CPI (Consumer Price Index: think inflation number) has stubbornly refused to go much lower and sits at 2.7%. The current Fed estimate is that it will increase to 2.86%. Still a good number, just not perfect, and lower than what we saw through June 2022-May 2023 where we hit a whopping 9% before falling to 4%. Inflation “feels” like it is running at 3% (figure called “Truflation” which is the US Inflation Index) which is the highest level in over a year. On December 18th, the Fed lowered rates again by another .25%. This sounds weird as the CPI increased. So why did they lower again? I think they telegraphed this cut so widely that if they did not cut, they would risk the market selling off. Just my opinion. The market expectations through 2025 still shows the Fed Funds rate likely to decrease to 3.78% by Dec 2025. We will wait and see.
Our discussion on the bond markets
The bond market has been flat to slightly higher in yields with the competing arguments of inflation vs rate cuts. We do not expect to see too much volatility here however we do expect to see the yield on the 10-year treasury move about within a narrow range over the next two months. We continue to hold what we have for clients and add slightly to positions when the market gives us an opportunity. Across the spectrum of fixed income (Treasuries, Agencies, Muni’s, high grade corps, and high yield) spreads are tight. Simply stated, people are not willing to stretch too much to grab yield right now and prefer to stay safe. Meaning? No one knows if this economy is headed for good times or bad. Holding pattern continues.
Our discussion on the equity markets
Lots to talk about here! The NASDAQ composite hit 20,000 last week. That is a double from just four years ago. What we think is fascinating is that the double from 5,000 to 10,000 took over 20 years. Granted, there was a major correction or “tech wreck” in 1995 that aided to this long period. This growth has not simply been from the NASDAQ, however. It has been across the board. Check this out. If you looked at Global Equity Funds or funds that invest in every country, the allocation to the US now sits at 65% of the total. That is something! That goes to show how much more the US markets have run against all others over the last ten years. The numbers back this up as well as US stocks are trading at over 22x forward earnings while international stocks trade at only 14x forward earnings. Even the big stocks we love that pay a dividend are up huge. The best way to track this is to follow the S&P 500’s average dividend yield. As prices go up, yields naturally go down and vice versa. In 2020, the index average yield was 2.31%. Today it is 1.2%. Wow.
From the MailBOX and Ryan Krueger
“Our biggest challenge is project selection,” explained the CEO of Comfort Systems on their most recent quarterly earnings conference call. They install and service HVAC systems for large commercial buildings. Worrying about how to choose which new customers to take on is a high-quality problem to have.
Notice where new demand begins to accelerate. It’s coming from the biggest power sucking machines inside Data Centers, which need significantly more cooling than other buildings.
Technology customers like this one make up 32% of current revenues. That is up from 21% last year. “We could book so much more if we were willing to take it,” explained the CEO on the call. They like a balanced mix, and so do we. But to be clear, in our quantitative research process, we don’t pay attention to what anybody says, and we only focus on what the numbers and data evidence were already telling us.
There are not many industries with steadily growing demand like HVACs. Perhaps the only thing more consistent is their business to then service that increasing installed base.
Talking about HVAC systems is not as fun as those data centers firing up machines and robots with artificial intelligence. But when those predictions change again at the next party, that room will also be cooled by an air conditioner.
More important to us than any growth rates are their directions. Are they accelerating or decelerating? What is impressive about cash piling up at Comfort Systems is that is after two recent key acquisitions, buying back shares, and paying down debt. After all that, they still had more than enough left over to reward stakeholders with another dividend pay raise, 16% higher than last quarter.
Jackson Wood’s Crypto Corner
As we approach the end of 2024, it's the perfect time to reflect on the milestones and achievements that shaped the crypto industry this year. It’s been a groundbreaking year, so let’s dive into some highlights:
1. Stablecoin Supply Surpasses $200 Billion The total supply of stablecoins has crossed the $200 billion mark, signaling a surge in dollar-pegged assets being utilized for both personal and institutional payments. Additionally, stablecoins continue to play a pivotal role in the growth of DeFi. This reinforces our belief that crypto is advancing one of the U.S.'s most influential exports: the dollar.
2. Bitcoin Hits a New All-Time High Above $108,000 Bitcoin reached a record-breaking price of $108,357 on December 17, before retreating below $100,000. This remarkable rally—an increase of over $45,000 since October—has fueled speculation about the U.S. administration potentially creating a Strategic Bitcoin Reserve.
3. Ethena Labs Launches Stablecoin Backed by Tokenized BlackRock Fund Ethena Labs unveiled its USDtb stablecoin, backed primarily (90%) by BlackRock’s tokenized USD Institutional Digital Liquidity Fund (BUIDL). This marks a significant step as Wall Street continues to integrate deeper into the crypto ecosystem.
4. Memecoins Take the Spotlight Solana-based memecoin “Fartcoin” (yes, that's its actual name) briefly achieved a staggering $1 billion market cap during a downturn in the altcoin market. To put this into perspective, this humorous token’s valuation surpassed that of approximately 1,200 publicly traded U.S. companies.
5. ETFs Become the Largest Bitcoin Holders Exchange-traded funds (ETFs) holding Bitcoin have overtaken Satoshi Nakamoto as the largest holders of the cryptocurrency. This shift underscores Wall Street's increasing dominance and institutional acceptance of Bitcoin.
2024 has demonstrated that crypto is no longer a fringe concept—it’s a core part of the global financial landscape. With significant milestones, growing mainstream adoption, and boundless opportunities for innovation, the industry continues to attract worldwide attention. As we look toward the future, one thing is certain: the journey of crypto is far from over. The next chapter promises to be even more exciting—and perhaps unpredictable.
Interesting thoughts we discussed
Home Prices: The average home price in the US is up over 50% over the last 5 years. This is more than double the increase in US average wages. This makes the current housing market the least affordable in history.
Oil Patch: We are wondering if we will see a repeat of the Trump administration stance on energy. Drill Baby Drill. We might see more production announcements which should lead to lower oil prices for at least the first half of the year. Couple this with a global demand decrease and you get lower oil prices. This would obviously help the consumer and make the voters happy. While lower prices may be a drag on the majors (temporarily), added tariffs on foreign oil and gas equipment makers may make it is possible that US O&G manufacturing sees a major uptick. As the US makes the highest quality equipment and tariffs make imports pricier, the combination of these two makes the US more competitive. If now paying the same price, why would anyone buy foreign when US manufactured oil and gas equipment quality is exponentially better?
Allocation suggestions
We remain cautious heading into 2025, however, as you know, we always utilize math before emotion when it comes to investing. We continue with the following allocation as a base for investing.
50% Stocks
30% Fixed Income
10-15% Private Investments or Alternatives
5-10% Cash/Money Markets
All investors and their plans are created differently, and every investor should have an allocation that fits their needs. The above allocation is what we call our “base” which primarily is for people looking to grow their assets. The percentages will change depending on where clients are in their lifecycle and plans.
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The content presented is developed from sources believed to be accurate and should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author and are subject to change. The information in this material is not intended as tax or legal advice. A legal or tax professional should be consulted for specific information regarding your individual situation.
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