Five for Friday
November 14, 2025
Earnings, Valuations, Diversification, Long-Termism, and Dow Jones
1. Earnings
Exorbitant valuations—when trading prices become unmoored from fundamentals—are a common hallmark of history’s asset bubbles, driven primarily by (overly excited) speculation about the future. Amid rampant bubble discourse, it’s worth highlighting how well large U.S. businesses are doing. Of the 450 companies in the S&P 500 that have already delivered third quarter results, 82% reported earnings above analyst estimates. This puts Q3 on track for the best “upside surprise rate” since 2021. Earnings growth for Q3 is now expected to be 14.6%; just six weeks ago, the estimate was 7.6%. Per FactSet, this would mark the fourth consecutive quarter of double-digit earnings growth for the S&P 500. And non-Magnificent 7 stocks are holding their own; per WisdomTree, the S&P “493” is expected to grow earnings about 12% on the quarter. Strong fundamentals won’t prevent a bubble (and might even encourage it), but investors can take some solace in the profitability of corporate America.
2. Valuation
Pockets of the stock market may look expensive (even frothy), but the broad stock market does not. The forward price-to-earnings ratio for the S&P 500 Equal Weight is near long-term averages (not cheap but not screaming “bubble”). This index is called the “average stock” because it puts all 500 stocks on an equal footing (unlike the more commonly referenced cap-weighted S&P 500). From 1995 to 2005, the S&P 500 Equal Weight outperformed the Nasdaq, sold off less drastically in the dotcom bust, and reached new all-time highs in 2003 (the Nasdaq took more than 15 years to surpass its March 2000 all-time high).
3. Global
Another relatively cheap and overlooked corner of the market is international stocks. Over the last year, the MSCI All Country World ex-US index has outperformed the Nasdaq, the S&P 500, and the S&P 500 Equal Weight—despite far less exposure to the Big Tech winners driving the AI bull market. This may make International stocks good portfolio diversifiers and a hedge against the potential for a structurally weaker dollar over the coming years. The late 1990s corollary plays well here, too: after the dotcom bubble burst, amid U.S. dollar weakness and Tech stock fatigue, the MSCI AC World ex-US outperformed U.S. stocks for ten years, returning over 10% annually vs. 7% for the S&P 500.
4. Long-term
For stock market nerds and history buffs alike, the Deutsche Bank Long-Term Asset Return study makes for phenomenal perusing. The depth and breadth of the historical risk/return data (200 years in some cases) also provides a counterbalance to the recency bias that plagues us humans. The data confirms the benefits of thinking long-term when investing in financial assets: “Our global dataset shows that equities have only a 0.8% probability of underperforming cash under the mattress over a 25-year horizon. Most cases occurred in Ireland during the early-mid 19th century amid the Great Famine…a 60/40 equity-bond portfolio has historically provided the lowest probability of nominal loss, with a 0.1% chance of negative 25-year returns—lower even than [Treasury bills].”
5. On this day
in 1972, the Dow Jones closed above 1,000 for the first time ever. Today, with the index touching new all-time highs this week and just 3% from “Dow 50,000,” the only remaining constituent from 1972 is Procter & Gamble.
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This is not a complete analysis of every material fact regarding any company, industry or security. The opinions expressed here reflect our judgment at this date and are subject to change. The information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. Market and economic statistics, unless otherwise cited, are from data provider FactSet.
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