Weekly Recap: 1/6/25-1/10/25
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Market Summary:
MAJOR INDICES:
SPX fell -0.71% ($5,827.04), DJI fell -1.07% ($41,938.45), and NDX fell -0.61% ($20,847.58). RUT decreased -1.90% ($2,189.23). The VIX increased +21.14% to 19.54.
SECTORS & STOCKS:
Energy (XLE) increased +2.77% while Technology (XLK) fell -2.96%. Walgreens Boots Alliance, Inc. (WBA) increased +27.97% ($11.76/share), and Mobileye Global Inc. decreased -21.83% ($15.65/share).
INTERNATIONAL EQUITIES:
The MSCI EAFE ETF (EFA) fell -0.38% ($75.06), while the MSCI Emerging Markets ETF (EEM) fell -1.60% ($41.09). The MSCI Eurozone ETF (EZU) increased +1.37% ($47.47), and the MSCI China ETF fell -5.02% ($43.71).
US MACRO:
DXY increased +1.11% ($109.76), and the US 10-year Treasury note yield increased +3.92% (4.7760%).
GLOBAL MACRO:
USD/CHF increased +0.96% (0.9172), and GBP/USD fell -2.17% (1.2153). The German 10-year yield increased +9.25% (2.576%), and the Turkey 10-year yield decreased -2.12% (26.360%).
COMMODITIES:
Gold increased +2.91% ($2,715.30), and WTI Crude Oil increased +5.82% ($77.84/barrel). BTC fell -0.84% ($94,241.37).
(as of 10:31PM, 1/12/25)
Sources:
https://www.tradingview.com/markets/
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MACRO: December non-farm payrolls surprise to the upside
The December 2024 jobs report came in stronger than expected, with a 256,000 increase in non-farm payrolls and the unemployment rate decreasing to 4.1%. The DOW Jones consensus for the report was 155,000 new non-farm payrolls, while the unemployment rate in November had been 4.2%. Hiring in the US has been on a healthy upward trajectory, with Preston Caldwell of Morningstar expecting “an adjusted three-month growth rate of 1.0%” after factoring in preliminary benchmark revisions that will be included in next month’s official report. In specific, retail jobs surprised by rebounding from a 29,000 loss in November to a 43,000 increase in December. According to the CME FedWatch Tool, the report pushed already deflating cut expectations to a “less than 50% chance… until June”. Currently, rates are between 4.25% and 4.50%.
Sources:
https://www.cnbc.com/2025/01/10/jobs-report-december-2024.html
https://www.morningstar.com/economy/fed-rate-cuts-hold-with-continued-healthy-job-growth
My Thoughts:
I think the US economy is doing well and doesn’t need further easing. Obviously, a strong economy is good for equities, but the question will become if this will reinvigorate inflation. In my opinion, markets are taking a black-and-white approach to the inflation conversation, which could hurt investors if economic data and forecasts are the primary variables in their decision-making. I think that inflation will be rangebound, even under a Trump administration. From a political perspective, Trump might not want to be the cause of increasing inflation early in his term, so he could hold off on the fulfillment of his tariff promises and anything else that could contribute to higher prices. With this in mind, investing should shift from a top-down to a company-fundamental approach, centered around how efficient a company's operations are and can be, especially in a time of technological innovation like now.
PUBLIC MARKETS: Insurance companies struggle in the midst of California fires
The California fires this week are expected to be “likely among the most costly wildfires in the state's history”, as JPMorgan estimates $20 billion in insurance damage as a result. Insurance stocks declined, with Chubb expected to be affected more than others due to its “high-exposure” to expensive homes affected by the fires. Pacific Palisades, a neighborhood whose “median home price is more than $3 million”, had “more than 1,000 structures” burn down. According to an analyst, Allstate (ALL) has a “6% share of the Californian home-insurance market” while Mercury (MCY), another insurance company, also has a big presence in California. Utility stocks like Pacific Gas and Electric (PCG) and Edison International (EIX) saw declines due to their servicing of the affected areas. In the past, PG&E has “faced over $30 billion in legal claims”, which caused it to “file for Chapter 11 bankruptcy in 2019.”
Sources:
My Thoughts:
Although damages are imminent and costly, I’m looking at the cost of repairs as a potential catalyst for refinancing activity. Due to insurance companies not being able to potentially cover all the losses, people might have to come up with the money themselves by taking equity out of their homes. This could benefit home improvement stocks, like Home Depot (HD), who can see inflows from people using the cash obtained from refinancing to repair their homes.
PRIVATE MARKETS: BlackRock writes off $600 million loss after Alacrity restructures debt
Alacrity, a third-party insurance claims manager, has restructured its debt, ridding BlackRock of its $600 million investment in the company. Alacrity was part of BlackRock’s Long Term Private Capital Strategy and had a 33% IRR “through early 2024”. Described as a “differentiated market leader” by BlackRock, the company struggled due to insurance companies doing their own adjusting and because “weather-related claims dwindled.” Alacrity also had about $1 billion of debt when BlackRock invested in it, with an additional $500 million in junior debt owed to Goldman Sachs Asset Management. The restructuring will take the existing debt and convert it into “a $450 million term loan and $250 million in preferred equity”, with senior lenders owning 90% of the company and Goldman getting 10%. Lenders include Antares, Blue Owl, and KKR.
Sources:
https://wallstreetpit.com/122289-massive-600m-loss-hits-blackrocks-private-equity-fund/
https://www.ft.com/content/26148be7-38de-40ea-8432-84bf947c1ba3
My Thoughts:
Although alternative investments have gained traction in recent years, this story provides context to investors about the risk associated with the space. In the WallStreetPit article, it mentioned that high rates have affected the asset class and that due diligence is of utmost importance when a company has a lot of debt. From a macroeconomic perspective, it makes you think of how many private companies are bound to restructure due to it becoming unsustainable if rates stay where they are.
THE WEEK AHEAD:
MACRO: December PPI to be released on Tuesday (1/14), CPI on Wednesday (1/15)
PUBLIC MARKETS: Big banks like JPMorgan, Goldman Sachs, and others to report earnings on Wednesday (1/15)
SOURCES:
MACRO: https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8771925
PUBLIC MARKETS: https://www.investopedia.com/what-to-expect-in-the-markets-this-week-8771925
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