Market and Economy

• November was a strong month for markets, with the S&P 500 achieving its best year-to-date performance since 2013, driven by optimism post-election.
• The U.S. ended its fiscal year with a $1.83 trillion deficit, the third-largest on record, with spending far outpacing receipts.
•Proposed deficit reduction plans aim to cut spending, but significant hurdles remain in addressing entitlements and achieving sustainable debt levels.
• Credit card balances are climbing, especially among prime borrowers, while delinquency rates are higher than pre-pandemic but still below 2008 peaks.
• Black Friday spending rose 3.4% YoY, with online sales surging 14.6%, partly driven by increased use of Buy-Now-Pay-Later (BNPL) agreements.

• The DOGE (Department of Governmental Efficiency) Committee faces significant challenges in addressing the $2 trillion deficit, with most expenditures politically untouchable.
• Inflation is expected to rise by 2025, driven by persistent deficit spending and nominal GDP growth.
• Gold remains a strong long-term hedge despite recent sell-offs, with equities favored over bonds during inflation.
• Natural gas may see growth due to rising electricity demand, while crude oil demand remains stagnant.
• Healthcare reform faces resistance due to lobbying, despite inefficiencies driving up costs significantly.
• Subsidies for green energy and electric vehicles may decrease as deficit concerns take priority.

• GDP grew by 2.8%, with inflation cooling to 2.4%, though food and shelter costs remain high.
• Job openings dropped to a three-year low, and layoffs reached their highest since 2020.
• 33% of auto loans are underwater, with record-high negative equity and increasing defaults.
• Rising deficit and long-term inflation fears push Treasury yields higher, impacting future rate cuts.
• The Top 10 US Companies now make up 18% of global stock market capitalization. The S&P500 is now a record high 46% of Global GDP.

• Equity markets have strong year-to-date returns, with the S&P500 having its first positive September in 5 years.
• Gold and silver surge amid continued economic uncertainty and global conflict fears.
• The Fed’s 50bps rate cut spurred a market rally, but economists are split on whether it signals an over-correction.
• China’s economy struggles with deflation, prompting the PBOC to introduce aggressive stimulus measures aimed at boosting GDP to 5% by 2024.
• The U.S. faces growing debt concerns with interest payments projected to exceed $1 trillion by 2025.
• Major dockworkers’ strike threatens to disrupt supply chains further.

• Stocks rebounded from a 10% correction in August, but the market may be overestimating the likelihood of aggressive Fed rate cuts.
• The number of banks on the FDIC’s ‘problematic list’ is increasing, with several facing unrealized losses in excess of 100% of tier-1 equity.
• The US economy shows signs of recession, with unemployment triggering the Sahm Rule, and consumer spending outpacing personal income, despite steady GDP growth.
• Gold demand is rising as central banks increase purchases, driven by concerns about inflation.
• Market concentration remains high, with growth sectors dominating global market capitalization, even as valuation metrics suggest overvaluation similar to the 2000 dot-com bubble.

• Fed left rates unchanged once again, though said that “some further progress” had been made toward the 2% inflation goal.
• While the labor market seems to be weakening, with unemployment rate jumping to 4.3%, inflation is still sticky at 3.0% — the same place it was in June 2023.
• Treasury markets are becoming less liquid, with excessive deficit spending driving up aggregate issuance, with little extra demand.
• 2023 was the worst year on record for property insurance companies, with a more than $15.2 billion underwriting loss.
• Retirement balances have lagged the population’s age, with the BLS projecting more people 55+ continuing to work past the retirement age.

• Equities hit all-time highs, led by large-cap stocks, with 61% of S&P 500 returns coming from the “Magnificent 7” megacap tech stocks.
• The Fed remains cautious about interest rate cuts, needing more sustainable inflation reduction, while unemployment claims reached a two-year high.
• Despite muted gasoline demand thusfar, strong energy demand from record heat and the projected strongest travel season since before the pandemic saw crude prices broadly higher.
• Mortgage rates are still at their highest since 2001, muting demand and causing increased supply in the housing market.

• GDP saw a substantial down revision, to just 1.3% quarter over quarter annualized compared to the previously reported 1.6%.
• Consumer spending on durable goods has seen the weakest results since the quarter ending September 2021, and the first contraction since early 2020. Consumer spending on durable goods is often considered a leading indicator of recession.
• The Social Security Trust Fund is now projected to last until only 2033, a year earlier than the 2020 projections. 
• If interest rates stay stable for the remainder of the year, the US will pay a total of $1.7 trillion in interest through April 2025.
• Since the beginning of the year, China has offloaded $53.3 billion in US Debt, replacing it with gold.

• The Federal Reserve maintained interest rates at 5.25%-5.5% during its May 1 meeting, signaling caution due to ongoing inflation concerns despite market expectations of future rate cuts.
• Despite a strong job market, data indicates a slowdown in both layoffs and hiring rates.
• Economic indicators show that GDP growth has decelerated to the slowest pace in two years, with manufacturing contracting and services slowing down despite strong consumer spending.
• U.S. natural gas exports are expected to increase significantly by 2025, with new LNG export terminals boosting capacity, even as domestic consumption adjustments are influenced by milder weather and over-storage issues.

• The S&P 500 has seen a 25% increase over the past five months, a run up only seen 10 times since 1930.
• The bond market is experiencing its longest yield curve inversion on record, with the 2-year to 10-year spread inverted, indicating potential negative economic and financial market activity.
• The era of excess consumer spending driven by pandemic savings is waning, with less than $30 billion of the peak $2.1 trillion in savings remaining.
• Global debt has reached a record high, with emerging markets facing increased debt distress due to high borrowing costs and a strong US dollar.

• The Congressional Budget Office reports that interest expense on federal debt will surpass defense spending and Medicare in 2024, raising concerns about the government’s ability to manage the impending debt crisis.
• Despite a drop in US jobless claims and high job openings, labor force participation remains lower than pre-pandemic levels, contributing to a labor shortage that has pushed up labor costs across industries.
• Stocks have continued to rally, with the “Magnificent 7” (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) dominating returns and contributing to a high concentration risk in the S&P 500.
• The ongoing presidential election year adds legislative and political uncertainty to the economic outlook.