December 2024
Five in Five is a monthly publication where we share graphs around five topics that illustrate the current state of the markets, with brief commentary that can be absorbed in five minutes or less.
This month's topics include:
- Treasury Yields
- Reaction Functions
- Small Cap Rally Typical Post-elections
- Mag 7 Outperforming Post-election
- Housing Starts Continues Its Decline
1. Treasury Yields
Source: BTC Capital Management, Bloomberg
- 10-year yields fell 12 bps on the first trading day after Scott Bessent was named incoming Treasury Secretary.
- This was the desired candidate by many on Wall Street.
- He will attempt to grow the economy 3%, while simultaneously shrinking the deficit.
- Will he continue to reduce Treasury maturities, which Janet Yellen prioritized and helped keep longer yields in check?
- There remain many unknowns, but for now the Treasury market breathed a sigh of relief.
2. Reaction Functions
Source: Federal Reserve Board
Federal Reserve Governor, Christopher Waller
On December 2, 2024, Waller spoke at the American Institute for Economic Research Monetary Conference.
“The motivation for continuing to cut the policy rate at the FOMC’s next meeting begins with how restrictive the current setting is. After we cut by 75 basis points, I believe the evidence is strong that policy continues to be significantly restrictive and that cutting again will only mean that we aren’t pressing on the brake pedal quite as hard.”
- Stock prices continue setting new highs.
- Very high-risk crypto coins have been surging of late.
- Redbook Index Sales increased 7.4% for the week ending November 30 versus the prior year. The general merchandise index averaged a gain of 3.65% from 2005 – 2014.
- November ISM Manufacturing New Orders came in at an eight-month high.
- We have doubts to whether policy is restrictive, let alone significantly restrictive.
3. Small Cap Rally Typical Post-elections
Source: BTC Capital Management, FactSet
- The graph above displays small cap performance versus large cap performance (Russell 2000 versus S&P 500)
- Small caps tend to outperform large caps for a brief period following an election (generally less than four months) but then go on to underperform large caps for an extended duration.
- The most recent small cap rally following the 2024 election looks to be short-term at best as large caps have recently rallied versus small caps.
4. Mag 7 Outperforming Post-election
Source: BTC Capital Management, FactSet
- The group of stocks known as the Magnificent 7 (Mag 7) has outperformed the broader market (S&P 500) year-to-date (~+62% versus ~+27%).
- While the range of outperformance has varied throughout the year, the Mag 7 has significantly pulled away from the broad market post-election.
- Investors are assessing potential policies of the incoming White House administration which may affect the stocks in the Mag 7.
5. Housing Starts Continues Its Decline
Source: BTC Capital Management, FactSet
- The chart above displays monthly new housing starts, which have been in a decline for the last three years.
- The most recent monthly housing starts for October came in much lower than forecasted.
- While hurricane activity may have impacted construction to some degree, a recent spike in mortgage rates earlier this fall has also led to home builders exhibiting cautiousness.
Investment products and services may lose value, are not a deposit, are not guaranteed by any financial institution, and are not FDIC insured or insured by any government agency.
Source: BTC Capital Management, Bloomberg, Federal Reserve Board, FactSet.
The information provided has been obtained from sources deemed reliable, but BTC Capital Management and its affiliates cannot guarantee accuracy. Past performance is not a guarantee of future returns. Performance over periods exceeding 12 months has been annualized. This document is intended for informational purposes only and is not an offer or solicitation with respect to the purchase or sale of any security. Statements in this report are based on the views of BTC Capital Management and on information available at the time this report was prepared. Rates are subject to change based on market and/or other conditions without notice. This commentary contains no investment recommendations and you should not interpret the statement in this report as investment, tax, legal, and/or financial planning advice. All investments involve risk, including the possible loss of principal. Investments are not FDIC insured and may lose value.