured by the trailing 12-month rate of change in the consumer price index (CPI) stood at 2.8% in February 2025, above the Fed’s target of 2.0%. The CPI is also above its most recent low of 2.4% (September 2024). For comparison, the CPI averaged 3.8% over the 50-year period ended December 2024.

Takeaway: Valuations improved for just three of the eight fixed income indices in today’s chart between 8/13/24 and 3/14/25. This is particularly noteworthy given the Fed’s year-end policy rate reductions, which would typically lead to price increases. We believe falling bond valuations reflect reduced certainty permeating the current investment climate. Future Fed policy decisions are looming unknowns, as are the dichotomous (to interest rate policy) threats of resurgent inflation and a potential U.S. recession. At 2.8%, the CPI remains stubbornly above the Fed’s target rate, which could limit its ability to reduce rates in the face of an economic slowdown. We will continue to update this post throughout the year.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The Morningstar LSTA U.S. Leveraged Loan 100 Index is a market value-weighted index designed to measure the performance of the largest segment of the U.S. syndicated leveraged loan market. The ICE BofA U.S. High Yield Constrained Index tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA 22+ Year U.S. Municipal Securities Index tracks the performance of U.S. dollar denominated investment grade tax-exempt debt publicly issued by U.S. states and territories, and their political subdivisions with a remaining term to maturity greater than or equal to 22 years. The ICE BofA Fixed Rate Preferred Securities Index tracks the performance of investment grade fixed rate U.S. dollar denominated preferred securities issued in the U.S. domestic market. The ICE BofA 7-10 Year U.S. Treasury Index tracks the performance of U.S. dollar denominated sovereign debt publicly issued by the U.S. government with a remaining term to maturity between 7 to 10 years. The ICE BofA U.S. Mortgage Backed Securities Index tracks the performance of U.S. dollar denominated fixed rate and hybrid residential mortgage pass-through securities publicly issued by U.S. agencies in the U.S. domestic market. The ICE BofA U.S. Corporate Index tracks the performance of U.S. dollar denominated investment grade corporate debt publicly issued in the U.S. domestic market. The ICE BofA Global Corporate Index tracks the performance of investment grade corporate debt publicly issued in the major domestic and Eurobond markets.

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View from the Observation Deck

For many investors, dividend payments have become an ordinary and expected benefit of equity ownership. Notably, 408 of the 503 constituents in the S&P 500 Index (“Index”) reported distributing a cash dividend to their equity owners as of 2/28/25. That said, the impact of dividends on the investment landscape has been nothing short of extraordinary, with dividend distributions accounting for a significant portion of the Index’s total return. According to data from Bloomberg, dividends accounted for 36.50% of the total return of the Index over the 97-year period between December 30, 1927, and December 31, 2024.

• Dividend payments from the Index’s constituents totaled a record $74.61 per share in 2024, up from $70.91 (previous record high) in 2023.
  
  
• As of 3/12/25, dividend payments are estimated to increase to $81.65 and $86.64 per share in 2025 and 2026, respectively.
  
  
• The Index’s dividend payout ratio stood at 35.57% on 3/12/25. A dividend payout ratio between 30% and 60% is typically a good sign that a dividend distribution is sustainable, according to Nasdaq.
  
  
• Many investors view changes in dividend distributions as an indication of financial strength or weakness in the underlying company. Just three dividend cuts and one suspension were announced year-to-date through the end of February. For comparison, six dividends were cut and zero were suspended over the same period last year.

Takeaway: Dividend distributions continue to be one of the most efficient ways for companies to return capital to shareholders. They also contribute meaningfully to overall returns. In the 97-year period between December 30, 1927, and December 31, 2024, more than 36% of the total return of the Index came from dividends. Investors often view consistent or increasing dividend payments as a sign of financial strength. Tellingly, analysts estimate the Index’s dividends will increase to a record $81.65 per share in 2025 and $86.64 per share in 2026. Finally, dividends can be a significant potential inflation hedge. Inflation, as measured by the consumer price index, increased by 34.43% over the 10-year period ended December 2024. Total dividends paid by the Index’s constituents increased by a staggering 85.78% over the same period. To paraphrase Rockefeller: it’s always good to see dividends coming in.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is a capitalization-weighted index comprised of 500 companies used to measure large-cap U.S. stock market performance, while the 11 major S&P 500 Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector. 

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View from the Observation Deck

Understandably, accelerating losses among U.S. equities captured investors’ attention over the past several weeks. At market close on 3/10/25, the S&P 500 Index (“Index”) had given back all its early-year gains and moved into negative territory, posting a total return of -4.30% year-to-date (YTD). March has been a particularly harsh month for equity investors, with the Index declining 5.66% (total return) month-to-date thru 3/10. While the sell-off is broad-based across U.S. equity indices, certain market segments are being hit harder than others. Total returns for the tech-heavy Nasdaq 100 and Magnificent 7 Indices were -7.39% and -15.51%, respectively, YTD thru 3/10. There are numerous theories and possibilities for stocks’ recent rout. For today’s post, we set out to offer additional perspective to what we’re seeing reported by most news outlets. The chart above compares the annual price returns for the Index along with the year’s corresponding change in earnings per share (EPS) stated as a year-over-year percentage.

The Index’s price increased at a faster pace than its constituents’ earnings over the period captured in today’s chart.

As many investors are likely aware, there is a fundamental correlation between a company’s market value and earnings. The Index’s price increased by 23.40% over the three-year period in today’s chart. By contrast, the Index’s earnings increased by 16.56% over the same time frame. Removing 2022’s result skews the data further, with the Index’s price increasing 53.19% compared to a 10.87% increase in earnings. In our view, the latest weakness in equity prices may reflect growing concern over this recent valuation expansion.

Earnings estimates reflect strength in the year ahead.

Data from FactSet revealed that the Index’s Q4’24 blended, year-over-year earnings growth rate stood at 18.2% on 2/28/25, marking the highest observation for the metric since Q4’21. Estimates point to earnings increasing in the years to come as well. As of 3/7/25, analysts estimated that the Index’s total earnings per share would increase from $243.02 in 2024, to $271.23 and $309.16 in 2025 and 2026, respectively. That said, these are estimates and are subject to change as new information is made available.

The Index’s earnings yield suggests equities are undervalued when compared to the yield on the 10-year treasury note (“T-note”).

The earnings yield, which is calculated by dividing the Index’s 2025 estimated EPS by its current price surged to 4.83% on 3/10/25, up from 4.41% on 2/19/25 (the Index’s all time high). For comparison, the yield on the 10-year T-note stood at 4.22% at the close on 3/10/25.

Takeaway: We believe that earnings growth is foundational to higher equity prices over time. It follows, then, that we expect equity prices will return to growth if earnings continue to increase. Currently, analysts estimate that Index earnings will increase 11.61% in 2025 and 13.98% in 2026. Keep in mind that these estimates are subject to change. Case-in-point, the likelihood of a U.S. economic recession is rising, putting the profitability of U.S. companies at risk. As recession risk increases, so do the odds that the Fed will cut interest rates. As of 3/10/25, the federal funds rate futures market implied that the Fed would lower interest rates to 3.50% by year-end. For comparison, the metric stood at 3.90% at the close of 2024. Declining interest rates could push borrowing costs lower and increase the profitability of companies’ future projects. In other words, the Fed’s defense against recession could prove to buoy equity prices to some extent. There are many ways to dissect the Index’s recent price fluctuation. We trust this post offers further insight and a unique perspective. We will update you as new information becomes available.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The NASDAQ 100 Index is a modified capitalization-weighted index of the 100 largest non-financial issues listed on the NASDAQ. The Bloomberg Magnificent 7 Index is an equal-dollar weighted equity benchmark consisting of a fixed basket of seven widely-traded U.S. companies.

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View from the Observation Deck

Total assets invested in covered call strategies have grown rapidly over the past several years. Data from Morningstar Direct reveals that net assets in the “derivative income” category of ETFs increased by $33 billion in 2024 to a total of $97 billion for the calendar year. In a signal of continued interest, investors funneled $5.6 billion into the asset class in January 2025 alone.

Covered call strategies tend to be most beneficial when the stock market posts negative returns, or when returns range from 0%-10%.

The S&P 500 Index posted a negative total return just four times in the table above (including year-to-date). The CBOE BuyWrite Index outperformed the S&P 500 Index in three of those four years (missing the fourth year by 0.39 percentage points in 2018). For comparison, there are four years in the table where the S&P 500 Index posted returns between 0% and 10%. The CBOE BuyWrite Index outperformed the S&P 500 Index in three of the four years (missing the fourth year by 0.66 percentage points in 2005).

Covered call options can generate an attractive income stream and serve as a hedge against negative price movement, but they may limit the potential for capital appreciation.

There were 13 years in today’s table where the S&P 500 Index notched total returns of 10% or more. The CBOE BuyWrite Index underperformed the S&P 500 Index in every one of them, including last year when the S&P 500 Index increased by 25.00%, while the BuyWrite Index increased by 20.12%.

Takeaway: Covered call strategies may serve as a unique alternative to the S&P 500 Index. That said, while the income they provide has generally led to outperformance during negative or moderately positive periods, returns are often capped during times where the market is performing exceedingly well. As a recent example, the S&P 500 Index surged by 25.00% in 2024, outperforming the CBOE BuyWrite Index by 4.88 percentage points. The tables are turned so far this year (thru 3/5/25), with the CBOE BuyWrite Index outperforming the S&P 500 Index by 0.56 percentage points on a total return basis. Will heightened volatility from tariffs, geopolitical strife, and deteriorating economic data prompt investors to continue allocating assets to these strategies? We will report back as updates require!

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance. The CBOE S&P 500 BuyWrite Index (BXM) is designed to track a hypothetical buy-write strategy on the S&P 500. It is a passive total return index based on (1) buying an S&P 500 stock index portfolio, and (2) "writing" (or selling) the near-term S&P 500 Index (SPXSM) "covered" call option.

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View from the Observation Deck

We update this post on an ongoing basis to provide investors with insight regarding the earnings climate of the S&P 500 Index (“Index”). While quarterly earnings estimates are a useful indicator of a company’s financial performance, they are not guarantees. Equity analysts are continually adjusting these estimates as new information is obtained. As of 2/28/25, 484 of the 503 stocks that comprise the Index (96.2%) had reported Q4’24 earnings.

FactSet reported that the Q4’24 blended, year-over-year (y-o-y) earnings growth rate for the Index stood at 18.2% as of 2/28/25, marking the sixth consecutive quarter of y-o-y earnings growth for the Index. 

Should this hold, it will mark the highest y-o-y earnings growth rate for the Index since Q4’21 when it surged by 31.4%. What makes the current quarter’s earnings growth rate even more impressive is that Q4’21’s results reflect favorable comparisons due to the COVID-19 lockdowns.

The percentage of companies in the Index that reported higher than expected earnings in Q4’24 (74.2% as of 2/28/25) stands 2.8 percentage points below the 4-year average of 77.0%.

Per the chart, this is not unusual. The Index’s earnings beat rate exceeded the average in just six of the 17 quarters presented. More recently, the Index’s beat rate exceeded the average in just two of the past eight consecutive quarters.

The Index’s price-to-earnings ratio was 25.44 on 2/28/25, well above its 20-year average of 18.75.

At current levels, valuations appear stretched when compared to 20-year averages. That said, the Index’s 2024 earnings growth rate estimates trended persistently higher throughout much of the year, increasing from 8.99% on 3/29/24 to 11.66% on 2/28/25, lending support to higher prices.

As of 2/28/25, the sectors with the highest Q4’24 earnings beat rates and their percentages were as follows: Financials (86.1%); Information Technology (81.8%) and Industrials (78.2%), according to S&P Dow Jones Indices. Real 
Estate had the lowest beat rate at 46.7% as well as the highest earnings miss rate (40.0%) for Q4’24.

Takeaway: While earnings beats are generally viewed as positive for the overall market, they represent just one piece of an intricate puzzle. As today’s chart reveals, the earnings beat rate for the companies that comprise the S&P 500 Index has been below the average in most of the time frames presented (including the most recent quarter). That said, the Index stood at 5,881.63 at the close on 12/31/24, representing a price only increase of 56.59% over the period captured by today’s chart. As we see it, the Index’s current price level reflects surging actual and estimated earnings throughout much of 2024. With 96.2% of companies reporting, the Index’s fourth quarter earnings growth rate currently stands at 18.2%, the highest since Q4’21. Notably, analyst estimates for 2025 and 2026 imply continued earnings growth. The Index’s earnings per share are estimated to total a record $271.28 in 2025 and $308.88 in 2026, according to data from FactSet (as of 2/28/25). As always, these estimates are subject to change as new information is made available. We will continue to report on this topic as relevant data arises.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. The S&P 500 Index is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance, while the S&P sector and subsector indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector or industry.

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View from the Observation Deck

Today’s blog post offers a visual representation of trends in money market fund assets over time. As the chart reveals, investors tend to utilize money market funds during times of turmoil such as the financial crisis in 2008 – 2009 and the COVID-19 pandemic of 2020. Recently, however, investors have been piling cash into money market accounts (see chart) despite compelling returns in the U.S. equity markets and declining interest rates. A note about the chart: we use the federal funds target rate (upper bound) as a proxy for short-term interest rates, such as those offered by taxable money market funds and other savings vehicles. In our opinion, this proxy may offer insights into the potential effect of short-term rates on investor behavior.

• Net assets invested in U.S. money market funds totaled $6.91 trillion on 2/19/25 (most recent weekly data), an increase of 14.98% from $6.01 trillion on 2/14/24. The current tally rests just below the record of $6.92 trillion set on 2/12/25. For comparison, the S&P 500 Index increased by 24.55% on a total return basis over the same period (2/14/24 – 2/19/25).
• The Federal Reserve (“Fed”) announced three reductions to its federal funds target rate since September 2024, bringing the rate from 5.50% to 4.50% (upper bound) where it currently sits. Money market investors appear unfazed by these reductions, adding $0.61 trillion to money market funds from 9/18/24 (date the first cut was announced) to 2/19/25.
• Market expectations regarding the Fed’s policy rate continue to be volatile, which may explain continued inflows into money market funds despite declining interest rates. As of 2/25/25, the futures market revealed that investors expect the federal funds rate to settle at 3.75% by the close of 2025, up from an implied rate of 2.95% on 9/30/24.
• Inflation’s reacceleration offers a further explanation for increasing money market assets. The pace of inflation, as measured by the trailing 12-month rate of change in the Consumer Price Index (CPI), increased from 2.4% in September 2024 to 3.0% in January 2025. As we see it, stubbornly high inflation continues to pose a roadblock to falling interest rates, increasing the relative attractiveness of interest-bearing assets.

Takeaway: Today’s chart reveals a positive correlation between the recent surge in money market assets and elevated interest rates. Since the Fed’s initial rate hike on 3/16/22, total net assets invested in U.S. money market funds increased from $4.56 trillion to $6.91 trillion (51.65%), notching multiple records along the way. Notably, recent interest rate reductions have not slowed demand for these debt instruments. Net assets invested in money market funds increased by $0.61 trillion (9.7%) from the date of the Fed’s first interest rate cut on 9/18/24 to 2/19/25. From our perspective, disinflation’s reversal, stretched equity valuations, and the recent spate of weaker than expected economic data are acting as catalysts behind investors “risk-off” behavior. That said, while money market funds offer principal stability and income, their total return has lagged the S&P 500 Index, which surged by 25.00% on a total return basis in 2024. It remains our view that an allocation to equities will generate a higher return on capital than cash over time.

This chart is for illustrative purposes only and not indicative of any actual investment.

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