ETF Macro Insights - February 14, 2025

ETF Stats at Large

• January ETF flows were over 2x the normal average (most went into US large-cap funds). Why do investors keep pouring money into such equity ETFs despite record high valuations, Mag 7 concentration, and increasing asymmetric risks (i.e., deficit, tariffs, less rate cuts)?
• The US large-cap equity risk premium is near 20-year lows, implying little premium for taking equity risk given high valuations and high rates.
• Leverage is running high. With increased asymmetric risks and rates that have more risk of increasing than decreasing (inflation running hotter, rate cuts pushed further down the road), we would caution investors who are running higher risk levels.
• Jan ISM Manufacturing PMI is back in expansionary territory with new orders, production, and employment components all stronger than the previous reading.
• All Jan CPI measures came in hotter than expected, with the core annualized measure ticking up to 3.3%. Headline PPI prints also came in above consensus. Worth owning real assets?
• Less tight Senior Loan Officer Survey data points to a rebound in loan growth in 2025. The relative valuation level of the financials sector is below average on a 20-year look-back.
• S&P 500 earnings revisions breadth has remained in negative territory for the last 6 months and continues to fall.
• The spread between earnings growth for Mag 7 vs. the S&P 493 is projected to notably decline in 2025. Mag 7 is expected to see 20% EPS growth while the S&P 493 is expected to see 12% EPS growth (a spread of 800bps). In 2024, this spread was 33%.
• Be careful with equal weighted indices. Most are underweight technology relative to the benchmark. Technology is a long-term winner in our view.

Read more in the mid-February update of Astoria's ETF Macro Insights. https://www.astoriaadvisors.com/single-post/etf-macro-insights-mid-february-2025