Thierry Hasse: U.S. markets continue to set new highs
Another week and another set of records for most U.S. equity indices! During the first week of December, the S&P 500 Index and the Nasdaq registered their third straight week of gains, grinding higher in a slow and methodical fashion. The release of unemployment data on Friday, showing solid gains in payrolls, was a fitting conclusion to a positive week for U.S. financial markets. Jobs creation in November showed a strong rebound from the weak non-farm payrolls in October, which was heavily impacted by the effect of hurricanes and flooding in the Southeast.
Chief Investment Officer Thierry Hasse
The U.S. unemployment situation continues to be neither too hot to create fear of wage inflation nor too cold to presage a potential economic contraction. Yield on U.S. treasury bonds was slightly lower, as bond investors saw no reason for the Federal Reserve not to lower interest rates by another 25 basis points at the next Federal Open Markets Committee meeting on Dec. 18.
What could upset Goldilocks?
What could possibly go wrong to derail the march higher of the U.S. stock markets? We have a “Goldilocks” economy, a Federal Reserve adjusting monetary policy gradually to support further expansion and a new administration promising to deliver peace in the world in swift fashion. As we noted previously, market participants are increasingly showing signs of exuberance. Clearly momentum mania is on display in certain corners of the financial markets. One example would be the conversation with our nice taxi driver in Manhattan on Thursday, who described how bitcoin would help him retire soon.
Corporate profit outlook
More seriously, the U.S. equity markets are supported by solid growing corporate profits. But corporate profits rose 24% in 2023 and 27.5% in 2024, making one wonder how many large gains are left. We read from market pundits that the stock market is clearly telling investors that we have entered a period of a “model shift” when future growth and profits are concerned. In other words, looking at last year’s price to earnings ratio multiple – or a forecast of the P/E ratio for 2025 – does not incorporate how technological advancements might create incredible benefits over the next three, five, or 10 years. Meanwhile, Berkshire Hathaway Chairman Warren Buffett is now sitting on more than $325 billion of cash and cash equivalents and has famously said “be fearful when others are greedy and be greedy when others are fearful.” Time will tell who is correct but we would not bet against the Oracle of Omaha.
Inflation report due this week
This week will not bring the answer to the philosophical question we asked above. But we do expect that inflation readings, due to be released on Wednesday, will confirm continued progress towards the Federal Reserve goal of 2%.
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