Economic Data and Market Highlights
US markets surged this past week with the Dow Jones Industrial average advancing 3.69% while the S&P 500 rose 2.93%. Developed market stocks also rose 1.95% in USD terms with German names rising 3.9% while Japanese equities fell 46 basis points. Jobless claims ticked higher that expectations (217k versus 210k est.) and weaker retail data (0.4% vs 0.5% est.) caused bond yields to dip slightly. The Aggregate bond index rose on a total rerun basis 99 basis points.
Financials were one of the top performing sectors for the week rising 6.11% as large banks began to report fourth quarter earnings. JPM’s net earnings increased to $14 billion, rising 50% while Goldman’s net earnings doubled to $4.1 billion. Citi reversed to a profit of $2.9 billion from a loss of $1.8 billion in the last quarter of 2023. Earnings from debt issuance and M&A activity, the highest level in seven years per Morgan Stanley, helped with the surge. As the 10-year rate continues to increase throughout the quarter, so did trading revenue and asset management at most institutions. Bank of America’s trading unit reported its 11th straight quarter of trading revenue growth rising 19% from a year earlier in revenue from fixed income, commodities, and currencies. Citigroup trading revenue saw a 36% increase in trading revenue mostly due to higher volumes in both stock and fixed income markets.
As we’ve noted previously, the consumer continues to spend in large part due to revolving debt. Banks note that while credit card delinquency rates have steadily crept up and hit a 12-year high last year, charge-off of delinquencies increased last year, they do not believe a crisis is at hand. With that said, credit spreads have not quite kept pace with bankruptcies as the chart below indicates, so we are attentive to these factors as it relates to client fixed income exposures.
The International Monetary Fund raised its estimate for full-year U.S. growth in 2024 to 2.7%, up from 2.2% in previous estimates made in October. GDP is projected to expand by 2.8% in 2025. Growth expectations for Germany, France, Italy, and Canada were all downgraded. Eurozone growth is expected to show 0.8% for 2024. On a global scale, things could be starting to normalize, with IMF projections expecting inflation to fall to 4.2% globally in 2025, down from 5.7% last year.
As we embark on a new path with respect to US trade relations with the incoming Trump Administration, the European Union and Mexico finalized a trade deal this week intended to revamp their free trade agreement, aiming to boost trade and de-risk supply chains ahead of Trump’s tariffs. The agreement seeks to expand EU exports in areas such as telecommunications and critical raw materials and will cut tariffs on products such as cheese, poultry, pork, chocolate, and wine.
The expectation of restrictive trade policy and tariffs initiated by the incoming Trump Administration potentially contributed to increased economic activity in China in the fourth quarter. China’s economy grew more than expected last year, with GDP increasing by 5.4% in the last three months of 2024, bringing yearly growth to exactly 5%. Even with strong Q4 numbers, consumption remains below pre-pandemic levels, and property investment has contracted by the most on record. Nominal GDP expanded by 4.2% in 2024, the slowest increase since the late 1970s. 2025 holds more challenges for China as Trump’s tariffs are looming, with the highest level mentioned so far coming in at around 60%. Trump’s threats of tariffs have encouraged global businesses to front-load shipments, which helped the expansion of the global economy last year.
Fires continue in Los Angeles with the death toll still climbing. Cost estimates to rebuild range from $30 to $250 billion with a more solid estimate still months away. Authorities are now noting that the rebuild may be further delayed by hazardous material clean-up as a result of many electric vehicles that burned throughout the area. Areas to watch related to financial markets are municipal finance (bond issuance), impact on banks and insurers, and bankruptcy rates of home owners. Many homeowners had coverage for other occurrences but insurers have been steadily readjusting coverage to exclude fire.
As of this writing, the Gaza Cease Fire has been agreed to and the first stage, releasing of hostages on both sides along with relief supplies to Gaza are underway. The complex deal will play out over the coming months in stages with a structured release of different hostage groups.
Users of the popular app TikTok saw this as they turned on their phones this weekend as the Supreme Court backed the legislation’s constitutionality noting that national security concerns outweighed free speech concerns. President-elect Trump has noted that we may ask for a pause in the ruling until a deal can be worked out to sell to a US concern.
The Past Week’s Notable US data points (with revisions)
The Upcoming Week’s notable US data points
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Jim Bianco Research, Morningstar, MarketWatch, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director
Michael McNamara, Analyst
Sam Morris, Analyst