After two straight years of performance dominance by US equities, foreign stocks in developed markets are leading the major asset classes by a wide margin so far in 2025, based on a set of ETFs through Tuesday’s close (Feb. 18). It’s anyone’s guess if the leadership for equities ex-US continues, but at the moment the change in fortunes is a striking reshuffling of recent history.
Macro Briefing: 19 February 2025
The US Housing Market Index, a survey-based measure of home builder sentiment, fell further below the neutral 50 mark in February. The index has been been below 50 since May and reflects a cautious outlook among US home builders for the near-term outlook.
Momentum Leaves Other Equity Factors In The Dust So Far In 2025
The momentum factor is crushing the competition year to date, based on a set of ETF proxies through Friday’s close (Feb. 14). After a strong run last year, momentum is roaring higher in 2025 in relative and absolute terms.
Macro Briefing: 18 February 2025
China’s trade surplus in goods continues to rise and now dwarfs the heights for Germany and Japan during their exporting heydays in the 1990s. “Over the past six years, China’s imports of such goods increased by an average of only $15 billion a year, essentially no change at all when inflation is taken into account,” writes Brad Setser, a senior fellow at the Council on Foreign Relations. “Its manufactured exports, on the other hand, have grown more than 10 times as fast, by over $150 billion a year. When it comes to manufactured goods, trade with China is virtually a one-way street.”
Moderate, Steady Growth Expected For US Q1 GDP
US economic activity is on track to maintain a moderate growth rate in 2025’s first quarter, according to the median for several nowcasts compiled by CapitalSpectator.com. Today’s initial Q1 estimate projects that the 2%-plus pace reported for Q4 by the Bureau of Economic Analysis (BEA) will continue in the current quarter.
Macro Briefing: 17 February 2025
US retail sales fell more than expected in January. The sharp 0.9% drop last month was partly due to cold weather that suppressed sales of new cars. The average temperature in January was the lowest since 1988, Pantheon Macroeconomics advises. The fires in Los Angeles were also a temporary factor driving sales down.
Book Bits: 15 February 2025
● Rethinking Investing: A Very Short Guide to Very Long-Term Investing
Charles D. Ellis
Summary via publisher (Wiley)
In just 10 short, accessible, and inviting chapters, Rethinking Investing: A Very Short Book on Very Long-Term Investing presents straightforward steps that ordinary people can take to better invest their money. This book dispels myths about the value of investment managers, highlights emotional tendencies that can cloud our financial judgment, explains why index funds are a savvy choice, and reveals secrets like why it’s better to wait until age 70 to receive Social Security benefits—along with the calculations that make this decision crystal-clear. Written by renowned investor and popular author Charley Ellis, this must-read resource shows you how to set yourself up for investment success.
Research Review | 14 FEB 2025 | Rebalancing and Asset Allocation
The Unintended Consequences of Rebalancing
Campbell R. Harvey (Duke University), et al.
January 2025
Institutional investors engage in trillions of dollars of regular portfolio rebalancing, often based on calendar schedules or deviations from allocation targets. We document that such rebalancing has a market impact and generates predictable price patterns. When stocks are overweight, funds sell stocks and buy bonds, leading to a decrease in equity returns of 17 basis points over the next day. Our results are robust to controls for momentum, reversals, and macroeconomic information. Importantly, we estimate that current rebalancing practices cost investors about $16 billion annually-or $200 per U.S. household. Moreover, the predictability of these trades enables certain market participants to profit by front-running the orders of large institutional funds. While rebalancing remains a fundamental tool for investors, our findings highlight the costs associated with prevailing strategies and emphasize the need for innovative approaches to mitigate these costs.
Macro Briefing: 14 February 2025
A solid rise in US producer prices in January aligns with consumer price data that suggests inflation may be picking up. For the year through January, the producer price index rose 3.5%, matching December’s gain and reflecting a moderately faster increase vs. recent history.
10-Year US Treasury Yield ‘Fair Value’ Estimate: 13 February 2025
The market premium for the US 10-year Treasury yield rebounded sharply in January, rising to its highest level in nine months, based on a “fair value” estimate calculated by CapitalSpectator.com. Yesterday’s hotter-than-expected inflation data for last month suggests that the market premium will remain elevated for longer than recently expected.