Another year has come and gone leaving us with the opportunity to do the classic looking back and at the same time, looking forward. Last year marked the beginning of our “new look, same people” journey with Sollinda Capital Management and who would have guessed that the markets would have followed a similar tact? In our letter last January, we noted that “Many areas of the global equity market are currently in up trends and the breadth of stocks moving higher has increased into year-end 2023. We moved tactically bullish…”
We don’t believe we knew just how true that statement was as 2024 turned out to be another big up year for the S&P 500. The headline U.S stock index notched the strongest back-to-back annual runs since the dot-com bubble of the late 1990s. Despite uncertainty around a presidential election, elevated interest rates and a cooling labor market, economic growth remained solid last year. The US is set to be the top performer among Group of Seven countries, according to IMF projections. The dollar completed its best year in almost a decade as the Bloomberg Dollar Spot Index rose more than 7%. All currencies in the developed world weakened against the greenback as other central banks had to support local economies.
Below is some high-level context on the year that was:
· The S&P 500’s 25% return masked a gain of half that in its average member. In short, the stock leaderboard proved remarkably consistent, with Big Tech favorites leading the advance. Since the market bottomed in October of 2022 just 10 stocks have accounted for approximately 60 percent of the advance in the S&P 500. Non-U.S. stocks generally underperformed.
· Benchmark 10-year Treasury yields jumped roughly +0.70% last year to 4.56% — pushing down bond prices — as the strength of the economy drove the Fed to move at a more gradual-than-expected pace. 2024 marks the fourth straight year of rising yields, the longest such stretch since 1981. The overall price drop was offset by interest payments, allowing a broad gauge of the Treasury market to post a gain of about 0.7% last year, significantly less than the 5.3% return from short-term Treasury bills. It represents the 4th year that bonds underperformed T-bills, which hasn’t happened since at least 1992. The poor performance is the result of a resilient economy that forced investors to abandon the aggressive bets on monetary easing they were making when the year began. The rise in the long-term bond yields also underscores concern that President-elect Donald Trump’s policies may fuel inflation and widen deficits by pouring more stimulus on the economy. The dynamic has been opposite in the world’s second largest economy as Chinese bonds have beaten major global peers this year as prolonged economic weakness and a slowdown in consumer spending drove bets for more monetary easing. The nation’s 10-year yields have plummeted since the start of 2024. U.S. government bond yields are at multi decade highs relative to Chinese government yields.
· Gold notched its best gain in 14 years, with a more than 25% advance in 2024. Base metals had a mixed year, while iron ore has tumbled, and lithium’s woes deepened. Crude has been stuck in a narrow trading range since mid-October, leaving WTI little changed on the year while Brent is down about 3%, on pace for a second-straight annual decline. The oil market is also facing a global oversupply in 2025, making it harder for the OPEC+ alliance led by Saudi Arabia to revive idled production. Natural Gas prices have showed relative strength in the latter part of 2024 as new secular tailwinds such as AI data center power demand are on the horizon.
Markets move far faster than the economic backdrop and thus we will continue to focus on both big picture fundamentals and select indicators of market price and volatility. As has been said, “Market pundits can lie…data doesn’t.” With that in mind, here are some broad points relevant to Sollinda Capital Management’s outlook and execution across strategies:
· Domestic Mega Cap growth companies are no doubt richly valued by many traditional metrics and have drastically outperformed most other publicly traded companies for some time. However, we do not see evidence to indicate an imminent rotation to other areas of the market as the biggest of big American companies have significant tailwinds not present to comparatively smaller companies. Corporate buybacks, index tracking inflows from around the globe and the ability to thrive without low real interest rates are all factors supporting U.S. mega cap growth. Our core equity tilt is to remain bullish the mega caps with a tactical focus on certain global investments that provide significant relative value.
· After spending the last few years heavily tilted towards ultra-short duration fixed income (T-Bills) which helped our client portfolios weather fixed income volatility; we believe now presents an interesting opportunity to extend duration across our strategies. U.S. interest rates are currently comparatively high relative to much of the world as market participants are now pricing in only a half percentage point of additional cuts to the federal funds rate in 2024. High Quality fixed income of slightly longer duration offers historically high returns and will likely benefit notably if the economy weakens and the Federal Reserve needs to cut rates faster and deeper.
We said in last year’s January letter that with the rebrand & launch of Sollinda, we were “…really excited for what the future holds!!!” I don’t believe anything could be a truer statement today. Just like with the markets, we’ve been surprised and learned some lessons, but our “Why” and “How” hasn’t changed. As such, we enter 2025 just as excited to “do what we do”: We. Help. People. We're grateful for the opportunity to serve and as always, we remain transparent & accessible throughout the entire organization. If we can help you in any way, please reach out as we truly love what we get to do every day!
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