Welcome to the new year. Let’s hope that 2025 brings both another banner year for equities and a reversal of the poor year for U.S. Treasuries.
I am struggling to believe that the amazing run of 2023 and 2024 in risk assets, particularly in US equities, can continue. It’s less about the economic outlook (particularly in the U.S.), which remains reasonably good, and more about the fact that I simply have doubts about a third consecutive year of 20%+ returns for US stocks. I also fear that inflation will remain stubbornly persistent at or around these levels in the U.S. for reasons I discussed last week. The pro-growth fiscal plans of the incoming Trump Administration will likely force the Fed to remain cautious (and rightfully so) in its monetary policy approach until inflation is again drifting slowly back to the 2%/annum target. Larger deficits and pro-growth fiscal policies in an economy that is experiencing strong economic growth and tight labour market conditions will cause inflation to move in the wrong direction. I am also increasingly concerned that bond vigilantes might resurface and become more proactive in punishing the U.S. for its fiscal mismanagement, forcing intermediate- and long-term yields higher. Having said this, investors in risk assets have not really minded so far in that President-elect Trump is an open book as far as his pro-growth policies. Therefore, the biggest risk might just be the one we don’t yet see.
Two days into the new year is not enough time to say much about sentiment, especially with new year’s day right in the middle of the week. We can perhaps be optimistic that Friday was a good day for US stocks after a poor five-day run over the year-end holidays, setting the stage for the first full week of 2025. Focus this coming week will be on preliminary CPI (Tues) and retail sales (Thurs) for December in the Eurozone, the release of December FOMC minutes (Weds), and release of the December U.S. jobs report on Friday. Also, keep in mind that US markets will be closed on Thursday in mourning for the death of ex-President Jimmy Carter.
You can find updated tables for full-year 2024 in all of the indices and asset classes tracked by EMC here (and there is a link to a PDF file for the 2024 tables in that article too). The tables below summarise data for the week ended Jan 3, 2025.
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