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“Stocks Cap Best Two Years in a Quarter-Century” (Excerpt from WSJ)

hank
edited January 10 in Other Investing
”U.S. stocks roared to another blockbuster showing in 2024. Few expect such a torrid advance in the year to come. The S&P 500 climbed 23%, notching 57 record closes as the economy remained healthy, inflation ticked lower and an Al-fueled rally in big tech stocks powered on. Even with a stumble in the last few trading days, the broad U.S. stock index wrapped up its best consecutive years since 1997 and 1998, according to Dow Jones Market Data, during the lead-up to the bursting of the dot-com bubble.

“The rally has created millionaires and turned professional investors increasingly bullish: In December, the Bank of America Global Fund Manager Survey found record enthusiasm for U.S. stocks, as measured by the net share of respondents favoring the group. The payoffs haven't been limited to the equity market: Gold had its best year since 2010, while bitcoin more than doubled, vaulting above $100,000 for the first time ….”


(Excerpted from today’s online Wall Street Journal 1/9/2025 / All I can say is Whoopie!)

Comments

  • JD_co
    Such a strong rally leads us to higher-than-normal valuations. Will we pay the piper in 2025?


    https://finance.yahoo.com/news/likely-stock-market-crashes-under-095100991.html

    "What's particularly worrisome is what's happened in the wake of Shiller P/E readings above 30 throughout history. There have been only six occurrences in 154 years where the Shiller P/E has topped 30, including the present, and the previous five were eventually followed by declines ranging from 20% to 89% in the Dow, S&P 500, and/or Nasdaq Composite. In other words, premium valuations aren't tolerated over long periods.

    And the S&P 500's Shiller P/E isn't the only valuation tool sounding alarm bells. The "Buffett Indicator," named after Berkshire Hathaway's investor extraordinaire Warren Buffett, hit an all-time high in December.

    The Buffett Indicator, which divides the market cap of all publicly traded companies into U.S. gross domestic product (GDP), was labeled by the Oracle of Omaha as "probably the best single measure of where valuations stand at any given moment" in 2001. Whereas this market-cap-to-GDP ratio has averaged 85% (0.85) since 1970, it touched 209% in December 2024."

  • Observant1
    edited January 12
    Since 1928¹ there have only been three other instances of 25%+ returns in back-to-back years:
    1935 (+47%) and 1936 (+32%)
    1954 (+53%) and 1955 (+33%)
    1997 (+33%) and 1998 (+28%)

    So what happened next?
    Something for everyone:
    1937: -35%
    1956: +7%
    1999: +21%

    Terrible, decent and great. Not helpful.

    https://awealthofcommonsense.com/2025/01/2024-it-was-another-good-year-in-the-stock-market/

    ¹ "Standard & Poor's, initially known as the Standard Statistics Company, created its first stock market index in 1923.
    It consisted of the stocks of 233 companies and was computed weekly.
    Three years later, it developed a 90-stock composite price index computed daily.
    That was expanded over the years.
    On March 4, 1957, the Standard & Poor's 500 was introduced."

    https://www.reuters.com/article/us-usa-stocks-sp-timeline-idUSBRE9450WL20130506/
  • Sven
    edited January 12
    Thank you. Good reading. The comments in @JD_co article reveal even more.
  • hank
    edited January 13
    The WSJ clip says nothing we didn’t already know. I just thought coming on a morning when the indexes were off sharply, it was a worthy study in contrast. I’ve looked at Geroux’s Barron’s Roundtable remarks from January ‘22 and he seems to have been spot-on. Remarked back then that the markets had been highly profitable for the two preceding years and he was skeptical the streak could continue. ( Of course, it didn’t.)
  • BenWPBenWP
    Josh Brown on CNBC around noon today, theorized that the weakness in techs is due to the very rich selling now (or instructing their institution to sell), as opposed to before year end, because they wanted to avoid a big tax bill for 2024. He said the two-year rally had afforded no opportunities for tax-loss selling, thus they are selling now. I suppose one could book a gain early in 2025, planning to take advantage of a bad market this year by taking a tax loss. I don't travel in those circles, so I know very little of this strategy.
  • gman57
    Current selling makes sense... I think a lot of the movement is just rebalancing. Account's are up 30-50% the last 2 years (SPY up about ~46%) so they need to take some off the table to get back to target asset allocation. That along with all the chatter about overvalued, high PE's. tariffs etc... makes everyone a little caution. Add to that "is inflation going back up?????" re: yields.... is enough to keep our heads spinning.
  • Sven
    Giruox’s PRWCX has a large long term capital gain distribution in 2024; much more than recent years. In light of what he stated in Barron’s round table discussion, the market is very expensive. Not just the Mag 7, but the rest of S&P 500 are above the historical PE, he has a net seller.

    Similarly, Buffet sold much of Apple stock and other in mid 2024. Questions is why at the particular timeframe?
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