Back at New Highs, Now What?
What a year it has been already! Worries about tariffs, what President Trump might do next, the Fed, geopolitical drama, inflation, AI, and more have dominated the headlines and caused a good deal of worry for many investors in 2025. Yet, in the face of all of that, the S&P 500 moved back to new all-time highs last week, which has many investors scratching their heads about how this is possible.
The shortest answer is we are in a bull market and stocks tend to go higher in bull markets. We’ve been saying we were in a bull market for more than two years and it is important to remember that surprises happen to the upside in bull markets. Here are some reasons stocks are back at new highs, many of which we’ve covered in detail over the last few months:
- Record earnings, solid revenue, and new cycle highs in profit margins
- Markets climb a wall of worry and there is a lot of worry out there
- This bull market is actually quite young, so many more years of gains are possible
- The labor market remains strong, with healthy overall wage growth
- Inflation should improve later this year, potentially opening the door for the Federal Reserve (Fed) to cut more than is currently being priced in
- Productivity in the US has been strong the past six quarters, and historically, periods of strong productivity have led to above-trend economic growth and stock gains
- The bull market is broadening out, meaning many more sectors and groups are leading. It isn’t just about seven big tech stocks anymore
There are likely many more reasons, but one we want to make sure we highlight again is that this bull market is still young. As we show here, it is now only 28 months old and bull markets tend to last many more years once they get to this point. In fact, going back 50 years the five bull markets that made it into their third year (like this one) lasted an average of eight years total and the shortest was five years.
Many investors are scared of heights, meaning they don’t want to touch stocks at new highs. Well, we do like buying low too. We were suggesting overweighting equities in these very commentaries two years ago and fortunately the investors who followed that advice are quite happy to have stocks making new highs. But what do you do now?
It is important to understand that new highs are very common and tend to happen more than you’d think. Starting in 1957 (when the S&P 500 moved to 500 stocks) a new high has been hit about every three weeks, with more than 1,200 new highs along the way. Looking at what happens after all of those new highs, stocks were higher a year later 71.0% of the time and up a median of 8.3%, so about what you tend to see in any random year. Yes, some day there will be a new high that is the last one and rough times could be right around the corner. The good news is we don’t see that happening anytime soon and 2025 still looks like it should be a nice year for investors.
Remembering Five Years Ago
The headlines might be scary today, but they were nothing like what we started experiencing this time five years ago. The S&P 500 peaked on February 19, 2020 and five weeks later was down 34% for the fastest and most vicious bear market ever. Then, nearly just as quickly stocks turned around and rallied, but unfortunately many investors panicked and sold in the depths of the pandemic and took a long time getting back into markets.
They say the stock market is the only place where things go on sale and everyone runs out of the store screaming. Well, we saw a lot of selling and screaming back then and unfortunately a lot of investors sold right before a huge rally and missed a generational buying opportunity.
Think about all of this a little more. We had a 100-year pandemic that shut down the global economy and then a second vicious 25% bear market in 2022. We’ve never seen back-to-back bear markets that close to each other, making the start of this decade extremely rough for investors.
Yet, the S&P 500 is up more than 80% since right before the market peaked in February 2020, for an annualized gain of more than 12%! So if you simply held in the face of two scary bear markets you’d be up more than 80%. That is easier said than done, but many investors did just this.
Now imagine if you not only held, but used that weakness to buy solid companies at very attractive prices? This is why we invest for the long run and use the scary times as an opportunity, not a time to panic.
President Eisenhower once said, “Plans are useless, but planning is everything.” Have a plan for the next time things are bad out there. Are you going to panic? Or will you use it as a time to follow your plan? Think about that the next time you see some red on the screen and all the commentators on TV all worked up over the latest worry. Worries happen every year — 2025 wasn’t going to be any different. Spoiler alert, 2026 and 2027 will have scary headlines and big market down days as well.
This is a bull market and no one knows when it’ll end, but we were one of the very few places to say it was a new bull market two years ago. And we continue to see reasons for it to continue, so enjoy the ride.
5 Reasons Why We’re Not Worried About Rising Credit Card Debt
Every quarter the New York Federal Reserve releases its household credit and debt report and we get a flurry of headlines about rising credit card debt and delinquencies. As always with these things, it’s important to maintain some perspective. Here are five reasons we see little reason to worry about the household debt picture when you put it in context.
One: Household Leverage Is Actually Falling
Credit card debt rose 3.9% last quarter (Q4 2024) to $1.2 trillion. Yikes! But credit card debt is under 7% of overall household debt. Total debt rose just 0.5% in Q4 to $18.0 Trillion, the slowest quarterly increase since Q2 2023. That’s because most household debt is mortgage debt ($12.6 trillion), and that’s barely increasing—for obvious reasons, since mortgage rates are running close to 7%.
But you know what’s increasing? Disposable income, which increased 1.3% in Q4. Across 2024:
- Overall household debt grew by 3%
- Disposable income grew by 5%
In some ways, that’s what driving the economy, even as households become less levered. For perspective, here are the numbers for 2019:
- Overall household debt grew by 4.4%
- Disposable income grew by 2.7%
It’s remarkable that disposable incomes have grown faster than overall debt for the second year in a row (2023 and 2024). That becomes important because disposable income is used for servicing debt. Debt service payments are just 11.3% of disposable income right now, below the 1980–2019 average of 12% and even below the 2019 average of 11.7%. Also remember that 2019 was the end of a decade of deleveraging. Household balance sheets got hit by the Financial Crisis, as stock prices and home prices fell, and households spent the following decade rebuilding them. So, debt service running below 2019 levels is a huge positive.
Two: Consumers’ Borrowing Capacity Is Not Stretched
Credit card debt rose by $45 billion in Q4 (to $1.2 trillion). However, credit card limits rose by $98 trillion, which means available credit rose by $53 billion, more than the increase in credit card debt. As a result, credit card utilization was unchanged at 24%, matching the 2010–2019 average.
Home equity credit utilization was also unchanged at 40%, which leaves it well below the historical average of 51%. We think this is the main dry powder consumers have, and it’s likely to increase as home prices rise. Of course, we need interest rates to pull back for consumers to start accessing this dry powder, but it’s there.
Three: Credit Card Delinquencies Rose, but This Is Likely Normalization
There’s been a lot of worries about rising stress within credit card and auto loans. Looking at the percent of balances that were 90+ days delinquent:
- Credit cards: Rose from 11.1% to 11.4% (it was 8.4% in 2019)
- Auto loans: Rose from 4.6% to 4.8% (it was 4.9% in 2019)
The data for “transition” into serious delinquencies (90+ days) is where a lot of concern has focused:
- Credit cards: Rose from 7.1% to 7.2% (it was 5.3% in Q4 2019)
- Auto loans: Rose from 2.9% to 3.0% (it was 2.4% in Q4 2019)
Now, the transition rate is the newly added seriously delinquent balance as a percent of the previous quarter’s balance that was not seriously delinquent. But with debt balances running on the lower side, it doesn’t take a lot of new delinquencies to send the transition rate higher. Ultimately, incomes are what’s funding consumption, and so fewer people are using debt (especially credit cards). As a result, the mix of borrowers is actually slightly worse.
Again, it’s better to normalize delinquencies and transitions into delinquencies by disposable income, to help comparisons across time on an apples-to-apples basis. Credit card debt is currently around 5.5% of disposable income, slightly lower than the 5.7% in 2019 and below the historical average of 6.4%. Meanwhile, card balances that are seriously delinquent (90+ days) is 0.62% of disposable income. That’s up from 0.52% a year ago, and currently higher than pre-pandemic levels. However, it’s lower than the minimum we saw during the 2003-2007 expansion cycle. As I pointed out above, households were in a big deleveraging cycle during the 2010-2019 period, as they looked to shore up balance sheets. Balance sheets are much more solid now, and so what we’re seeing is likely just normalization. If these continue to surge, that would be worrisome, but they are already signs that the rate of growth of delinquencies (relative to incomes) is starting to slow down.
Four: Overall Picture of Delinquent Balances Don’t Look Bad
Let’s look at the overall picture of delinquent balances. The percent of total balances that were current on payments fell slightly from 96.5% (Q3) to 96.4% (Q4). That’s above the Q4 2019 level of 95.3%. What is especially striking is if you look at “seriously delinquent” balances (anything above 90 days) that’s just 2% of total balances, versus 3.1% in 2019.
Again, once you normalize by income, the picture looks even better relative to history. Seriously delinquent balances are just 1.7% of disposable income. It was 2.7% in 2019 and averaged 2.2% from 2003–2006. This is probably the chart that best illustrates the post-Financial Crisis deleveraging cycle of 2010-2019.
Five: Collections, Bankruptcies, and Foreclosures Are Running Low
If households were really getting stretched, and there was a lot of broad pockets of payment distress, we would see third party collections soar. It’s the opposite. Only 4.6% of households had collections against them in Q4, and that’s actually lower than the 4.7% of a year ago. It averaged 9.2% across 2019.
The number of consumer foreclosures fell 1% in Q4, following a big 12% drop in Q4. Foreclosures totaled 41,520 in Q4, 42% below the 2019 level of 71,420. Moreover, consumer bankruptcies fell by 3%, following a 7% decline in Q3. Bankruptcies totaled 122,660 in Q4, 39% below the 2019 level of 201,820.
Six (Bonus Reason): Household Balance Sheets Look Good Across Income Levels
At an aggregate level, the household balance share picture looks better than ever. Assets are currently worth 851% of disposable income, up from 791% in 2019. Despite the increase in disposable income, asset values have risen on the back of surging stock prices and home values. At the same time, liabilities are running at 96% of disposable income, down from 98% a year ago and below the 101% level in 2019. As a result, net worth is at 755% percent of disposable income, higher than at any point between 1955 and 2020.
One knock against the chart above is that it’s an aggregate picture (by the way, so are the credit card debt data everyone cites). Perhaps the story is different if you look at different segments of households? Short answer is no. The picture looks good even if we look at households across the income spectrum. Here’s liabilities as a percent of assets for different income quintiles:
- 0-20th percentile: 14.7% (vs 16.2% in 2019)
- 20th – 40th: 17.6% (21.9% in 2019)
- 40th – 60th: 18.5% (20.7% in 2019)
- 60th – 80th: 17.8% (18.6% in 2019)
- 80th – 99th: 9.7% (11.3% in 2019)
- Top 1%: 3.7% (4.2% in 2019)
In short, every income group is less levered relative to where they were at the end of 2019, and as I pointed out above, 2019 was at the end of a decade of deleveraging. So things look good even relative to that high bar.
All this tells you how strong household balance sheets are, and the lack of distress relative to history (even relative to a the end of a solid deleveraging cycle like 2019). This is not to say that there are no risks out there. There certainly are, as we highlighted in our 2025 Outlook, but it’s not because households are over-levered.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The views stated in this letter are not necessarily the opinion of any other named entity and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 – A capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
The NASDAQ 100 Index is a stock index of the 100 largest companies by market capitalization traded on NASDAQ Stock Market. The NASDAQ 100 Index includes publicly-traded companies from most sectors in the global economy, the major exception being financial services.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
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