INVESTMENT COMMENTARY & Outlook
January 2025
We are proud with our performance in 2024 and are expecting a strong start to 2025. One reason is that the S&P 500 forecasted earnings are reaccelerating and a lot of stimuli from Trump 2.0 is anticipated. The manufacturing sector, which has contracted for 25 of the past 26 months, according to the Institute of Supply Management (ISM), showed some signs of life in December when the ISM new orders component rose to the highest level in over two years. If Trump 2.0 fixes the beleaguered manufacturing sector with “drill baby drill” and other pro-business policies, then 4% annual U.S. GDP growth is possible. If Trump 2.0 ends the fighting between Ukraine and Russia, where both sides have depleted each other’s troops and everyone has been a loser, then a “peace dividend” could ensue and even 5% annual GDP growth is briefly possible. Finally, a strong U.S. dollar also makes commodities and imported goods cheaper, so we are not worried about any inflationary impact from tariffs.
The bond vigilantes have been pushing the narrative that the Trump tariffs are going to be inflationary, but the reality is that a strong U.S. dollar causes the prices of commodities and imported goods to decline. Bloomberg had an article entitled “Treasury’s Elite Bond Dealers Will Struggle to Handle $50 Trillion Debt” that basically explains how the bond vigilantes have allowed Treasury yields to meander higher. However, there is deflation in the world that will eventually help Treasury bond yields …