February 18, 2025
Good morning,
In the face of higher-than-expected inflation data and daily tariff talk, the market marched higher, with the S&P 500 Index gaining +1.47% last week. International Indices were slightly higher than that. Hat tip to this market’s resiliency. And, who had Europe as the big winner in the early stages of this Trump Presidency? For all the concerns over possible US tariffs and an increased burden to fund the region’s own defense, the first few weeks of the second Trump administration have been favorable for European equities– considerably more so than their US counterparts.
While the return from Presidents’ Day is often not a great one for equities from a seasonal perspective, stocks are shrugging that impulse off amidst a backdrop of optimism about peace in Ukraine this morning(Futures are +.38%). This holiday shortened week is short on data announcements as well. There are no significant market-moving catalysts until NVIDIA earnings on 2/26 and personal consumption expenditures (PCE) on 2/28. It appears that all we have for this week is headline risk coming from the White House.
It certainly seems like every long-term valuation threat made against the bullish market thesis is met by more short-term bullish market data. The latest in this category is the downturn in top 10 stocks as a percentage of market cap (easing concentration), in the face of improving global breadth. This is comparable to late 2020’s concentration decline and breadth improvement, not 2022, when breadth worsened.
The tariff and trade uncertainties haven’t gone away. And the multiple scenarios make the long-term outlook for inflation and bond yields far from clear. The level of concentration is still much greater than it has been historically. These are real risks. However, it has been encouraging that the market’s megacap dependence has been receding in tandem with global breadthen improvement and more affirmation of the short-term market message.
Be well,
Mike
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