Five In Five

January 2025

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:

1. Treasury Yields
2. Corporate Bonds
3. S&P 500 Performance Dominated by Mega Cap Stocks
4. Equity Markets Face Headwinds on a 4.5% Double Whammy
5. Large Cap Growth Stocks Outperform in 2024

1. Treasury Yields

Source: BTC Capital Management, Bloomberg

• The market is pricing in a December 2025 Federal Funds rate of 4.1%.
• The whipsaws reflect an overly data dependent Fed reaction function.
• The Federal Reserve has made clear they will react to lagging inflation and employment data.
• Critiques are increasing for a policy that looks through the noise.

2. Corporate Bonds

Sources: BTC Capital Management, Bloomberg

• Corporate bond spreads remain near record tights.
• Decades of mergers and acquisitions (M&A) have helped consolidate, diversify and strengthen the largest companies.
• Each recession seems to remove the weakest players, which creates a strong constituent index going forward.
• We anticipate the general theme of lower average spreads to persist in the coming years.

3. S&P 500 Performance Dominated by Mega Cap Stocks

Sources: BTC Capital Management, FactSet

• The graph above displays returns for 2024 of the S&P 500 and the S&P 500 equal weighted indices.
• The significant outperformance by the S&P 500 versus the equal weighted index can be attributed to large mega cap stocks, primarily the Magnificent 7 group of stocks.
• While the gap between the two indices narrowed for brief periods of time, the outperformance widened later in the year, specifically after the election in November.

4. Equity Markets Face Headwinds on a 4.5% Double Whammy
 

Source: BTC Capital Management, FactSet

• The graph above displays the 30-year history of both the unemployment rate and the United States Treasury 10-year yield.
• When both these data series rise above 4.5%, the equity markets have significantly fallen over an extended period. The last two times this has happened (June 2001 and September 2007), the S&P 500 experienced severe losses.
• Note: the current unemployment rate is 4.1%, while the 10-year yield is 4.76%. These two metrics have not been both above 4.5% for almost 18 years.

5. Large Cap Growth Stocks Outperform in 2024

Source: PSC Portfolio Strategy

• For the month of December, as well as calendar year 2024, large cap growth was the best performing style/size category.
• Within large cap, Value significantly underperformed both Core and Growth stocks in calendar year 2024 as investors flocked to stocks that have relatively higher earnings growth forecasts.
• Small cap stocks significantly underperformed both large and mid cap in calendar year 2024, despite the “risk off” mentality that permeated for much of the year.

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.

Sources: BTC Capital Management, Bloomberg, FactSet, PSC Portfolio Strategy

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.