After the best two-year stretch for the S&P 500 (^GSPC) since the late 1990s, few on Wall Street are calling for an end to the bull market run, and this optimism serves as the key throughline in the fourth edition of Yahoo Finance’s Chartbook.
The fourth volume of the Yahoo Finance Chartbook shows a clear sense that a regime shift may be underway.
Instead of debating how deeply the Fed will cut rates, market participants are welcoming the reality of a sustainably higher interest rate environment. The 10-year Treasury yield (^TNX) is trading near its highest level in more than a year; the question now is whether multi-decade milestones are next.
And then there’s Donald Trump.
How those changes impact the Fed, markets, and the broader US economy is at the center of the current market moment.
The following commentary has been lightly edited for length and clarity.
“The chart shows the sharp reversal in correlations between stocks and yields that occurred in December. This was the main reason stocks struggled into year end and for the first week of the year. The reversal in correlations from positive to negative (Stocks vs. 10-year [US Treasury] Yield) coincided with the rise above 4.5% in UST yields, a level we identified as important for P/Es [price-to-earnings ratios] prior to the break-out in rates. We think good economic data is no longer good for stocks when yields are >4.5%. Should yields fall below 4.5%, it could serve as a positive catalyst for stocks so long as rates don’t plummet too far or fast on fears of growth falling. Conversely, if rates rise further, it will be headwind for stocks.”
“The Temperamental Era was mostly characterized by heightened economic, inflation, and geopolitical volatility. The Great Moderation era was characterized by fairly consistent disinflation, longer/less volatile economic cycles, and the surge in globalization. During most of the Temperamental Era, there was an inverse relationship between bond yields and stock prices; while it was the opposite during the Great Moderation Era. The recent inverse relationship bears watching to gauge the likelihood we’ve exited the Great Moderation Era.”
Michael Kantrowitz, chief investment strategist, Piper Sandler
“We would expect interest rates to matter a lot when we’re above 4.5%, and perhaps if we get a growth scare, below 3.5%. In between those levels, we should see correlations decay a bit, and other factors matter much more.”
“This chart shows US 10-year Treasury yields are creeping towards 5%. Markets are spooked by the 5% level on 10-years because it is the outer limit of an entire generation’s (20 years) experience with prevailing interest rates. The last time we went past 5% was in mid-2007, and we all know how that story ends. Granted, 2025 is very different from 2007, both for good (a more stable banking system) and for bad (higher US federal debt levels). Nonetheless, market narratives often anchor on simple, easily observable numbers like 10-year Treasury yields.”
“This time is, indeed, different. While longer-term bond yields typically fall in tandem with Fed cuts, they have risen meaningfully since the first Fed cut in September. That rise underscores our preference for investing in high-quality companies. The MSCI Quality ETF (QUAL) screens for high profitability, stable earnings, and — crucially — companies with strong balance sheets and low leverage. We believe this combination is the recipe for success in an environment of strong economic growth but stubbornly high long-term rates.”
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“We are calling this the ‘year of the term premium’ in the bond market. The term premium — the extra yield investors demand to hold longer-term bonds versus reinvesting in short-term bonds — has moved sharply higher in the new year. It reflects the uncertainty about the path of Fed policy. With the economy continuing to grow at a solid pace, the unemployment rate low, and inflation holding stubbornly above the Fed’s 2% target level, the market has adjusted to the prospect of fewer or no rate cuts this year. In addition, there is uncertainty about the path of fiscal policy under the new administration and the potential for tariffs, immigration changes, and tax cuts to lift inflation down the road.
“Although the term premium has risen sharply since late last year, it could move higher. It was in the 1% to 2% region in the past when the economy was resilient.”
“As 2025 unfolds, the upward trajectory of the 10-year US Treasury yield underscores shifting risks tied to inflation expectations, fiscal imbalances, and evolving investor sentiment. The rising term premium likely reflects heightened uncertainty surrounding regulatory, immigration, tax, and trade policy and their inflationary implications, as well as concerns about the sustainability of US debt dynamics.”
“‘Safe haven’ assets are generally characterized by low default risk and high liquidity. Hopefully, they also help reduce risk in investor portfolios through a negative correlation with risk assets. For much of the decade following the global financial crisis, global safe haven assets were in short supply as the supply of safe assets only marginally exceeded demand from official institutions. This meant they had a negative correlation with equities and reduced the equity risk premium.
“Now the situation has changed. The supply of safe havens has risen dramatically and far outpaces demand from official institutions. As a result, their favorable portfolio characteristics have diminished, reducing their ability to act as shock absorbers in investor portfolios and leading to higher equity risk premiums.”
UBS Asset Management’s fixed income investment specialists team led by Martin Wiethuechter and Bobby Martin
“The global monetary policy hiking cycle that followed the COVID-19 pandemic was broadly synchronized, as central banks acted in tandem to stem inflationary pressures that emerged as economies reopened from the pandemic. As central banks turn to policy normalization and rate cuts, growing divergences are materializing, depending on the economic climate across regions.
“Growing divergences in the pace and extent of rate cuts will likely present attractive relative value opportunities across the fixed-income landscape this year, rewarding investors with active, nimble approaches to their allocations.”
“US monetary policy conditions are even tighter when factoring in quantitative tightening, which helps make the case for more easing in 2025.”
Click here to download YF Chartbook Vol. 4
“There is considerable uncertainty about President Trump’s trade agenda for 2025. This chart shows what the stakes are for the economy and consumers. Taken literally, President Trump’s campaign proposals imply raising the average effective tariff rate anywhere from 7 to 27 percentage points, which could mean tariffs higher than they’ve been since 1900. That would represent the most dramatic shift in both trade and tax policy in the US in generations.”
Matthew Luzzetti, chief US economist, Deutsche Bank
“This chart shows how our inflation forecast is impacted by different tariff assumptions. Without any tariffs, we anticipated that core PCE inflation could moderate to 2.3% this year. However, with our baseline assumption for tariffs (20 [percentage point rise] in tariffs on imports from China, an equalization of tariff rates on auto imports from Europe, and a 5% universal baseline tariff in 2026), we expect core PCE inflation will remain sticky at 2.5% in 2025. If 25% tariffs were to be imposed on Canada and Mexico, as recently threatened, core PCE inflation would likely accelerate this year to above 3%.”
“Are you tariff-ied? Just about everyone is awake to the fact that trade policy is set to be front and center as the Trump administration takes office, but it’s still challenging for most of us to wrap our heads around the size of tariff proposals. By nature, a universal tariff is set to hit all imports, but in deconstructing US imports by end-use product category and trading partner, we see how more targeted tariff policies would stack up in terms of the total US economy. Capital goods imports from Asian countries other than China represent the largest portion of our imports today, but a sizable portion of imports across categories from the EU demonstrates the broad tariff exposure of importers of European goods.”
Michael McDonough, chief economist, Bloomberg
“AI-identified mentions of tariffs on S&P 500 earnings calls have surged under the incoming Trump administration’s threat of significant US import tariffs, with the industrial sector seeing the largest spike. Because importers ultimately bear the cost of tariffs, companies could face higher expenses. Digging deeper in ECAN
Nancy Vanden Houten, lead US economist, Oxford Economics
“President Trump’s policies on immigration will have a notable impact on the labor market. Taking a high-level view, limits on immigration will curb population growth at a time when the US is increasingly reliant on immigration for growth in the population and labor force because of the aging of the native-born population.
“While much of the discussion on immigration has focused on the surge in the last few years, in most industries where the foreign-born are overrepresented, more than half of noncitizen immigrants have been in the US for more than 10 years. Employers in these industries could face significant labor shortages in the event of mass deportation, which could put upward pressure on wages and inflation.”
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“The current economic context is strong and rare. The present combination of low unemployment and strong GDP growth has only occurred 6% of the time historically. Prior such episodes occurred in 1965-1969 and in [the second half of the] 1990s. Each saw very strong equity market performance. We look for both GDP growth and unemployment to sustain at these rates in 2025 and remain constructive equities, with a year-end target for the S&P 500 of 7,000.”
“US exceptionalism over the last two years has opened a wide valuation gap between the S&P 500 and its European counterparts. Even excluding Big Tech, the rest of the S&P 500 delivered excess returns against MSCI Europe in 2024 that were the second best in two decades. While this could make European equities look attractive on a relative basis, we believe there are fundamental reasons underpinning this valuation gap.
“From a macro standpoint, US GDP growth has strongly outpaced that of the EU over the last two years. Even without the upside boost from Big Tech, the rest of the S&P 500 has seen [next twelve month earnings per share] revised upward by +5.9% over the last 12 months, compared to MSCI Europe’s -4.7% revision (USD).”
Richard Bernstein, CEO & CIO, Richard Bernstein Advisors
“2023/24’s stock market was the narrowest since 1998/99. Such narrow leadership has historically been the exception and not the rule, i.e., it’s probably incorrect that there is a new paradigm in which the ‘Magnificent Seven’ secularly dominate the market. Such extreme, narrow leadership is rare because it goes against capitalism, open markets, and competition. If one believes certain companies’ ‘moats’ are too big to be competed away, then one is implicitly arguing for increased antitrust enforcement. We think 2025 [will] be a year of returning to normal broader markets as speculation meets reduced liquidity and fundamental investing again outperforms.”
“[Magnificent Seven] has dominated equity performance as earnings growth far outpaced the rest of the S&P 500. That earnings growth gap is now starting to narrow as the ‘rest’ catches up. Mag 7, while still outpacing the overall index on earnings growth, is expected to be less of an outlier.”
Savita Subramanian, head of US equity and quantitative strategy, BofA Securities
“Since the 1980s, the most labor-light companies within sectors have substantially outperformed their peers, and 2024 saw a whopping 13 percentage point spread between top-decile and bottom-decile labor-efficient companies. In recent years, we have seen companies’ labor efficiency — or sales per worker — improve, and we believe that trend should continue. The chart is valuable because it illustrates that improved efficiency has performance implications.”
“Many market participants have recently expressed concern about the valuation of US equities, with the S&P 500 currently trading at its highest P/E multiple in recent decades outside of 2000 and 2021. However, while multiples today appear expensive when compared with historical averages, these valuations are supported by the strength of the current macroeconomic and corporate fundamental environment. Taking those factors into account, the multiple of the US equity market is almost exactly in line with fair value. Of course, if interest rates extend their recent volatility, or the fundamental environment deteriorates, fair value multiples will too, just as occurred in 2021.”
“It’s hard to find an investor who isn’t concerned about US equity valuations. By most measures, stocks are historically pricey. While stock market price-to-earnings (P/E) ratios are a poor tool for market timing, they’re highly correlated with poor future returns. The higher the price you pay today, the lower your expected returns should be. And with yields on US Treasuries climbing toward 5%, we sympathize with investors’ unease. But we’re not so concerned.
“Investors are willing to pay more for high future expected earnings growth. Typically, as companies mature, their growth rate declines and valuation falls. But today’s Big Tech behemoths are both high quality and high growth. They constitute a bigger chunk of the stock market, have more verticals, bigger moats, more innovative products and technologies, and eat up any emerging competitors. And as long as earnings continue to grow briskly, stocks can continue to provide returns at or above historical averages without an increase in valuations.”
“The valuation is based on the CPI inflation-adjusted operating EPS of the S&P 500, which we estimate to be ~$245 in 2025 up just over 4% year over year. The trend growth of that EPS figure has been 4% [over] the past 30 years. As a result, overpaying is a case of ‘near-term gratification with long-term pain in terms of weak prospective market returns.’
“Even for investors interested in the near-term momentum game of musical chairs (when the music stops…), the second chart shows the S&P 500 is closely tracking the correlation-weighted average of all manias the past 150 years, and likely consolidates the mid-upper-5,000s through Q3 2025 then falls off to mid-lower-5,000s Q4 2025. This is probably due to lower P/E multiples caused by persistently high rates and less-than-expected EPS growth.”
“While investors’ views of economic growth, the path of interest rates, inflation, and political outcomes have gyrated over recent years, the path of corporate earnings has been remarkably resilient. Indeed, rising S&P 500 forward earnings estimates have been a key pillar of market gains over recent years. With market valuations elevated, the ability of corporate America to deliver once again in 2025 will be a key for the sustainability of the bull market.”
“To me, the most important chart to watch is the ISM manufacturing turning up in 2025. This series has been below 50 for 26 months now, the longest stretch since 1989-1991, and we think [it] signals an acceleration of cyclical [earnings] growth in 2025.”
“If you wanted to draw up the perfect year for corporate America, you couldn’t sketch a better picture than 2025. S&P 500 earnings could grow 12% this year, led by a broad-based rise across all sectors. CEOs are unusually confident heading into this year, too, and there are rumblings of another big year of AI-based investment.
“Corporate America has a lot of good things going for it, but I can’t help but wonder if we’re collectively expecting too much. Last year was a story of analysts consistently underestimating S&P 500 companies, leading to pleasant surprises and relief rallies. This year, the bar is already high. There’s a lot of room for disappointment, which could lead to a more muted and bumpy year than the past two.”
“Investors should focus on Growth at a Reasonable Price (GARP) as market volatility likely lingers in Q1. However, GARP is getting harder to find. Per our chart above, nearly half of the Nasdaq 100 has market-implied growth expectations that exceed what sell-side analysts have projected. To us, we consider this an unattractive or negative GARP setup. Essentially, these companies may have to post results that beat estimates while raising future growth expectations to sustain current price levels near-term.”
“Collectively, analysts are surprisingly accurate at forecasting earnings. FactSet recently measured earnings per share (EPS) estimates for S&P 500 companies at the beginning of the year versus what was actually reported for that year for the past 25 years. If you exclude 2001, 2008, 2009, and 2020 — which are arguably outlier years — the average difference between the EPS estimate and the reported EPS was just 1.1%.”
“Expected earnings growth for S&P 500 in 2005 is 14%. But [there is a] bigger opportunity in Nasdaq even excluding the Magnificent Seven, and valuations are not excessive. US small caps [are] recovering from a couple years of poor earnings; emerging market growth [is] coming primarily from the tech sector.”
“Bull markets are like cruise ships, meaning once they get moving they can be quite hard to slow down and turn around. This current bull market made it past its second birthday late last year, and going back 50 years, we found five other bull markets that made it into their third year, and history would say there could be plenty of life left in the bull. The shortest any bull market made it was five years, with an average of nearly eight years. We aren’t saying this one will last eight years, but we are saying with record earnings, a new cycle high in profit margins, very strong productivity, and a likely more dovish Fed than is currently being priced in, this bull market could surprise once again in 2025.”
Click here to download YF Chartbook Vol. 4
“There are good reasons to believe the US business cycle has become less volatile. Developed countries should have more stable cycles than their developing peers. From 1880 to 1920, as a developing country, the US had 12 recessions — all before the Great Depression — and was in recession 44% of the time. But in the last 40 years, the US has only endured four recessions. One was big (GFC), two were trivial (1990–91, 2001), and one was brief (COVID). Recessions occurred in only 8% of quarters.
“Why the difference? The US now has nearly automatic stabilizers, such as the Fed’s ability to provide liquidity in a crisis, and a diversified domestic economy, with imports making up only 14% of GDP. It also is geographically removed from disruptions overseas. Plus, increased access to information helps us plan for downturns in advance.” Read more here.
Steve Sosnick, chief markets strategist, Interactive Brokers
“It is widely believed that inverted yield curves — when longer-term Treasury yields are lower than their shorter-term counterparts — are harbingers of recessions. The chart above shows that while their infrequent occurrences (too few to be statistically significant) do indeed precede recessions, the recessions only occur AFTER the curve normalizes. Ominously, after the longest period of inversion in the last 40 years, the curve recently normalized. I sincerely hope that the pattern is indeed statistically insignificant!”
Robert Sockin, global economist, Citi
“Real GDP in this cycle has risen by roughly 2% per year in Australia, and even a notch more in the US — strongly outperforming other major developed markets. Canada, meanwhile, has recorded GDP growth of about 1.5% per year, while activity has risen under 1% per year in the euro area, Japan, and the UK. These disparities largely reflect differences in consumer spending. US consumption, which accounts for more than two-thirds of GDP, has expanded at a clip of 2.8% a year over this period. This pace is a percentage point or more faster than consumption growth in Australia and Canada, which have posted the second- and third-best consumer performance in this cycle.
“Consumption in the euro area, Japan, and the UK have been on an improving trajectory but are still only modestly above pre-pandemic levels. Differing paths of investment have also played an important role in explaining divergent economic performance, and the US and Australia have also recorded the strongest investment growth overall. Euro area investment, meanwhile, ranks at the bottom of the list and is still stuck below 2019 levels.”
“Year-on-year inflation has moved sideways over the last six months, causing many to worry it is stuck in the 2.5%-3% range. But most of the 2024 upside surprise just reflects an odd effect of the stock market rally on the financial services category that has little connection to the underlying inflation trend, and the two key pillars of the disinflation narrative — wage growth slowing now that the labor market is back in balance and ‘catch-up inflation’ coming to an end — actually played out as expected in 2024 and should deliver further disinflation in 2025. We think that core PCE inflation would fall from 2.8% year-on-year to 2.1% by the end of 2025 in the absence of tariffs, and the tariffs we expect would provide only a one-time 0.3 [percentage point] boost, leaving it at 2.4% at end-2025 instead.”
“Household balance sheets remain remarkably robust, despite concerns about the depletion of excess savings. The ratio of total assets to liabilities is at an all-time high. The ratio of liquid assets to liabilities is about 10 [percentage points] higher than it was pre-pandemic. This supports our optimism on the health of the US consumer.”
Mark Zandi, chief economist, Moody’s
“The economy is highly vulnerable to a sell-off in the stock market. Growth is being powered by consumer spending and, more specifically, by the spending of the very well-to-do. The soaring stock market has made these households much wealthier and thus able and willing to lower their saving rate and spend more out of their income. Since they do the bulk of the saving, if they save less, it adds up to a lot of spending. But if the stock market falters, something I’ve argued is a serious risk, these wealthy households would surely react by saving much more and spending less. This would quickly become a threat to the overall economy.”
“Labor productivity growth picked up in the past two years and is running above its pre-pandemic pace and the rate in the US’s peer countries. Maintaining that the higher productivity growth would have substantial benefits over the long run; however, the slowdown in the hiring rate and the quit rate may limit the reallocation of workers to more productive jobs.”
John Silvia, CEO and founder, Dynamic Economic Strategy
“Slower job growth [is happening] while unemployment rate approaches Fed’s long-run expectations. Therefore, less room for the Fed to ease as job/economic growth continues to move ahead and long-run full employment is on the horizon.”
David Tinsley, senior economist, Bank of America Institute
“Bank of America internal data suggests that underlying pay dynamics in the labor market have softened somewhat this year. A prime example of this is the increase in pay that workers receive when changing jobs. Over the first eight months of 2024, it averaged just over 9% compared to an average increase of 11.7% in 2023 and close to 20% in 2022. In 2019, before the pandemic, it was just over 10%.”
“While post-secondary education matters, the training that organizations offer to workers after they’re hired might matter even more. Looking across all worker types — knowledge, skilled task, and cycle workers — we found in our People at Work 2025 story on skills development that no matter the job complexity, employees who receive skills training are more likely to stay, effectively reducing the high cost of turnover.
“When workers feel that their employer invests in their development, they’re six times more likely to be brand promoters than those who don’t see an investment. Sixty-one percent of workers who both strongly agree they have the skills needed and who believe their employer invests in those skills have no intent to leave their jobs. Only 9% of them are actively looking for work elsewhere, the smallest share of any group.”
Skanda Amarnath, executive director, Employ America
“The AI-driven tech boom isn’t just an outsized share of the S&P 500’s market cap weighting; it’s increasingly driving the real economy as its share of US GDP continues to grow. At a time when some commentators are highlighting the possibility of a ‘post-recession US economy,’ it’s worth remembering that the structure of the US economy is constantly shifting and, with it, different sectors of business cycle relevance. As a share of GDP, the final demand for software, information technology hardware, industrial equipment, and data centers is already close to 6% as of Q3 2024. Given [capital expenditure] announcements from the major tech firms and recent trends, that share should surpass what we saw in the late ’90s in the telecom-driven tech boom and potentially match housing’s share of GDP in the mid-2000s. Technology dynamics and the business cycle are starting to converge again.”
Gabriela Santos, chief market strategist for the Americas, JPMorgan Asset Management
“Fiscal policy has taken the baton from monetary policy as the most important driver for markets this year — as all global assets are taking their cues from the 10-year Treasury yield. … Importantly, it has been real yields rising the most (by 80bps), signaling that inflation is not the main concern at the moment. We believe that already elevated deficits and debt issuance are behind this move and the rise in the term premium, combined with investors factoring in a worsening path upwards from here. If current law holds, the Congressional Budget Office estimates the US will have a $1.9 trillion deficit in fiscal 2025, representing 6.3% of GDP; however, since September investors are already assuming that the 2017 TCJA [Tax Cuts and Jobs Act] individual tax provisions are all extended, elevating the deficit after 2025 to an average of 7.4% over the next decade. The main question this year is whether these estimates will worsen (with additional tax cuts) or improve (with cuts to spending).”
Thomas Ryan, North America economist, Capital Economics
“The precarious nature of the outlook for the Federal budget deficit is well appreciated at this stage, but arguably the bigger long-term risk is the mounting current account deficit. The deficit currently stands at 4.2% of GDP, a level only briefly surpassed when pandemic shortages were easing in 2022 and during the housing boom. A new challenge is the US is no longer benefiting from a primary income surplus from overseas assets to keep a lid on its net external liabilities, which have already ballooned to more than 80% of GDP. The result is an increased risk of a sharp downward correction in the dollar if market conditions overseas change and the potential for growing volatility in the Treasury market.”
Click here to download YF Chartbook Vol. 4
This project would not be possible without the work of Yahoo Finance Senior Editor Brent Sanchez, who turned Wall Street jargon into a digestible visual presentation of the current market moment. And a special thanks to Yahoo Finance’s team of editors who worked on this project, including Myles Udland, Michael Kelley, Adriana Belmonte, Grace O’Donnell, Becca Evans, and Anjali Robins.
Most of all, thank you to all of the experts who contributed their time and thought to this project and helped make this Chartbook such a valuable snapshot in economic time.
Josh Schafer is a reporter for Yahoo Finance. Follow him on X @_joshschafer. Have thoughts on volume four of the Yahoo Finance Chartbook or have a specific question about markets or the economy you’d like to see a Chartbook for? Email him at [email protected].
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