March marked the second consecutive month of historically poor growth performance, capping the worst back-to-back stretch since the global financial crisis. While low volatility and value surged, growth and momentum were hit hard—raising big questions about how much downside remains and whether safety now comes at too steep a price.

Uncertainty surrounding Trump’s second term and the risk of escalating tariffs have shifted market focus from inflation to growth, raising fresh concerns about a potential recession. Our updated Recession Dashboard shows a delicate balance, with risk now slightly above 50%—driven largely by weakness in equities and full-time employment. While some indicators have improved, the market remains the most important signal to watch. A sharp selloff could tip the economy from slowdown into recession territory.

S&P 500 performance turned negative in the first quarter of 2025 and factor returns responded as expected. Defensive factors including Low Volatility and dividend-focused styles produced positive returns, and Value managed to eke out a tiny gain.

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Extended bull markets are the primary attraction of equity investing and play an integral role in generating long-term returns.  However, investors must take heed when psychological excesses turn a garden variety bull market into mania-induced price chasing.  Instead of reaping the customary gains offered up by a typical bull, the risk and reward tradeoffs become exponentially larger when exuberance overpowers prudence.  Recognizing the difference between a bull market and a bubble is critical for building a respectable long-term track record.   There are subjective attributes common to most manic equity markets, and although these signposts are not mechanical or quantitative, taken together they tell a coherent story.

With yesterday commemorating the 25th anniversary of the S&P 500 Y2K peak, it’s worth evaluating the long-term results of the unlucky purchases of U.S. equities occurring at that time. Of course, it’s doubtful that many investors decided to dump their money-market funds and go “all in” on stocks that day. Instead, think of this analysis as a review of how one’s dutiful, monthly 401(k) contribution for March 2000 has likely performed over the subsequent 25 years.

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This essay takes a broader view of Manias, Bubbles, Panics, and Crashes by expanding on these terms, considering the benefits of studying stock market bubbles, and looking for commonalities that mark each phase of a euphoric price cycle.  The most practical reason to study bubbles and crashes is the simple fact that they appear far more often than one might expect. Rational investors may be inclined to dismiss the periodic appearance of bubble conditions as just so much noise and frivolity, leaving us to focus on real world issues like the economy, profits, and expected returns. However, we believe the impact of manias and crashes on investment performance over an entire career is significant to the point of being decisive, and that is the most compelling reason to study the history of financial manias.

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February’s cool CPI figures were a welcome step down from January’s hot readings. Positive market reaction to the news was spotty. Trends that would suggest a cold economy and hot inflation are still in the early stages but uncertainty remains high.

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The median normalized P/E ratio for the S&P SmallCap 600 fell to 21.0x in February, the bottom quintile of all monthly observations since 1994. Historically, a normalized P/E multiple near the current level has been associated with a five-year-forward annualized return for small caps in the double digits.

For months, the euphemism to describe the weakening labor market has been “normalization.” Our preferred terminology has been “pre-recessionary,” and the numbers continue to trend in that direction.

Flip-flopping about tariffs has damaged confidence and at a time when the economic expansion already looks fragile. Back in 2017 and 2018, Trump Tariffs 1.0 occurred with an economy much better positioned to absorb the tariffs themselves, as well as the confusion surrounding them.

Despite volatile headlines, the German DAX index has staged a stellar double-digit rally since the start of the year—outpacing even the most “exceptional” S&P 500. In fact, over the last year or so, the DAX has now pulled ahead of the S&P 500.

The index’s income statement turned in one of its best showings of recent years. Year-over-year sales growth for S&P 500 companies landed at 5.6%, exceeding the 5.0% rate in nominal GDP and mimicking the sales growth posted earlier in the year. 

It was 25 years ago this month when the legendary dot-com mania reached its crescendo, entering market lore as one of the greatest bubbles in history. This silver anniversary prompted us to create a month-long series of articles under the banner of “Manias, Bubbles, Panics, And Crashes.” Here we look back at the sheer scale and intensity of the internet craze.

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The S&P 500’s bottom-up operating EPS continued to improve in the second month of reporting. Since the start of Q4 announcements, the EPS figure has increased 1%. The direction of the estimate, not necessary the amount, is what’s impressive. The same can’t be said for the coming two quarters, however. Bottom-up projections for Q1-25 have fallen 4% in the last two months, while Q2-25 is off 2%. Again, sharp moves higher in the EPS snail trails are exceedingly rare. With almost all of the reporting done for 2024, the S&P 500’s operating EPS of $234 equates to a healthy YOY gain of 9.5%. The expectation for full-year 2025 currently stands at +14.3%.

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