HI Market View Commentary 01-06-2025

Welcome to 2025!!!

2024 in retrospect

• Beginning of the year we talked about how 80% of 2023 gains were from the mag 7
• We thought there would be rotation into smaller cap stocks
• But the market continued largely with the mag 7 stocks which was again a large portion of the gains for yet another year (2024)
• A lot of our stocks did well BUT some held us back later in the year (BIDU, MU, NVDA).
• Those stocks never took off like we thought they should. WHY? Tariffs and China trade news. Trump’s tariff talk.

 

What are we looking at this year in our market?

• Republican majority controlling congress and white house
• Lower taxes, less regulation
• More fraud with less regulation BUT if DOJ does their job this shouldn’t be a huge problem
• We haven’t had a huge pullback (10-20%) since 2022 when fed started hiking rates.
• Tariff’s have been a huge worry BUT what people don’t remember is that the trump tariff’s have stayed on through Biden’s administration.
• Trump will probably walk back the tariff talk to some degree. This is what he does: talk big to push expectations, and then walks back a bit so everyone feels like it’s not as bad as feared.

 

What is our investment plan?

• Lets see MU, NVDA go back up and see us profit from all of the the work we’ve done to Dollar Cost Average without asking for more money.
• Lets see DIS finally get some credit for the big money making films that knocked it out of the park last year and this coming year as well.
• We will continue to stick with our process of protecting our stocks with put options, so that when they fall, we have the opportunity to buy more shares for greater returns in the future

 

 

2024 Year in Review

Just about everything went the stock market’s way in 2024, and even when it didn’t, the stock market still found a way to spin the not-so-good into something good. To wit:

• Treasury yields went up, but for a good reason: growth was stronger than expected.
• Israel’s war with Hamas expanded to involve Hezbollah, but that was okay because it was confined to proxy battles as opposed to being a wider regional conflict.
• Russia’s war with Ukraine grew more intense, but the battlefronts remained Russia and Ukraine (mostly Ukraine).
• Inflation continued to stick above the Fed’s 2.0% target (currently 2.4%), but it dropped from 2.7% at the end of 2023.
• The Fed did not cut rates as much as expected, but it didn’t need to because growth held up.
• Market breadth was narrow for a good part of the year, but that was okay because the mega-caps outperformed and carried the indices.
• The stock market had a summer swoon on the unwinding of yen-based carry trades, relatively disappointing earnings results from Tesla (TSLA) and Alphabet (GOOG), and talk of increased restrictions on semiconductor exports to China, but that was a buy-the-dip opportunity in a market that didn’t allow much time this year to wait on buying the dips.

Let’s simply call 2024 a very good year. The journey didn’t matter as much to index investors as the destination. For the second straight year, the market cap-weighted S&P 500 achieved a 20%+ price return.

It was a different story for the equal-weighted S&P 500, which saw a more modest gain of 11.0% — quite good for any given year, but sub-standard in 2024 when the Nasdaq Composite gained 28.6%, the Dow Jones Industrial Average increased 12.9%, and the S&P Midcap 400 Index rose 12.2%. Only the small-cap Russell 2000 had a “worse” year, rising “only” 10.0%.

There were plenty of gains to be had then, but the biggest gains were found in the biggest stocks, captured homogenously in the 32.3% gain for the Vanguard Mega-Cap Growth ETF (MGK).

AI Leadership

The mega-cap stocks assumed a leadership position that they only ceded sparingly at times. Ultimately, they were favored in a year that favored owning quality in terms of financial strength, quality in terms of industry leadership, and/or quality in terms of AI leadership.

No stock exuded the AI leadership quality better than NVIDIA (NVDA), which was at the center of every AI conversation because its GPUs are at the center of data center buildouts, large language models, and generative AI.

The AI growth enthusiasm was put to the test with every NVIDIA earnings report, and fortunately NVIDIA passed that test every time, creating its own halo effect that excited the trading masses and fostered an appreciation for the AI-related growth (and growth prospects) in other companies like Apple (AAPL), Oracle (ORCL), Broadcom (AVGO), Salesforce (CRM), Meta Platforms (META), Alphabet (GOOG), Amazon.com (AMZN), Microsoft (MSFT), and Tesla (TSLA) to name just a few.

A lot of growth enthusiasm got priced into those stocks, begging the question of whether the stocks have gotten ahead of themselves and now face impossibly high expectations going into 2025. The answer will be in the price action of the stocks in the wake of future earnings reports.

Recognizing a Good Thing

The price action in 2024, for the most part, was better than fine, and it was buttressed by several variables that bolstered the stock market’s 2024 performance. Those variables included:

• A recognition that the economy avoided a recession
• A recognition that there was continuing disinflation that would encourage the Fed to cut rates
• A recognition that the Fed was teeing up the market to expect a removal of policy restraint (the first cut — a 50-basis points cut — came in September and was followed by 25-basis points cuts at the November and December FOMC meetings)
• A recognition that earnings growth was holding up and that forecasts for 2025 called for even stronger earnings growth
• A recognition that there would not be a contested presidential election and that President-elect Trump (and the GOP-led Congress) would be pushing for less regulation and lower tax rates

The latter triggered a post-election rally that saw the S&P 500, Nasdaq Composite, Dow Jones Industrial Average, Russell 2000, and S&P Midcap 400 all hit new record highs in the fourth quarter. It also spurred a spike in Bitcoin above $100,000 and unleashed a wave of speculative fervor driven by a fear of missing out on further gains.

The Nasdaq, led by none other than its mega-cap constituents, would end the year near its high, but the other indices faded away from their highs with small-cap and mid-cap stocks getting hit hard in December on stepped-up selling interest precipitated by rising interest rates.

The benchmark 10-yr note yield, at 3.64% the day before the Fed cut rates by 50 basis points on September 18, traded as high as 4.64% in late December. The bump in market rates after the Fed cut rates was attributed in large part to the market’s concerns about inflation remaining elevated and the budget deficit remaining unacceptably high. To be fair, an economy performing better than expected also played a part.

The Fed, which helped drive the stock market’s gains for much of the year, helped drive the December retreat with a forecast for fewer rate cuts in 2025 than previously expected. The tempered forecast had to do with the progress on inflation having slowed and the specter of it remaining elevated in 2025 due to President-elect Trump’s tariff proposals and plans to implement mass deportations of illegal immigrants.

Meshing Nicely

Higher interest rates served as a headwind for a richly-valued stock market at the end of the year. At 21.9x forward twelve-month earnings, the market cap-weighted S&P 500 trades at a 20% premium to its 10-year average, according to FactSet.

That multiple, though, reflects a lot of good things that happened in 2024 and an expectation that more good things will follow in 2025. That’s a nice thought, but the reality is that there isn’t much, if any, room for error when it comes to earnings reporting.

That is a 2025 issue, however. 2024 unfolded with double-digit earnings growth (10%) spearheaded by the mega-cap companies.

The double-digit earnings growth was a by-product of impressive economic growth and was a foundational element for a very good year in the stock market. The economy itself was underpinned by a fairly solid labor market and rising real income that helped fuel consumer spending.

Real GDP growth averaged 2.6% for the first three quarters and accelerated in the second and third quarters. The Atlanta Fed GDPNow model estimate for real GDP growth in the fourth quarter is 3.1%.

The stock market isn’t the economy, but the two meshed nicely this year in outperforming expectations that prevailed at the start of the year.

That outperformance has raised the bar of expectations for 2025 with respect to earnings, the economy, politics, monetary policy, and the performance of the mega-cap stocks not to mention the broader market. To be sure, 2024 will be a tough act to follow in all respects, and especially so if long-term rates keep rising.

That is a development that bears close watching following a very good year for the stock market.

Happy New Year!

—Patrick J. O’Hare, Briefing.com

 

 Where will our markets end this week?

higher

 DJIA – bearish

SPX – bearish

COMP – bullish

 

 

 

Where Will the SPX end January 2025?

01-06-2025            +2.00%

 Earnings:   

Mon:            CMC

Tues:            APOG

Wed:            ACI, SMPL

Thur:          

Fri:              DAL, WBA

 

Econ Reports:

Mon:           

Tue              ISM, JOLTS   

Wed:            MBA, EIA oil inventories, FOMC minutes

Thur:           Initial Claims, Continuing Claims,

Fri:               Nonfarm Payrolls, Avg. Hourly Earnings, Unemployment Rate, Ave Workweek, Consumer Sentiment

 

How am I looking to trade?

Getting ready for earnings coming up

 

www.myhurleyinvestment.com = Blogsite

info@hurleyinvestments.com = Email

 

Questions???

https://www.cnbc.com/2024/12/22/what-google-quantum-chip-breakthrough-means-for-bitcoins-future.html?__source=iosappshare%7Ccom.apple.UIKit.activity.Mail

What Google’s quantum computing breakthrough Willow means for the future of bitcoin and other cryptos

PUBLISHED SUN, DEC 22 202412:23 PM EST

Kevin Williams

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KEY POINTS

• Google’s new quantum chip, Willow, drastically reduces computation times.
• Its speed and accuracy could theoretically provide hackers with the tools to unlock the algorithms that bitcoin and other cryptocurrencies are built upon.
• But Google says it is still 10 years away from quantum that can decode crypto, and new quantum-safe cryptocurrencies may emerge.

Google Quantum AI’s “Willow” chip in an undated handout photo obtained by Reuters on Dec. 6, 2024.

Google | Via Reuters

Google’s recent announcement of the arrival of Willow, a quantum chip that has reduced the error tendencies of some of its predecessors, is a milestone in the effort to bring quantum computing into the real world, and in the years ahead, it could change the way we think about the risk in cryptocurrencies.

Willow’s speed is almost incomprehensible — according to Google, it’s able to perform a computation in under five minutes that would take one of today’s fastest supercomputers 10 septillion years to solve. Ten septillion is 10,000,000,000,000,000,000,000,000 years.

But the accuracy of quantum computing has, until now, also been a big issue, with quantum like a garden hose on full blast with no one holding it: the water is coming out fast, but its aim is not consistently accurate. Willow’s combination of speed and accuracy could theoretically provide hackers with the tools to unlock the algorithms that bitcoin and other cryptocurrencies are built upon.

Qubits and bitcoin can coexist, for now

If you don’t understand (not many people do) what makes up quantum computing — qubits — security company DigiCert’s industry technology strategist, Tim Hollebeek, has a simplified way of thinking about the breakthrough. He says imagine a maze and how a classical computer would try to find its way through the maze from start to finish. It would try one potential path at a time. “A quantum computer would be able to try each path at the same time, resulting in a much faster solution,” Hollebeek said.

While Willow may not be ready for real-world applications yet, Willow’s speed and accuracy will help pave the way for larger-scale quantum computers.

“Part of the issue with qubits is that they are unstable and produce errors. This chip has significant error correction capabilities, which mitigates some of the qubit issues,”  Hollebeek said.

That means chips improving upon Willow’s breakthrough will be able to help hackers target crypto — but at least for the moment, the concern is only theoretical.

“Quantum computers can theoretically solve this much faster and pose a threat to today’s cryptographic algorithms if a quantum computer with sufficient qubits could be developed,” Hollebeek said. But he added that the real-world reason for breathing easier today if you own crypto is simple. “None exist today and are not expected for at least another 5, 10, 15 years,” he said, with the fastest five-year timeline contingent on some unforeseen technological breakthrough.

A decade-long lead for crypto

A Google spokesman told CNBC that Willow and crypto can coexist. “The Willow chip is incapable of breaking modern cryptography,” he said, adding that it is also the view of Google that quantum technology with that capability is still years off.

In fact, according to Park Feierbach, an expert in decentralized finance technology who is CEO of Radiant Commons, even if Willow can drastically increase the speed at which crypto could be broken, it would still take several times the age of the universe for the quantum chip to do it. According to NASA, the universe is 13.7 billion years old.

“There’s almost no reason to deploy Willow on this technology in a way that could make tractable progress. It would simply still take too long,” Feierbach said.

“Estimates are we’re at least 10 years out from breaking RSA, and that around 4 million physical qubits would be required to do this,” the Google spokesman said. RSA is an encryption system used in cryptocurrencies.

For reference, Google’s processors are now on the scale of about 100 physical qubits.

‘Quantum-safe’ algorithms

The Google spokesman stressed that the timeline for quantum breakthroughs has been widely shared and Willow has not changed it.

“Google is on track with our planned roadmap,” he said. “The security community has long been aware of the projected timeline to break asymmetric encryption, and has been working on defining standards and collaboratively implementing new algorithms that will resist attacks by both classical and quantum computers,” the spokesman added.

Indeed, Hollebeek says that the crypto industry is working on “quantum-safe” crypto.

The National Institute of Standards and Technology (NIST) has released several quantum-safe algorithms that are resistant to attacks by future quantum computers, Hollebeek said, and NIST has a timeline for governments and industry to deploy these algorithms to ensure the safety of the nation’s and businesses secrets.

“Google and other industry leaders have supported standardization and experimented with the algorithms in their draft form,” the Google spokesman said.

Despite how efficient quantum is at unlocking algorithms (traditional crypto equations based on factoring huge prime numbers), it isn’t infallible, and that is where the promise lies in quantum-safe crypto.

“They’re really, really good at some things, but not everything,” Hollebeek said, noting that breaking conventional asymmetric cryptography just happens to be one of the things they are really good at. “Luckily, there are other hard math problems they are bad at, and asymmetric cryptography can be updated to use those hard math problems instead of factoring,” he said.

Taqi Raza, assistant professor of electrical and computer engineering at the University of Massachusetts Amherst, said existing cryptos will have to evolve to ward off qubits. “As the potential for quantum computers to break existing cryptography becomes more of a concern, new cryptocurrencies specifically designed to be quantum-safe could be developed. These new quantum cryptos would integrate PQC, cryptographic algorithms that are resistant to the computational power of quantum computers,” Raza said.

Jeremy Allaire, co-founder, chairman & CEO of digital currency company Circle, told CNBC in an interview last week that the risk is real, but his view of the future remains focused on the opportunities that will evolve. “The bottom line is quantum crypto means that you can both unlock things more easily, things that had bad old locks, but you can also create better locks,” Allaire said. “So quantum crypto – this quantum is going to be actually a huge turbocharge to crypto computing, to crypto applications, and to crypto money.”

Raza thinks that ultimately the more sweeping changes wrought by quantum computing will occur beyond crypto. Breakthroughs will make devices and software faster, revolutionize AI, and improve data security with ultra-secure encryption methods. In everyday life, there will be advances in computing, healthcare, energy, and security, Raza said, and as a result, it is not the crypto industry we should be thinking about in isolation while these changes are still developing. “They will likely transform industries,” he said.

Wharton’s Jeremy Siegel says stock sell-off is ‘healthy’ as cautious Fed gives investors a ‘reality check’

PUBLISHED THU, DEC 19 20241:04 AM ESTUPDATED THU, DEC 19 20243:25 AM EST

Anniek Bao@IN/ANNIEK-BAO-460A48107/@ANNIEKBYX

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KEY POINTS

• Wharton business school professor Jeremy Siegel said the stock sell-off on Wall Street was “healthy,” as the Federal Reserve’s cautionary projection gives investors a “reality check.”
• “The market was in almost a runaway situation… and this brought them to reality that we are just not going to get as low interest rates” as investors were betting on when the Fed started its easing cycle, Siegel said on CNBC’s “Squawk Box Asia.”

WATCH NOW

VIDEO04:30

Fed’s neutral rate could be between 3.5-4%: Jeremy Siegel

The stock sell-off on Wall Street was “healthy,” as the Federal Reserve’s cautionary projection on future rate cuts gives investors a “reality check,” according to Jeremy Siegel, professor emeritus of finance at University of Pennsylvania’s Wharton School.

The U.S. Federal Reserve cut interest rates by a quarter percentage point at its last meeting of the year, taking its overnight borrowing rate to a target range of 4.25% to 4.5%. Meanwhile, the Federal Open Market Committee indicated it probably will only lower rates twice more in 2025, fewer than the four cuts indicated in its September forecast.

All three major indexes on Wall Street sank in response to the revised Fed outlook, as investors had been betting on the central bank to stay more aggressive in lowering borrowing costs.

“The market [had been] in almost a runaway situation… and this brought them to reality that we are just not going to get as low interest rates” as investors were betting on when the Fed started its easing cycle, Siegel told CNBC’s “Squawk Box Asia.”

“The market was overly optimistic…so I am not surprised at the sell-off,” Siegel said, adding that he expects the Fed to pare back the number of rate cuts next year, with just one or two reductions.

There is also “a chance of no cut” next year, he said, as the FOMC raised its inflation forecast going forward.

WATCH NOW

VIDEO01:16

Fed Chair Powell: I am confident we will get inflation back to 2%

The new Fed’s projections show officials expect the personal consumption expenditures price index, excluding food and energy costs, or core PCE, to remain elevated at 2.5% through 2025, still significantly higher than the central bank’s 2% target.

Siegel suggested that some FOMC officials may have factored in the inflationary impacts from potential tariffs. President-elect Donald Trump has vowed to implement additional tariffs on China, Canada and Mexico on day one of his presidency.

But the actual tariffs may not be “anywhere as large as the market fears,” Siegel said, given that Trump would likely look to avoid any pushback from the stock market.

Market participants now expect the Fed to not cut rates until its June gathering, pricing in a 43.7% chance of a 25 basis-points cut at that time, according to the CME’s FedWatch tool.

Marc Giannoni, Barclays chief U.S. economist, maintained the bank’s baseline projection of only two 25-basis-point rate cuts by Fed next year, in March and June, while fully incorporating the effects of tariff increases.

Giannoni said he expects the FOMC to resume incremental rate cuts around mid-2026, after tariff-led inflation pressures dissipate.

Data out earlier this week showed U.S. inflation rose at a faster annual pace in November, with the consumer price index showing a 12-month inflation rate of 2.7% after increasing 0.3% on the month. Excluding volatile food and energy prices, the core consumer price index rose 3.3% on a year-on-year basis in November.

“It is a realization and a surprise to everyone, including the Fed, that given how high short-term rates have been relative to inflation, that the economy can remain as strong as it is,” Siegel added.

The Fed has entered a new phase of monetary policy — the pause phase, said Jack McIntyre, portfolio manager at Brandywine Global, adding that “the longer it persists, the more likely the markets will have to equally price a rate hike versus a rate cut.”

“Policy uncertainty will make for more volatile financial markets in 2025,” he added.

Jim Cramer explains why the market melted down after the Fed cut rates

PUBLISHED WED, DEC 18 20246:22 PM ESTUPDATED WED, DEC 18 20246:41 PM EST

Kristian Burt@IN/KRISTIAN-BURT-633536212/

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KEY POINTS

• CNBC’s Jim Cramer explained why the markets fell after the Federal Reserve announced an interest rate cut and said there will likely be fewer cuts than expected next year.
• Weak industries like housing and autos are met with rising inflation in food, insurance, healthcare and rent, which require different answers from the Fed, Cramer said.
• While some investors will say the Fed’s fanning the flames of inflation with this rate cut, others will say that without fanning the embers, the fire will go out, Cramer said.

A television station broadcasts the Federal Reserve’s interest-rate cut on the floor of the New York Stock Exchange (NYSE) in New York, US, on Wednesday, Dec. 18, 2024. 

Michael Nagle | Bloomberg | Getty Images

WATCH NOW

VIDEO02:06

Immigration policy could complicate Fed’s job in 2025, says Jim Cramer

CNBC’s Jim Cramer on Wednesday walked investors through the markets’ fall after the Federal Reserve cut its key interest rate by a quarter percentage point and indicated that there will likely be fewer cuts than expected next year.

“After listening to Fed Chief Jay Powell this afternoon I think a lot of people got even more baffled,” he said. “Because he seemed to get caught having to fulfill a prediction of the need for a rate cut and that need was no longer self-evident. The data didn’t back it up.”

Cramer questioned Powell’s assertion that the decision was a close call, and suggested that looking for progress on inflation while cutting rates is a bit of an oxymoron. Powell’s mixed messages are a big reason behind Wall Street’s disappointment with the announcement, Cramer said. He furthered that a major problem making the Fed’s job tricky is that there are two economies right now, one that’s on fire and the other that’s stalled out, which come together in a peculiar way.

Cramer looked at contract manufacturer Jabil as an example. The company makes electronic auto parts, medical devices, tech hardware, robotics and more. The company’s stock was up more than 7% after it reported a solid quarter and raised its full-year forecast. Much of that strong earnings report was due to Jabil’s cooling technology for data centers, which is a hot commodity as the U.S. needs more energy than it has, Cramer said. On the other hand, another segment of Jabil that’s focused on industries like renewable energy and electric vehicles is ice cold, he added. Cramer said that the company can be seen as a microcosm of our economy, with different components in drastically different waters in the economy.

Weak industries like housing and autos are met with rising inflation in food, insurance, healthcare and rent, which require different answers from the Fed, Cramer said. He added that there are a few issues the Fed might be underestimating, including rampant speculation in the markets and the historic rally for Bitcoin. For Cramer, he sees the issues surrounding the Fed’s announcement as a pattern. While some investors will say the Fed’s fanning the flames of inflation with this rate cut, others will say that without fanning the embers, the fire will go out, he said.

“In the end, I really wish the Fed hadn’t been so definitive about the need to cut rates going forward, albeit more slowly,” he said. “We would’ve been much better off if they’d explicitly taken a wait-and-see approach before this meeting. This time, they telegraphed the wrong thing — hence today’s meltdown.”

WATCH NOW

VIDEO12:33

Jim Cramer talks the Fed’s 25 bps cut and the market’s reaction