So Why Is the Stock Market Doing So Well?
This is based upon the assumption that the S&P 500 is still at or near the “all-time” high it hit during the week of July 21 – 25, 2025.
Allow me to provide some context. The S&P 500 index began the year at 5,868. Followed by a bit of a minor up-and-down until the first of many announcements about tariffs to close at 4,982 on April 8. Friday, July 25 the index closed at 6,388.
Even though I prefer referencing the S&P 500 over the DOW, neither of them is a representation of your portfolio. “Why?” The DOW is made up of 32 stocks. If you own one or more mutual funds or ETFs in your portfolio, you probably have some bonds along with more than the 32 stocks that make up the DOW.
“The S&P 500 has 500 stocks so why is that not a better representation of my account?” Yes, the S&P 500 includes more stocks and is a better representation of the overall market than the DOW, but the index is biased in other ways. Nine of the top ten holdings in the S&P 500 are technology companies and together they represent 35% of the entire market weight of the index. The top 25 largest holdings make up 50% of the index market weight. Meaning, the price changes of five percent of the stocks within the S&P 500 (25 of 500) companies represents 50% of entire index. Therefore, when you hear about the S&P 500 is up, this probably really means ten to 25 companies are up and you are not too sure about the rest. Therefore, the S&P 500 does not represent your account and should not…. unless, you are throwing diversification out the window and betting on the price of a handful of companies.
Bottom line. When the news (or we) says the DOW or S&P 500 are up or down X% for the day, week, month, YTD, or ten years, it does not directly correlate to your accounts. These indices are a convenient and compliant way of saying that markets in general are going up or down ... but not how much your accounts are going up or down.
Now back to the original question.
Stock prices and therefore, indices like the DOW or S&P 500, are what are known as “leading economic indicators.” This means they point to how well or poorly the economy will be doing in the near “future” --- note here that future is a relative term and is never defined.
The stock markets and company prices began the year with a great deal of unknowns due to the new Congress and President promising many changes of policy and governance. The first major announcement of specific tariffs on April 2nd led Wall Street investors to be fearful of increased cost of imported goods, raw materials, which could lead to higher inflation and declining company profits. As a result, the S&P 500 dropped to below 5,000 – or down 15% from the beginning of the year.
Since then, the S&P 500 (and those nine tech companies referenced before) has recovered and gone on to new record high. Why you ask?
In spite of the fact that tariff policies remain a moving target, and will probably remain fluid for the future (no time-frame specified), it “appears” the resulting tariffs may be far less than or initial figures presented. This is one reason stocks have recovered.
A second reason for stock price recovery over the last four months is that tariffs have not significantly or meaningfully affected the prices of goods. This is despite the fact that 40% of CEOs surveyed have said they plan to pass tariff costs on to consumers in the form of higher prices. However, since tariffs are still not specified, the consumer may not have seen the price increases yet. This may be why so many people are making major purchases now before tariffs affect prices. An example of this is the number of new cars with temporary license plates my wife, Kathy, noticed while on a road trip to see family. Reason: people trying to beat the tariffs.
Reason number three is the relatively stubborn unemployment number and up until Friday, a decently strong labor market. Yes, the Jobs report released on Friday did show a significant reduction in the number of new job’s added, which is not great news. This means that consumers have felt secure in their jobs until now and are willing to spend money. But people are not leaving their current jobs for better ones. With the current immigration/deportation policy we will likely have fewer people to fill lower-level jobs in hospitality, agriculture and manufacturing/food processing while the more highly educated engineers, scientists and medical persons may not be as anxious to pursue careers in the US.
Reason number four is that while optimism is the mood of the day, it is not extreme. Optimistic yes because 1) tariffs may not be as bad as initially thought, 2) we have not seen tariffs immediately drive-up prices a lot, and 3) unemployment remains low with relatively good company profits. Yes, many companies are now declining to make profit projections for the next year due to economic uncertainty from tariffs, but all said, optimistic but not crazy optimistic. Tempered enthusiasm may be a better term…at least for now. This is good.
“OK, so the indices are up YTD and when /if I look, my account could possibly be up as well YTD, should I be doing anything with my account?”
As your financial advisor, the following is what we have been doing:
1. We began the year by reviewing all holdings within investment accounts. We reviewed management changes, fund allocations/weighting, year-over-year performance along with performance relative to other funds with similar allocations/objectives. You may have noticed that we replaced several holdings based on our criteria.
2. We review all portfolios at least twice a year (and some more often due to specific circumstances) for portfolio allocation (the mix of stocks to bonds, mix of US vs foreign stocks, the mix of large companies vs small companies). If your risk profile and investment objectives call for a 60 / 40 (growth / conservative) mix and your account grows to 70 / 30 due to stock market gains, we will rebalance your account back to prescribed allocation to keep the account from getting “too risky.”
3. Even though selecting money managers / funds / allocation is important, we feel that managing / matching your need for cash flow (distributions for spending) to the amount of cash is a high priority. This allows us the space and time to not react emotionally to changes up or down in the markets. When markets are down –like early April, we sit back and wait…wait for markets to recover.
4. During the last four-ish weeks, if your account was short of our “gold-standard” of twenty-four months of no-risk investments to cover cash flow for distributions, we made the adjustments within your account. This process is repeated every time we review your account plus extra occasions like this current “whipsaw” when the market is down 15% and recovered almost immediately.
5. We review your financial plan, risk tolerance, tax situation as it applies to your investments, estate plan / beneficiaries, and remind you to update your auto, home-owners and umbrella liability policies.
6. Wash, rinse and repeat the cycle.
Wollman Wealth Designs, Inc is a financial services and investment firm in Escondido, CA partnering with families, friends and clients in San Diego County and around the country. Please visit our website, call the office or send us an email with your comments or questions.
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