Watch the replay:
Read the transcript:
[00:00:00] Hello, I'm Bill Woodruff. Thank you for joining this Quarter's WealthFactor Investing Insights presentation at WealthFactor. Our mission is to help investors navigate today's complex financial landscape. In this edition, we'll review the dynamics influencing markets through Q3 of 2025. Rather than reacting to headlines or recent performance, we focus on context, what the data shows, how market structures are evolving, and what that may mean for long-term investors.
As always, my goal is to provide an evidence-based perspective, free from speculation and centered on fundamentals to support sound enduring investment decisions. A quick word for compliance purposes. What I'm sharing here reflects my views and is intended for informational purposes. These views are subject to change and involve risks and uncertainties, some of which are significant in scope and entirely outside of our control.
There's no guarantee these views will prove accurate and actual outcomes may differ materially. Past performance doesn't predict future results, [00:01:00] and nothing in this presentation should be considered personalized investment advice. Starting with stocks since the 2022 decline, markets have recovered strongly.
Year to date through September 30th, the s and p 500 is up solidly. While non-US stocks have surged even more in 2025, growth remains ahead of value over the cycle, but that leadership has come with higher valuations and more concentration. The takeaway. Equity returns are healthy, but leadership is narrow.
Diversification across style and regions remains important. One key risk today is concentration, a small group of mega cap. US companies now mix up an unusually large share of the s and p 500. That leadership has boosted returns, but it also leaves the index more sensitive to a few earnings outcomes.
Historically, concentration ebbs and flows. I don't try to fight the [00:02:00] cycle. That said, given its persistence, I've tilted towards equal weight and size factors and maintained a meaningful non-US allocation to reduce single theme risk. Here's the concentration picture. Over time, the top 10 names share of the index is elevated compared to many past cycles.
That's not inherently bad. These firms are profitable and innovative. It does mean that index's risk is more tied to a handful of outcomes. We manage that by spreading exposure across sectors, market caps, and geographies. It's worth highlighting that companies haven't tended to remain in the top 10 over the long run.
non-US stocks often trade at lower valuations than the us. With non-US stocks, currency movements can influence returns. Our focus remains on broad diversification in long-term fundamentals rather than short-term macro calls. Historically, leadership rotates between the US and non-US markets over multi-year [00:03:00] periods.
The most recent US outperformance cycle has been notably longer than prior cycles. Valuations vary widely by region and sector. On the left, the US sits towards the high end of its historical valuation range, while many other geographies are closer to or below their long-term averages on the right. The chart shows that non-US markets have typically traded at a discount to the us, but today's gap is notably wider than historical norms.
This context highlights both where valuations stand relative to history and how unusual the current US non-US valuation spread is. Cycles are normal. Recessions in bear markets happen, and so do recoveries in bull markets. Since the global financial crisis markets have experienced a long upward trend, punctuated by brief, but meaningful drawdowns, historically, bear markets tend to be shorter and shallower than bull markets [00:04:00] are long and.
There's no reliable way to predict when conditions will shift or how severe the next downturn might be. Our process acknowledges cycles rather than trying to time them. Sticking to a diversified rules-based plan is the most reliable path. To long term success bond returns have steadied since the 2022 reset with positive results in 23, 24, and so far in 25.
The key point is simple when starting yields are higher. Historically, that has supported better multi-year bond outcomes. We're emphasizing high quality as a portfolio ballast to add dependable income and help stabilize overall risk. The chart shows the US Treasury yield curve on September 30th. It remains inverted.
Short-term yields are higher than long-term yields, though less so than at the prior peak. This illustrates how yields differ across maturities at a point in time. [00:05:00] In terms of positioning, we are avoiding the longest stated bonds and staying diversified across shortened intermediate maturities, keeping the bond sleeve simple and focused on treasuries.
Graph also highlights that recent fed rate cuts have had a larger impact on short term yields than on longer term yields. To wrap up, we focus on evidence-based diversified portfolios. If you'd like a deeper dive or a personalized review, let's connect and tailor this to your specific goals and constraints.