The final few days of 2024, and the beginning of 2025, encapsulated the quieter holiday trading period with New Year’s Day falling on Wednesday. After testing new seasonal highs in yields during the prior week, the market entered consolidation mode to wrap up the year. Despite the scarcity of data, there are a few points worth mentioning. Declining Initial Jobless Claims data and improved ISM Manufacturing data suggest the economy has continued to chug along at a solid pace. Though Jobless Claims data may be understandable with holiday fluctuations, it is nevertheless constructive to see a good number from it. Manufacturing data suggests an uptick in new orders is a positive sign, as well. Flat Construction Spending month-over-month, along with a meaningful decline in MBA Mortgage Applications, portend continued concerns about the housing market while the interest rate-sensitive data suggests that higher rates and restrictive policies continue to influence the economy.
Last week’s activity in the bond market (illustrated in the above chart) can best be summarized with the market catching a slight bid to test support above 4.50% in 10-Year UST as year-end window dressing on the part of portfolio managers. Following the New Year’s holiday, the market consolidated closing the week just below the prior week’s high close at 4.62%. The general direction of the market remains intact as it remains in the middle of the upward trend and just below major resistance (4.63%), which was tested multiple times in recent sessions. We continue to expect “higher-for-longer” in 2025 and anticipate the April 4.73% high to be eclipsed in short order. The S&P 500 has retraced some of its heady price action after having topped out just below 6100 in early December. Most calls for 2025 suggest a target between 7% returns to 12%. We are in no position to fight the trend at this point, though the performance is likely to be concentrated in the Mag 7. However, at some point valuations will start to matter, following consecutive years of greater than 23% returns in the S&P. Prudent investors will be wary, and locking in attractive fixed-income levels is a good strategy to balance one’s portfolio.
SWBC client activity was robust as year-end positioning and some tax-swapping opportunities created a two-way flow to wrap up the year. The trading desk was able to modestly add positions as many dealers appeared to relax their bidding just prior to January 1. Several clients indicated that they have cash to put to work with left-over buying needed after the December 30 and 31 selling. Additionally, both new money and reinvestment funds have flowed into portfolios creating additional demand. The new issue calendar is less than $5 billion this week, suggesting many participants will be looking to the secondary market to satisfy their investing needs. Demand remains solid along the curve out to about 15 years with many SMA accounts, but “extension” trades represent the bulk of the inquiry. With interest rates near the high levels over the past several years, locking in historically attractive levels is a pretty good game plan.
An index is unmanaged and not available for direct investment. Definitions sourced from Bloomberg.
The Bloomberg Barclays Global Aggregate Negative Yielding Debt Market Value Index represents the portion of the Bloomberg Barclays Global Aggregate Index that measures the aggregate value of global debt with a negative yield. • The S&P 500® is widely regarded as the best single gauge of large-cap U.S. equities and serves as the foundation for a wide range of investment products. The index includes 500 leading companies and captures approximately 80% coverage of available market capitalization. • The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.• The Cboe Volatility Index® (VIX) is a calculation designed to produce a measure of constant, 30-day expected volatility of the US stock market, derived from real-time, mid-quote prices of weekly S&P 500® Index (SPX) call and put options with a range of 23 to 37 days to expiration.• The ICE BofA MOVE Index is a yield curve weighted index of the normalized implied volatility on 1-month Treasury options. It is the weighted average of implied volatilities on the CT2 (Current 2 Year Government Note), CT5 (Current 5 Year Government Note), CT10 (Current 10 Year Government Note), and CT30 (Current 30 Year Government Note), with weights 0.2/0.2/0.4/0.2 respectively.• The Markit CDX North America Investment Grade Index is composed of 125 equally weighted credit default swaps on investment grade entities, distributed among 6 sub-indices: High Volatility, Consumer, Energy, Financial, Industrial, and Technology, Media & Tele-communications. Markit CDX indices roll every 6 months in March & September. • The Markit CDX North America High Yield Index is composed of 100 non-investment grade entities, distributed among 2 sub-indices: B, BB. All entities are domiciled in North America. Markit CDX indices roll every 6 months in March & September. • The U.S. Dollar Index (USDX) indicates the general international value of the USD. The USDX does this by averaging the exchange rates between the USD and major world currencies. Intercontinental Exchange (ICE) US computes this by using the rates supplied by some 500 banks.
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