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Back and Forth, Earnings, Illusions, and Gratitude

Writer: Doug MacGrayDoug MacGray
Feb 244 min read

February 23, 2025


U.S. STOCKS PULL BACK AGAIN: U.S. stocks have been up and down a lot this year, and last week was down. Proposed tariffs on auto, semiconductor, and pharmaceutical imports had a negative effect on market sentiment. Corporate earnings reports played a role with Alibaba doing great after showing strong earnings while Walmart fell because of negative guidance in its report. Not all stocks pulled back. Emerging markets stocks had a strong week. In the U.S., energy stocks were the top performing sector while tech stocks lagged. Large and mid cap value stocks were positive, while all U.S. growth indices were down. Up next, this Wednesday Nvidia is scheduled to release its earnings report for last quarter. In addition, Home Depot, Lowe's and Salesforce will release earnings.



LONGER-TERM PERFORMANCE: Below are the annualized three-year and five-year numbers for these same indices.



EARNINGS: The general consensus among economists and market prognosticators is that U.S. corporate earnings will grow at a rate of 11% this year. Why is that important? The current valuations of stocks need 11% growth to hold their current valuations. If earnings grow by 10%, the market will likely be tepid to slightly declining. Earnings likely need to grow by 12% or more for valuations to increase. We will be watching earnings closely this year.


WARREN BUFFETT HAS LOTS OF CASH: From 2016 to 2018, Berkshire Hathaway, Warren Buffett's company, bought lots and lots of stock in Apple, eventually holding a 6% position in the company. As you all know, Apple is one of the Magnificent Seven companies in the S&P 500 which has helped lead that index to higher and higher peaks. Warren Buffett does not like expensive stocks, and beginning in late 2023, he began selling and is now down to a 2% position. Berkshire Hathaway did not sell Apple stock during the fourth quarter of 2024, keeping its position worth about $75 billion. This divestiture has given Berkshire Hathaway a lot of cash to play with, causing many to wonder if he has lost faith in this market in general. Some are speculating that the 94-year-old is trying to make his leadership transition to Greg Abel smoother by keeping the cash on hand. Said Mr. Buffett, "“Berkshire shareholders can rest assured that we will forever deploy a substantial majority of their money in equities—mostly American equities although many of these will have international operations of significance....Berkshire will never prefer ownership of cash-equivalent assets over the ownership of good businesses, whether controlled or only partially owned.” There is no question that Warren Buffett and Berkshire Hathaway like to purchase stock at a bargain price, and with large companies, that is hard to find right now. The S&P 500's weighted average price-to-earnings ratio is currently 27. If you equally weigh all the 500 companies in that index, the P/E ratio is 21.5. The Russell 2000, an index of stocks of smaller companies, has a current P/E ratio of about 17.9. All these numbers are higher than the S&P's historical average P/E ratio of about 16. Berkshire Hathaway has bought large positions in five Japanese trading companies in the past several years, and it is likely to buy more.


SALES OF EXISTING HOMES DECREASE: In January, sales of existing homes in the U.S. decreased by 4.9% from the prior month, but January was 2.0% higher than one year ago. That is the fourth straight month that sales were higher than the year before. Before this streak, year-over-year sales numbers have been lower each month for over three years! Total housing inventory is currently 16.8% higher than one year ago. The graph below shows the current inventory of homes. Inventory generally hits annual lows in December and January and peaks in the summer.



POPULATION PEAK: According to the UN, after 350 years of global population growth, the earth's population is expected to peak in 2084 at 10.3 billion, after which it will begin to decrease. Some regions will hit their peaks much sooner. Western Europe peaked in 2020 at 750 million. Asia and Latin America will peak, according to the UN's report entitled UN's World Population Prospects, in the 2050s. Africa, Northern America, and Oceania will keep growing into the next century. (Northern America refers to the region that includes Bermuda, Canada, Greenland, and the United States). These projections take fertility, mortality, and migration patterns into account and make assumptions about the future. Those assumptions can change.


ILLUSIONS: I attended a great financial planning conference in Orlando last week. Deb came along, and when the conference was over on Friday at mid-day, we took some leisure time. We went to an illusions museum.



FROM 90 TO 2: We have so much for which to be grateful in our family right now. We are trying not to take any of it for granted. Last week, we celebrated the 90th birthday of my mom up in Massachusetts. One week later (Saturday), we had to hop on an early morning flight from Orlando to Philadelphia to celebrate the second birthday of this little bundle of joy, my granddaughter "Kenz."



Have a great week!


Our purpose is to honor God by helping our clients see the objective, find the path, and navigate past the obstacles to a more prosperous future.



Douglas R. MacGray, J.D., C.F.P. ®

President

Stonecrop Wealth Advisors, LLC

Direct | Cell | Fax

(610) 628 4545



"Be courteous to all, but intimate with few, and let those few be well tried before you give them your confidence." George Washington, whose 293rd birthday was on Saturday


"He who gives to the poor will lack nothing, but he who closes his eyes to them receives many curses." Proverbs 28:27 (NIV)


SOURCES:


(c) 2025 Anno Domini, Stonecrop Wealth Advisors, LLC, All Rights Reserved


Investment advisory services offered through Stonecrop Wealth Advisors, LLC, a Registered Investment Advisor with the U.S. Securities and Exchange Commission.


SDG

*S&P 500: This is a measure of the performance of the 500 largest companies in the United States, and it a common index to track the performance of U.S. equity markets, especially the large cap markets.

*MSCI All Country World Index X US: This is a broad measure of the performance of worldwide equity markets excluding the United States.

*Bloomberg U.S. Aggregate: This is a measure of the U.S. bond markets.

 
 
 

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