BentinPartner Weekly
Dear Reader,
Please find below our latest Weekly Trend Report.
Have a nice start of the week.
Marc Bentin,
Bentinpartner GmbH
After failing to deliver the expected “Christmas rally”, US stocks started the year wrong-footed during the first week but recovered strongly during the second, bringing hopes that perhaps after witnessing 2 consecutive years of 20%+ return, US stocks, despite commanding an historically high absolute and relative valuation (comparable to 1929 and 2000), may still be gearing for a third year of gains. There is indeed this old Wall Street adage saying that “So goes January so goes the rest the year…”. We’ll have to keep an open mind about all possible scenarios including that we may still not get a good January after all, but that even if we do, just as the Christmas rally skipped a year, 2025 could still end up as the year when the US stock market bubble ultimately pops.
Among the key risks for this year (besides the high valuation issue), will be what happens with the global debt problem and in particular the huge US refinancing needs. With about USD6trn US debt that will need to be rolled this year (out of a stock of USD36trn), there will be an additional USD2-3trn deficit financing to find, going from an existing 1% cost of debt to an average of 4% to 5% which by itself will add USD500bn to this year’s deficit with the interest rate charge expected to also represent 30% of total US revenues.
This has been the overwhelming concern so far this year as bond yields continued to rise despite central banks either cutting rates or signaling upcoming rate cuts. That was until Wednesday’s December CPI report which saw a mixed beat vs. expectations of less than a tenth of 1% (headline up 0.39% vs. November’s 0.31%, while “Core” slipped to a better-than-expected 0.23% vs. 0.31%) that was interpreted bullishly, enabling a swift 15 bps rally in bonds (with 10Y US notes closing the week at 4.62% along with EU and UK yields) and a powerful short squeeze rally in stocks which saw the S&P recover nearly 3%, out of short term technical danger zone.
Whether this mild inflation improvement will prove lasting and whether bond vigilantes will be kept at bay with that remains an open question.
In Europe, the ECB will also be facing a Euro area Services inflation stuck at 4% for the 13th month, reflecting strong wage pressures, according to a Eurostat report published on Thursday.
Our view is that they initially won’t be but that in Q3 and Q4 at the latest, the Fed will not only ease rates but return to QE and debt monetization, in line with what a Treasury report itself suggested last year. When that happens, bond yields would be held in check by the Fed, stocks might witness a “blow off” top and the dollar may ultimately be tested even if, until this happens, everything could conjure for the dollar to continue to creep higher…
The Wall Street consensus is for stocks to gain another 12-20% this year, supported, not be multiple’s expansion but by earnings improvement. Last week delivered the goods for banking shares and we will see what the MAG7 manage to deliver in the coming weeks (AAPL could easily disappoint) but clouds are also gathering on earnings for next year if we consider that earnings will be affected by sticky inflation (tariffs will be a tax on consumers in the end even if they fill the government’s coffers, mass foreign labor deportation will likely lead to increased labor costs and dollar strength will translate into lower earnings for those stocks of the SP500 doing most of their business abroad). On the other side of the ledger, most of D. Trump’s policies (and tweets) will be focused on reducing taxes, pushing the Fed to cut rates, deregulating and cost cutting in government agencies (DOGE) which may all end up being net positive for stocks this year as well.
Returning to last week’s action, equity sectors that benefited the most were energy and banks; the former being helped by oil rallying back to USD80 and the latter being helped by higher rates and the perspective of deregulation from the incoming Trump’s administration.
The dollar dropped slightly last week while precious metals rose.
Gold started the year recovering most of the losses (in USD terms) it suffered mid-December, gaining 3% ytd so far. While XAUUSD still has got some work to do to claw back to an all-time high, XAUEUR, XAUGBP but also XAUCNY all breached fresh all-time highs last week. This is taking out the argument of dollar weakness as a reason to buy gold of course, without implying that when the time of dollar weakness will return, XAUUSD may still react as expected by targeting USD3000. At the moment gold is going up for other reasons, such as the risk of persistent inflation (going beyond the knee jerk reaction from last week’s minor US CPI improvement), all-round excessive debt and still looming geopolitical risks to which de-dollarization is closely linked. Gold weakened late in the week which had all to do with the run-away rally of crypto currencies going into D. Trump’s inauguration (and expectations of favorable executive orders on cryptos as early as today) and the successful launch of the $Trump coin which rallied hard since Friday night when it was issued…This is not to say that cryptos are necessarily a valid substitute for gold but it certainly is viewed that way by many investors and from all remaining correlation patterns such as gold vs. usd or gold vs. stocks or gold vs. yields, the inverse (short term) gold vs. bitcoin correlation is still holding.
US markets will remain closed today for inauguration day.
Over the past week, the S&P500 rallied 2,9% (2,0% YTD) while the Nasdaq100 rallied 2,9% (2,1% YTD). The US small cap index rallied 4,0% (2,0% YTD). AAPL sold off by -2,9% (-8,2%).
The Equally Weighed SP500 rallied 3,9% (2,7% YTD, Z-score 2,3), outperforming the S&P500 by 1,0%. The median SP500 YTD return closed the week at -0,9%.
Cboe Volatility Index sold off by -18,3% (-8,0% YTD) to 15,97.
The Eurostoxx50 rallied 3,6% (5,1%, Z-score 2,4), outperforming the S&P500 by 0,6%.
Diversified EM equities (VWO) rallied 2,3% (-0,5%), underperforming the S&P500 by-0,6%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies dropped -0,1% (1,0%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) gained 0,4% (0,0%).
10Y US Treasuries rallied -15bps (6bps) to 4,63%. 10Y Bunds dropped -6bps (17bps) to 2,54%. 10Y Italian BTPs rallied -12bps (12bps) to 3,65%, outperforming Bunds by -6bps.
US High Yield (HY) Average Spread over Treasuries dropped -12bps (-25bps, Z-score -2,3) to 2,62%. US Investment Grade Average OAS dropped -1bps (0bps) to 0,87%.
In European credit markets, EUR 5Y Senior Financial Spread dropped -5bps (-3bps) to 0,61%.
Gold gained 1,5% (3,0%) while Silver rallied 2,4% (5,0%). Major Gold Mines (GDX) rallied 2,2% (8,4%).
Goldman Sachs Commodity Index gained 1,4% (5,1%). WTI Crude dropped -1,0% (8,8%).
Overnight in Asia…
Ø S&P future -2 points; Hong Kong +2.5%; Nikkei +1%; China +0.9%
Ø Asian shares climbed after a conversation between Donald Trump and Xi Jinping raised hopes for easing US-China tensions after D. Trump described the pre-inauguration talk between the two leaders as “very good.”
Ø Trump made a first political ‘coup’ over the weekend after TikTok went dark on Sunday, saying he will issue an executive order today to extend the divest-or-ban deadline and allow enough time for a deal in which the US will have 50% ownership via a joint venture. “I'm asking companies not to let TikTok stay dark!”, he said, likely pleasing 170mn of youngsters (and not so young) hooked on this social network.
Ø The World Economic Forum’s annual meeting gets underway today. Among the group of billionaires set to join Davos, are Larry Fink, Ray Dalio and Marc Benioff. Trump will speak virtually to the gathering three days after his inauguration, Bloomberg reported.
Later in the week, the focus will shift toward the BoJ scheduled policy decision on Friday, with about three quarters of economists in a Bloomberg survey expecting it to hike its key rate.
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© Copyright by BentinPartner LLC. This communication is provided for information purposes only and for the recipient's sole use. Please do not forward it without prior authorization. It is not intended as a recommendation, an offer, or solicitation for the purchase or sale of any security or underlying asset referenced herein or investment advice. Investors should seek financial advice regarding the suitability of any investment strategy based on their objectives, financial situation, investment horizon, and particular needs. This report does not include information tailored to any particular investor. It has been prepared without any regard to the specific investment objectives, financial situation, or particular needs of any person who receives this report. Accordingly, the opinions discussed in this report may not be suitable for all investors. You should not consider any of the content in this report as legal, tax, or financial advice. The data and analysis contained herein are provided "as is" and without warranty of any kind. BentinPartner LLC, its employees, or any third party shall not have any liability for any loss sustained by anyone who has relied on the information contained in any publication published by BentinPartner LLC. The content and views expressed in this report represent the opinions of Marc Bentin and should not be construed as a guarantee of performance with respect to any referenced sector. We remind you that past performance is not necessarily indicative of future results. Although BentinPartner LLC believes the information and content included in this report have been obtained from sources considered reliable, no representation or warranty, express or implied, is provided in relation to the accuracy, completeness, or reliability of such information. This Report is also not intended to be a complete statement or summary of the industries, markets, or developments referred to in the Report.
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