KF Update – Market & Economic Thoughts

7 Minute Read 
 
We hope this email finds you well and you are gearing up for spring!  I wanted to send along an email with my thoughts on the economy and markets.  Additionally, I have attached our most recent ADV as we are required to provide it to our clients each year.  I hope you find this information helpful.

Markets & Economy 
Here are the 2025 year to date returns of several notable asset classes:  Parenthesis indicate a negative return.
 
Dow Jones – Large US Value Companies – (0.05%)
S&P 500 – Large US Companies – (1.55%)
Nasdaq – Large US Growth Companies – (5.31%)
Russell 2000 – Small/Mid US Companies – (6.60%)
MSCI EAFE – Large International Companies – 8.05%
Barclays Bond Index – Aggregate US Bonds – 2.70% 
Gold – 11.38% 
Silver – 10.38%
Bitcoin – (7.85%)
*source Kwanti as of March 5th, 2025

Just a few months ago I was writing on the importance of diversification as it related to owning international stocks.  While that asset class had lagged in recent years, it is helping to buoy client portfolios in the current economic environment. 

While there is speculation as to what is driving the outperformance of international companies in 2025, a strong argument could be made for valuation.

The S&P 500 is currently trading at 28.89 times its past 12 months earnings, historically it has traded between 15-20 times.  International companies meanwhile are trading for around half of that, or roughly 15 times their trailing 12 months earnings.


Source *multpl.com March 5th, 2025

Additionally, we have had two fantastic years in the market during 2023 and 2024.  Looking back through history, there are not a lot of instances with a 3rd and 4th straight year of significant growth.  Markets tend to take a breather with slower or negative growth before returning to years of strong growth.  Here are the annual returns of the S&P going back to the 1930s:



Anxiety & Investing
When having anxiety over investing, or really anything in your life, professionals will tell you the best way to address those anxieties are through facts.  Here are some facts I have put together in regards to markets:

• There has never been a rolling 15 year period in the history of the S&P 500 that was negative.

• The S&P 500 has recovered from every recession, downturn, and crisis since its inception.  Wars, depression, inflation, stagflation, financial crisis, global pandemics, etc.  

• Moving in and out of markets has been extremely detrimental to investors.  Below is an example of simply staying invested vs. moving to cash and missing just a few great days in the S&P 500.

*Source Fidelity

History of Markets
The average Bull (or upward trending market) since the 1940s has lasted 4.4 years and produced an average cumulative return of 155.7%.  The average Bear (or downward trending market) has lasted just 11.1 months with an average cumulative loss of 31.7%.  The graphic below illustrates this in detail.

*Source First Trust Portfolios 04/29/1942 to 09/30/2022

Summary
Investing in markets can be unnerving, and nothing is guaranteed but there are things you can do to put the odds of investing success in your favor:

1. Never sell during a down market.  Historically they have been short lived, and the recovery is substantial.  If you miss even a handful of those days on the way to the recovery, they can be extremely detrimental to your portfolio.

2. Take the media with a grain of salt.  They are in the business of getting eye balls and entertainment.  They have no vested interest in your long-term goals, investment success, or retirement.

3. When markets are bad, you don’t have to look at your portfolio, that is our job!  You can simply ignore what is going on and focus on the things you can control.  The markets and your portfolio will recover as long as you stay invested and keep focusing on the long-term.

4. If in retirement, keep a conservative withdrawal rate of 5% or under.  If saving for retirement, keep saving!  Market downturns are opportunities to buy stocks when they are cheaper.

5. If you do the above 4 things, then just go and live and enjoy life.  When markets are volatile we sometimes have a feeling we must do something, but honestly the best thing to do is just stay invested and if you have discretionary income, invest more.

We hope you find this information helpful, and look forward to seeing you all soon.