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Written by: Jacob Johnston | Advisor Asset Management
1. Leadership
The broad equity markets are off to a solid start to the year. The S&P 500 has gained 4.2% (price basis) year-to-date as of this writing (2/18/25). However, the returns are not being led by the usual suspects of 2023 & 2024. The index tracking the so-called “Magnificent 7” has gained just 0.86% in 2025.
Nine out of the 11 GICS Sectors in the S&P 500 are outperforming the benchmark year-to-date. Information Technology and Consumer Discretionary are the only two sectors underperforming — which is where most of the Magnificent 7 reside. Materials and Financials are the two best-performing sectors.
Source: AAM, FactSet. As of 2/18/25 | Past performance is not indicative of future results.
2. International Markets
International markets are outperforming domestic markets. The MSCI All Country World Excluding United States Index has gained 7.6% year-to-date compared to the S&P 500 return of 4.2%. The strong international returns are spread across Europe, Asia, and Emerging markets.
Source: AAM, FactSet data. As of 2/18/25. Returns in U.S. dollars. | Past performance is not indicative of future results.
3. Redline for Risk
Strategas Research has noted the upward trajectory of the S&P has slowed during this bull market when the yield on the 10-year Treasury breaches 4.5%.
So far in 2025, the yield on the 10-year Treasury has been above 4.5% almost all year and the S&P 500 is setting new record highs. The redline for risk assets could potentially be shifted higher. While still early, these are three significant changes from 2024 to consider regarding asset allocation in 2025. We are seeing an increased opportunity set domestically, strong participation internationally, and an overall equity market more tolerant of higher interest rates.
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