Week In Review

It was just a month ago that Federal Reserve Chairman Jerome Powell noted that upside risks to

inflationary pressures had increased and the revision to the Summary of Economic Projections, or dot plot, projected only two 25 basis point interest rate reductions for calendar year 2025. Two straight upticks in the Consumer Price Index preceded the change. It’s no wonder the financial markets were intently focused this past week on the release of the updated inflation gauge for the month of December. The headline Consumer Price Index rose 2.9% from a year ago, up from the 2.7% measurement the previous month, but in line with forecasts. However, the core inflation reading that excludes volatile food and energy components came in at 3.2%, a step lower from last month and below consensus estimates. Shelter prices were responsible for the better news. The financial markets welcomed the mixed but favorable inflation metrics. The 10-year Treasury yield plunged 18 basis points and closed at 4.62%. On the heels of strong earnings reports from JPMorgan, Citigroup, Wells Fargo, and Goldman Sachs, the S&P 500 was invigorated, rising +2.9%.

This Week

The economic calendar is sparse, but the earnings calendar snowballs. Updates for the holiday-shortened week include U.S. leading economic indicators and S&P flash U.S. services and manufacturing PMI reports. Earnings releases continue with 43 S&P 500 companies scheduled to report results for the fourth quarter, including industry titans Union Pacific, Procter & Gamble, Johnson & Johnson, Verizon and American Express. 3

Portfolio Themes

The venerable S&P 500 index currently trades at a forward price-earnings multiple of 21.5x, expensive compared to the historical average of 16.9x4 . Since 1990, history shows that valuation levels above 19.8x have a mean 1-year forward return of just 2.8%.5 Simplicity offers other target portfolios for direct indexing that may offer superior relative value and risk control.

Source: Invesco, Bloomberg L.P. Chart shows blended forward 12- month price-to-earnings ratios from 2/28/2010 through 12/31/2024. The S&P 400 Index measures the performance of mid-capitalization stocks in the US. The S&P 600 Index measures the performance of small-capitalization stocks in the US. The MSCI EAFE Index is a freefloat weighted equity index comprised of stocks across developed market countries in Europe, the Middle East, Australasia, and the Far East. The MSCI EM Index is a free-float weighted equity index comprised of stocks across emerging market countries. An investment cannot be made directly into an index. The S&P 500® Equal Weight Index is the equally weighted version of the S&P 500® Index.

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Data: Unless otherwise noted, data for charts, graphs, and tables is sourced from YCharts. Portfolio Themes chart sourced from Invesco.

1Style box returns use various Russell indices tied to specific areas of the market cap (vertical) and style (horizontal) spectrums.

2 Index Statistics: P/E TTM – Calculated by dividing an investment’s price by the trailing 12-month earnings per share value. Yield – Expected dividend-per-share divided by current share price. Table statistics are updated monthly. MSCI indices represent broad global and international equity markets. Indices are represented by iShares ETF proxies (IVW, IVV, IVE, ACWI, and ACWX). Past performance does not guarantee future results.

3FactSet.

4 Invesco.

5Charles Schwab.

Weekly commentary and investment advisory services are provided by Simplicity Wealth, LLC a SEC Registered Investment Adviser. Registration does not imply a certain level of skill or training. The information provided is for informational purposes only and does not constitute any form of advice or recommendation. The information contained within has been obtained from various sources and is believed to be accurate at the time of publication.