Bob’s Journal 2/20

The Magnificent Seven Fall Behind

Investors who bet the market leaders of the last couple of years would continue their dominance have been disappointed so far in 2025.

The stocks of the seven large growth companies, known generally as the Magnificent Seven, have appreciated for the year. But investors would have done better with many other choices.

The ETF Roundhill Magnificent Seven (MAGS) invests in those seven stocks using both direct stock ownership and derivative contracts. The exchange-traded fund (ETF) is up 2.08% so far in 2025, after rising 64.03% in 2024.

The S&P 500 ETF (SPY) is up 4.03% for the year to date, after a 24.89% jump in 2024.

The Invesco S&P 500 Equal Weight (RSP) returned 12.78% in 2024 and is up 3.34% so far in 2025.

The Russell 2000 smaller companies index ETF (IWM) gained 2.27% for the year to date, after an 11.39% rise in 2024.

And the iShares MSCI All World Country Index, excluding the United States (ACWX), has gained 7.19% for the year to date after rising only 5.19% in 2024.

Most of the Magnificent Seven rode the artificial intelligence boom following the release of ChatGPT in late 2022 and then lost momentum after DeepSeek released its lower-cost AI model in late 2024.

The Magnificent Seven tumbled in early 2025. Since then, they rebounded but haven’t regained their previous strength.

This could be a pause in the bull market in these stocks. They might surge ahead of the rest of the market after a quarter or two of earnings reports show they can handle the competition from DeepSeek.

But it could also be another example of investors relying too much on the recency effect. That is, they expect trends of the recent past to continue indefinitely, even after valuations become stretched and prices depend on extremely strong earnings growth every quarter.

An investor can generate high returns by identifying the market’s big winners and concentrating on them. But there’s a lot of risk in that strategy.

Most investors are better off not relying entirely on one economic or market environment. Instead, a balanced, diversified portfolio will deliver solid returns with much less risk and stress.

Digital Assets Take Another Step Toward the Mainstream

Digital assets and currencies continue to move from the fringe of the financial world toward the mainstream.

The biggest step in recent years was the Securities and Exchange Commission’s (SEC) approval of ETFs that can buy bitcoin at spot prices and hold it. The SEC approved the ETFs only after being ordered to by federal courts.

Before that, the SEC approved ETFs that invested in futures contracts on digital currencies. It also approved ETFs that invest in various companies involved in digital currencies and blockchain (the technology that’s behind most digital currencies).

Investors expect the election of President Trump will lead to regulatory changes that create more opportunities in digital assets and move them into the mainstream. The SEC recently created a “crypto task force” to evaluate the agency’s positions on the assets.

In anticipation of such changes, Charles Schwab & Co. created a new position, head of digital assets. It named a longtime Schwab executive, Joe Vietri, to the position.

Vietri will develop Schwab’s overall strategies for enabling its clients to invest in developing digital asset opportunities. Rather than waiting for regulators to act, Schwab is assuming more favorable regulations are coming and is preparing the infrastructure and other groundwork so that it is ready.

Many analysts expect banks and other financial services companies will be able to offer accounts that hold or are denominated in Bitcoin and other digital currencies. Loans and other transactions in digital currencies also are likely at some point.

At some point, brokers probably will be able to offer spot trading in Bitcoin. Then, investors won’t have to go through ETFs, digital asset brokers or the cumbersome traditional process of creating a digital asset wallet.

It’s also likely that in the near future, brokers will be able to offer traditional brokerage services such as research and advice regarding digital currencies and assets.

Schwab says it expects many of these offerings to be allowed, and it wants to be prepared.

4 Steps to Preserving a Collection or Other Special Assets

One of the most difficult steps in estate planning is developing a plan to preserve a collection or other special assets.

Serious collectors often put a lot of time, money, and other resources into developing, displaying, and preserving their collections. They’re proud of their collections and derive pleasure from the process, as well as from showing the collections to others.

But over time, they become concerned about succession planning for the collections. Often, there’s no one, among the younger members of their families, who both shares their passion and is willing to devote the time and resources needed to take care of the collections, much less expand them.

A collector who wants his or her passion to become a legacy should consider four steps. The first step is to create an inventory of the items.

Most collectors know a lot about each item in their possession and rely on their memories. For the collection to become a legacy or have its value maximized, a detailed inventory is necessary.

No detail is too small to include in the inventory. The inventory should include information such as a full description of each item, when it was acquired, the cost, and any history or anecdotes about it.

Next is the valuation and appraisal of each item. Of course, valuations are important for tax planning. But they’re also important for management of the collection.

Executors and heirs often don’t know the value of a collection or the individual items in it. Some have inflated ideas of the worth, while others greatly underestimate what others would pay.

You might need a professional appraiser to assign values. Some collections can be valued using online marketplaces or other sources.

The third step is to be sure the collection’s value is protected. That starts with appropriate insurance against different risks.

But you also need to be sure whoever becomes a caretaker knows how to protect the items.

Some items must be stored or maintained in certain environments (temperature, humidity, etc.). Others need to be cleaned or receive certain treatments or maintenance at regular intervals. Be sure you delineate these conditions for others continue once you are gone.

Finally, create a plan for transferring ownership and care. Often, there’s no one in the family who is able and willing to take over.

There might be a family member or friend who’s interested but will need financial support. In that case, consider if there are ways to transfer both the collection and financial support.

Otherwise, you need to look outside the family. Search for a museum, education institution, or other entity that is interested in taking and displaying the collection. You might be able arrange a donation that preserves the legacy and gives you credit.

When there’s no entity willing to accept a bequest on your terms, try to arrange a sale.

There might be one or more collectors willing to purchase all or most of the collection. Or the best strategy might be for the estate to arrange a sale of individual items. Determine if this should be done through an auction or by using an online marketplace or similar means to offer individual items for sale.

Building a collection is a lot of work. But when you want the collection to be preserved and be part of your legacy, there’s a lot more work to be done.

The Data

Retail sales dropped 0.9% in January after rising 0.7% in December. Over 12 months, retail sales were up 4.2% through January and 4.4% through December.

Excluding gasoline and vehicles, retail sales fell 0.5% in January and rose 0.5% in December.

Optimism among homebuilders is fading. The Housing Market Index from that National Association of Home Builders (NAHB) fell to 42 in February from 47 in January. That’s the lowest level since September 2024 and ended a steady rise since August 2024.

The homebuilders said they were concerned about both tariffs and higher interest rates.

Housing starts declined 9.8% in January after increasing 16.1% in December. Single-family home starts fell 8.4% in January, while multi-family home starts declined 11.0%.

The Producer Price Index (PPI) increased by 0.4% in January following December’s 0.5% increase. Over 12 months, the PPI rose 3.5% through both January and December.

The core PPI (which excludes food and energy prices) rose 0.3% in January and 0.4% in December. The 12-month increase in the core PPI was 3.6% through January and 3.7% through December.

The Empire State Manufacturing Index rose to 5.70 in February, rebounding from a negative 12.60 in January. Manufacturers reported sharp increases in both selling prices and the cost of inputs.

Industrial production was 0.5% higher in January on the heels of a 1.0% increase in December. The measure’s 12-month increase was 2.0% through January and 0.3% through December.

Manufacturing production fell 0.1% in January after rising 0.5% in December. Over 12 months, manufacturing production was 1.0% higher through January, but fell 0.1% through December.

New unemployment claims fell by 7,000 to 213,000 in the latest week.

Continuing claims, which lag a week behind new claims, decreased to 1.850 million from 1.886 million.

The Markets

The S&P 500 rose 1.02% for the week ended with Tuesday’s close. The Dow Jones Industrial Average declined 0.04%. The Russell 2000 increased 0.67%. The All-Country World Index (excluding U.S. stocks) added 2.46%. Emerging market equities advanced 2.62%.

Long-term treasuries lost 0.37% for the week. Investment-grade bonds increased 0.21%. Treasury Inflation-Protected Securities (TIPS) fell 0.18%. High-yield bonds gained 0.26%.

On the currency front, the U.S. dollar declined 0.82%.

Energy-based commodities increased 0.39%. Broader-based commodities rose 1.86%. Gold added 1.24%.

Bob’s News & Updates

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