BentinPartner Weekly
Dear Reader,
I wish you and your loved ones a good health, a more peaceful world for 2025 and before that, if you celebrate it, a Merry Christmas.
You will find below our general observations for the new year.
Kind regards,
Marc Bentin,
Bentinpartner GmbH
What a Year It Was…
With the exception of a rocky last week, 2024 delivered impressive returns for US equity markets and for a second year in a row, still with most of the performance coming from a narrow list of large cap tech and AI stocks. The equal weighed S&P500 index delivered 12% or just half the return of the market cap-based S&P500 index. The median (or the average performance of SP500 member shares is (only) 8%, highlighting the lack of breadth of the major US equity benchmark index, so far this year.
EM markets and China remained treacherous with China delivering most of its 14% YTD performance over just a handful of “short squeezing” days, most often missed by investors as China remains unrepresented in major equity indices and labeled, wrongly in our view, as “uninvestible” by (US and UK dominated) financial media.
Europe did well, given the circumstances, delivering 11% YTD. The return on 7-10-year US treasury bonds was -4% YTD so far while gold shiny 27% (in USD terms) performance was facilitated by tense geopolitical situation, a sticky inflation outlook, a looming global debt problem and most importantly, large diversifying Central Banks purchases (mostly from the Global South). Precious metals rallied despite broad based dollar strength and higher yields despite gold being generally negatively correlated with each of these two factors.
Our Outlook For 2025…
Forecasting is never easy but 2025 looks to us, as “one of a kind” in terms of …unpredictability, with the range of possible outcome potentially spanning between another stellar year for risky assets to a severe dual stock and bond market correction.
3 Key Risks…
A looming bond markets rebellion…
“Beware the bond markets. Bill Clinton’s chief strategist James Carville famously said: “I used to think that if there was reincarnation, I wanted to come back as the President or the Pope or as a .400 baseball hitter. But now I would want to come back as the bond market. You can intimidate everybody.”
The same is holding true today.
In our view, a bond rebellion could be in the cards, rooted in sustained inflationary pressures (from roaring ags, wage pressures and coming US tariffs), ballooning deficits and a bond supply/demand imbalance made worse by de-dollarization concerns.
If a rebellion occurs (defined as 10y yield reaching 5.5% or above despite the Fed cutting rates in line with current expectations with 1 or two rate cuts next year, it will likely be met by forceful policy action (that will be encouraged by the incoming US administration) with accelerated rate cuts and a return to QE and/or yield curve anchoring “à la japan”, whatever the Fed might be tempted to say now about slowing rate cuts (which unsettled equity markets last week…). This is what Japan is waiting for, as it remains dead bent against raising rates, holding them stubbornly steady at 0.25%, despite a near 3% inflation.
The sheer size of the global government debt problem (which increased from USD42trn in 2015 to USD102trn now) requires lower rates to remain sustainable and the US economy might soon need lower rates as well due to weakening labor markets (revisions brought to official employment data confirmed BLS significantly overstated employment) and rising credit cards delinquencies.
As for Europe’s economy, it is de facto stalling due to an impaired competitiveness. Negative interest rates by the ECB cannot be excluded for next year while the SNB might get there first, having admitted as much a couple of weeks ago when it reduced rates by a larger than expected 50bps to stem CHF strength.
Geopolitics… Impossible to Forecast and Dangerous…
The geopolitical situation remains in flux and tense but could ease next year…
• I am reasonably confident that President elect D. Trump will drive Russia and Ukraine to the negotiation table to end the war (see interviews of J. Sachs here on the chain of events that led to the war in Ukraine from an factual historical perspective). Freezing the war will not work. What remains to be done is to convince V. Zelinski that he cannot expect the return to the ex-ante situation.
• The problem to this date is that V. Zelinski is still doing everything to escalate and stands ready to do everything to inflict maximum pain on Europe unless he receives unconditional financial and military support that Europe can ill afford (financially and militarily, having no soldier eager or ready to fight for Ukraine and … less and less money to lose as its economy weakens) on a war that has already been lost to a large extent.
• The situation in the Middle east is equally dangerous with fewer chances that the US will pressure Israel to halt the conflict. It is too early to make a call on what lies ahead now. But with D. Trump having already said before the Syrian regime change that he would let Israel handle Iran’s nuclear enrichment facilities, this escalation risk clearly exists for next year.
A Big Political Shake Out For Europe….
While V. Zelinski political future is uncertain, the same holds true for many “globalist liberal pro war” politicians in Europe…
• Although not the most likely scenario, Gerxit cannot be excluded at some point (see most recent Bloomberg interview of AFD vice President which is worth listening to, if anything to assess her party’s agenda which does not look “extremist far right” except in the eyes of those seeking a status quo “at all costs”. While Afd is credited with 20% of intended votes for the coming February’s elections, the Green party which currently controls foreign affairs …and the economy … in the German amber coalition is rapidly falling out of grace (with only 10% of intended votes), making its participation to a future coalition more unlikely and certainly less influential.
• French President E. Macron is facing constant pressures for his early exit. However, his personality will make him want to stay till the bitter end…of 2027 with chaotic policies likely to prevail until then.
• The role, legitimacy and even the integrity of the commission leadership and its modus operandi are increasingly being questioned. Many consider now that the Commission is overstepping its statutory rights and that it needs to gear down and let countries regain some sovereignty for the edifice to hold. It should also stop wanting to extend and pretend, pursuing a failed policy of NATO and/or EU enlargement to Georgia, following the exact same script than for Ukraine in 2010, calling “manipulated”, and requesting to cancel elections, participating to and encouraging local demonstrations and risking social unrest after the local Presidential election outcome did not match Europe’s expectations (or those of its de facto master). The Brzezinski doctrine has shown its limits in Ukraine and seeking another Medan in Georgia is simply irresponsible.
Europe would be better off returning to what it was at the origin, a free trade zone. Not an overextended and hegemonic political bureaucracy, expensive to maintain and disconnected from realities, now eager to challenge basic human rights such as the freedom of expression in an effort to mute opposition and keep in place the only agenda and the only narrative it wants to hear calling “far right” any one disagreeing with its official narrative and “conspirational” any one daring to challenge it. The victory of Trump and dare I say of E. Musk will be a very difficult for Europe to ignore and, possibly good news (admittedly from my pro peace, pro-European economy perspective).
The Outlook for
Stocks...
Much will depend on the bond and geopolitical evolution.
Trump lives and breathes with the sp500 ticker, day by day, and minute by minute.
His entire agenda will be focused on making America great again. Helping the US stock market grind higher despite high valuation, high ownership and overhyped investors’ confidence will remain one of his key priorities (along with preserving the dollar status) to keep US financial markets serving as a monumental magnet for world savings.
Having 75% of the MSCI World now composed of US stocks, themselves dominated by 7 large cap tech stocks, just show that we are approaching a limit of some sort but not that we have necessarily reached it quite yet….
I do not know what scenario will prevail or even if a sideways market will settle instead.
What is easier to grasp are fundamentals that are not great and that are a source of concerns for some experts, including one of our favorites, Swiss advisor Felix Zulauf who delivered his outlook last week.
That being said, the sheer existence of “Bears” often was a precondition for bull markets to prosper and climb the proverbial wall of worries….
The Outlook for Precious Metals …
Assuming our basic scenario that Central Banks will become more aggressive next year than currently anticipated, with a possible return of QE and negative interest rates responding to recessionary forces (in part triggered by US tariffs and E. Musk’s planned cost cutting efforts), further central banks diversification into gold should continue to be a strong support for precious metals next year.
Trend-Following as Core Strategy…
Trend and momentum never really disappear for any length of time when considering an investment universe that is wide and algorithms that are reactive enough. Just like liquidity "never really evaporates but relocates" (according to the famous quote of JP Morgan), trend (and momentum) are also likely to only relocate (or invert).
It is therefore reasonable to expect Trend-following to remain as a reliable investment factor to navigate the uncertain environment expected for 2025.
For more information about our dedicated Trend-following wealth management products and how Trend-following can help diversify your investment strategy, check our dedicated web page or contact us.
Over the past week, the S&P500 sold off by -2,2% (24,4% YTD) while the Nasdaq100 sold off by -2,2% (26,7% YTD). The US small cap index sold off by -4,8% (10,6% YTD). AAPL rallied 2,6% (32,2%).
The Equally Weighed SP500 sold off by -3,0% (12,0% YTD), underperforming the S&P500 by-0,9%. The median SP500 YTD return closed the week at 9,8%.
Cboe Volatility Index rallied 32,9% (47,5% YTD) to 18,36.
The Eurostoxx50 sold off by -2,2% (10,8%), matching the S&P500.
Diversified EM equities (VWO) sold off by -4,4% (8,0%, Z-score -2,2), underperforming the S&P500 by-2,3%.
The Dollar DXY Index (UUP) measuring the USD performance vs. other G7 currencies gained 0,8% (12,6%) while the MSCI EM currency index (measuring the performance of EM currencies vs. the USD) dropped -0,4% (-0,3%).
10Y US Treasuries underperformed with yields rising 13bps (64bps ) to 4,52%. 10Y Bunds climbed 3bps (26bps) to 2,29%. 10Y Italian BTPs climbed 5bps (-26bps) to 3,45%, underperforming Bunds by 2bps.
US High Yield (HY) Average Spread over Treasuries climbed 23bps (-38bps, Z-score 3,0) to 2,85%. US Investment Grade Average OAS climbed 5bps (-18bps) to 0,87%.
In European credit markets, EUR 5Y Senior Financial Spread climbed 2bps (-5bps) to 0,63%.
Gold dropped -1,0% (27,1%) while Silver sold off by -3,4% (24,1%). Major Gold Mines (GDX) sold off by -5,2% (12,0%).
Goldman Sachs Commodity Index dropped -1,5% (-0,1%). WTI Crude sold off by -2,6% (-3,1%).
Overnight in Asia…
S&P future +11 points; Hong Kong +-0%; Nikkei +0.2%; China +1%
Donald Trump said Sunday that he will be president of the US — not Elon Musk.
“No, he’s not taking the presidency,” Trump told a conservative audience in Phoenix, addressing growing complaints about the outsized role the Tesla boss has already had in his incoming administration.
To learn more about why and how to invest in the trend-following investment factor, check our dedicated web page.
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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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