Weekly Market Summary – Week Ending Aug 22, 2025
U.S. equities continued to show signs of rotation last week as small caps and value funds outperformed large-cap growth and technology ETFs. Market caution remains high with September approaching, historically the weakest month for equities.
In the below table we use major ETF’s as a proxy for some major indexes as well as each of the sector groups that we divide the market into. Tracking these over time provides a more defined picture of the US markets than simply tracking major indexes.
Current ValuEngine reports on all covered stocks and ETFS can be viewed at HERE
Current ValuEngine reports on all covered stocks and ETFS can be viewed at HERE
Current ValuEngine reports on all covered stocks and ETFS can be viewed at HERE
Strategic Note:
The rotation trends we noted in the US equity markets the week before continued in the week just ended Friday. Value index ETFs (e.g. Vanguard’s VTV, +1.3%) outperformed their growth-index counterparts (e.g. VUG, -0.4%), and small cap stock index ETFs (e.g., IWM) soared nearly 4% while the SPDR S&P 500 ETF (SPLG) gained just 0.3% and the Invesco Nasdaq-100 ETF (QQQM) lost 2.5%. While not coming close to reversing Large cap growth and tech’s dominance of annual returns, these changes serve to reduce the differentials somewhat.
While these trends may be pleasing to value fund and small cap fund managers, historically such rotations have presaged market downturns much more often than being succeeded by upturns. The timing of these two week observations coincides with the market about to enter September. During the past 94 years, September is the only month with an average negative return, -0.9%. It also has the highest frequency of negative returns.
Another set of cautionary flags pertain to current stock market valuations, especially concerning large cap stocks. Major statistical indicators, including the Buffett Indicator and the Shiller CAPE ratio, suggest that the U.S. stock market currently has unusually high valuations when compared to historical averages. Although these factors have been cited by strategists concerned that we are headed into a bear market, we are still in a strong nearly three-year bull market.
Looking at the stocks covered by our proprietary valuation model, our data support the premise that US stocks, large cap stocks in particular, are quite overvalued now. Of the more than 3000 stocks covered by both our forecast model and our valuation model, more than 59% are trading above the price our model calculates as their “fair values.” However, of the 305 stocks we cover with a market capitalization of greater than $50 million, 264 or nearly 87% are trading above their fair values. Since we’ve started looking at such aggregate statistics, this is the highest percentage of overvalued stocks that we’ve observed. These observations should not be construed as a recommendation to sell US stocks now. However, it may be time to proceed with caution and trim current equity levels back to strategic allocations.
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