Rates End Year with Uncertainty – Fixed Income Overview

Tensions rose surrounding the Treasury market as the weighted average interest rate on outstanding Treasury debt is currently around 3.3%, a 15-year high. Additional Treasury debt issuance has become a contention as weakened demand for new bonds became more apparent. Bond yields were challenged throughout 2024 as uncertainty surrounding the Fed’s decision to reduce rates lingered. The Fed’s initial rate reduction in September 2024 was the commencement of additional rate cuts over the next couple of years. Inflation data will be the primary driver of the Fed’s trajectory for rate cuts in 2025.

Sources: Treasury Dept., Federal Reserve

Equity Indices Enter 2025 With Hesitation – Domestic Equity Update

Equity indices finished 2024 with gains across all eleven sectors of the S&P 500 Index. The communication services, financials, consumer discretionary, and the utilities sector saw the largest gains in 2024. Equity indices hesitated their upward trend in December as inflation data hindered the Fed from reducing rates more aggressively. Analysts will be focused on earnings and cabinet appointments whose influence on company directives and initiatives can be critical.

Sources: S&P, Bloomberg, Dow Jones, Nasdaq

Imports & Tariffs – Domestic Trade Policy

As the president-elect prepares to enter the White House, foreign imports into the U.S. have become a leading agenda item. According to the Commerce Department, the top imports into the U.S. include electronic devices such as mobile phones, computers and TVs, followed by machinery and automobiles. The onset of additional tariffs and import duties might change the makeup of imports dramatically, as consumers tackle higher prices along with some manufacturing possibly shifting to the U.S. The biggest question everyone has, is how higher tariffs will affect U.S. consumers and the economy?

The most dominant imports currently tend to be high margin products such as mobile phones, laptops, and computers. Any additional tariffs might either be partially absorbed by the exporters or passed along to consumers in the form of higher prices. What’s interesting is that the onset of cheap Chinese made products have actually altered consumer behavior in the U.S. over the past twenty years. Before inexpensive TVs made their way into electronic superstores, a typical TV would last years. Today, TVs are considered disposable and easily replaced. Should import prices rise, consumers might reconsider replacing products regularly, and instead maintain existing products for longer periods.

Source: Department of Commerce

What Is Driving Cryptocurrency – Digital Currency Market Update

The cryptocurrency market has seen significant developments and price movements following the election in anticipation of potential regulatory changes and proactive support for its broad use. The nomination of Paul Atkins as the Chair of the Securities and Exchange Commission (SEC), is seen as a positive catalyst for the crypto industry. A number of large companies have started integrating cryptocurrency into their operations and balance sheets, identifying it as an asset and financial instrument. The U.S. government currently holds approximately 210,000 bitcoins worth more than $13 billion, a portion of which was seized due to criminal activity. The Securities and Exchange Commission regulates assets it determines to be securities, however, it doesn’t yet regulate digital currencies, but it is regulating investments or derivatives related to cryptocurrency. As a form of virtual currency, Bitcoin exists solely online, functioning through a transparent ledger known as Bitcoin blockchain. Each transaction is recorded on the distributed ledger, ensuring all the transactions remain secure and visible. The most broadly held and popular cryptocurrency is Bitcoin, which is essentially virtual money that is traded digitally by exchanges. Bitcoins can only be purchased and sold with legitimate currency, such as dollars or euros, making it available worldwide. The total estimated value of Bitcoins worldwide as of the beginning of December 2024 is over 73 billion dollars.

Bitcoins exist as software, not physical currency, and are not regulated by any country or banking authority. Even though U.S. Senate hearings disclosed that Bitcoin could be a means of exchange, it gave no assurance that it would actually become an accepted medium of exchange. Government regulations would need to be created and then enforced in order for Bitcoin to become accepted by other government entities.   Bitcoins are mined by powerful computers that calculate complex, mathematical functions. Total Bitcoin quantity is capped at 21 million and currently there are about 19.5 million that exist worldwide. Circulating physical coins only represent Bitcoin and are not a store of value as is legitimate currency.   The growing mobile payment industry could be a big benefactor to the acceptance of Bitcoin as new and creative applications are being devised to accept digital currency. Bitcoin transactions are very popular among mobile users, where rather than using a credit card or cash to make a purchase, all you’d need is your phone. Bitcoins emerged in 2008 designed by a programmer or group of programmers under the name of Nakamoto, whose real identity remains unknown. New Bitcoins can only be created by solving complex math problems embedded in the currency keeping total growth limited.

Sources: U.S. Marshalls Service, Bloomberg, Reuters U.S.

It Is Taking Longer for Unemployed to Find a Job – Employment Market Update

The unemployment rate has returned to where it was just before the pandemic, yet employment data is revealing something else affecting job seekers. The problem that has evolved is that 40% of the roughly 7 million people looking for a job have been searching for at least 15 weeks, a lengthy period of time relative to historical records. Economists view the extended period of seeking employment as indicative that the job market is starting to cool. The rate of new hires as a share of total employment fell to 3.3% in October, considered low when compared to 2013 when the unemployment rate was above 7%. Technology has been one of the hardest hit sectors with job postings declining and layoffs increasing. Other sectors are also seeing a slowing in new hires and job postings as companies scale back on expansions until there is more clarity surrounding the economic environment.

Source: Department of Labor