Macro Thoughts 12.9.2025

“Every time you tear a leaf off a calendar, you present a new place for new ideas and progress”

– Charles Kettering

I’m starting this note on a bit of a different note than I typically do, but as always, we’ll tie it all together on the back half of it.

First off, I want to say that this year has absolutely flown by, for me at least. This time last year, I was working on the Goldman Sachs Electronic Trading desk, assisting the desk managing order-flow that was sent to Goldman from some of the largest asset managers, hedge funds and broker dealers in the world. I was working at my dream organization and had the privilege of working alongside some of the most influential people that I will forever look up to in the industry. Nearly three months later, I left my post at Goldman to pursue an ambition that’s been instilled in me since I was a Sophomore at the University of Pittsburgh. That ambition was to assist family, friends and newly acquired relationships in managing their assets.

So over the past nine months, I’ve been assisting some these individuals with managing their assets and growing their portfolios. Without a doubt, this has been the most exhilarating, most stressful, but most rewarding experience of my life and I would not change one step of it. This experience has allowed me to dig into companies and understand their fundamentals. Overall it’s allowed me to get a better understanding across the equity, fixed income, commodities, currency and crypto currency markets and most importantly, how to invest in these asset classes on behalf of my client’s risk tolerance.

I’ve had the opportunity to be invested in several asset classes throughout the year, a lot of it which I covered in previous notes and have taken full advantage of the current equities bull market, outperforming our benchmark (S&P 500) by a mere 15% on YTD perspective.

So, what’s next you may ask… The answer to that is not yet confirmed. In the past several weeks, I’ve had several insightful conversations about where my future will lie in the industry, however it is not yet clear to me where I will end up nor what my specific role will be. Two principal’s I’ve always stood by is: “Never stop learning” and “Never stop adding value”. So, no matter where I do ultimately end up and no matter what I will be doing, rest assure, I will be learning new things every day and adding value to my team and ultimately assisting clients with their necessary needs, offering guidance the best that I potentially can.

Let’s dig into the portfolio.

The month of November was the best monthly performance that we’ve had throughout 2024 (+18%). As you’ll recall from my “Judgement Day” piece, the morning of the 2024 Presidential election, we were positioned more than adequately to take full advantage of the impending outcome that we predicted and only missing the electoral college vote by one.

Since the election, we have locked in profits in most of our positions in our vol portfolio that we were in pre-election and have closed out the following: $TLT 12/31 $94 P, $BA 12/31 160 C, (sold at a loss) $SPY 12/31 600 C, (re-added on November 15^th) $IWM 12/31 $230 C (re-added on November 15^th) and we are currently still holding $XLF 12/31 $45 C, $KRE 12/31 $60 C and $IBIT 12/31 $40 C.

As for our tactical portion of the pad, we’ve been very active in the following tickers over the last three weeks: $DAKT $NBIS $OSCR $SU $VSAT and $YINN. We’ve also added $APO $BX $ETSY $SQ to our core portfolio, opening positions anywhere from 1.5-3% of the portfolio on each stock, while trimming our exposure in $BA $OXY $XAR and $XLU.

Let’s Talk Rates, Payrolls and Inflation.

In my view, Friday’s NFPs showed a good headline number (+227k), however I feel the household survey (-355k) was quite overlooked by the market, which can present itself for something to pay attention to as we start 2025. The unemployment rate jumped to 4.2% from 4.1%, roughly in-line with projections from the Federal Reserve, going into year-end. Going into last Friday’s print, my thesis was simple, I believed that “we’ll see a tick higher in November’s NFP report due to seasonal hiring and government jobs, however after the JOLTs report, earlier this week, I believe that we’ll see an even greater number of jobs that will be filled on the December and January as there is / will continue to be corporate optimism as the new administration moves into Washington,” therefore I did not have any hedges in place ahead of the event.

After the NFP report came out, rate cut expectations of 25bps leapt from a 65% chance to currently, Sunday evening at 6:00pm EST, to 86%, while the market is expecting a 14% chance that rates will stay firm at 467bps. You’ll re-call from my note that I published on October 7^th, I flagged that the Fed should not cut, post November (The US would see 75bps in rate cuts for 2024) and hold steady in December and I still feel that they should hold steady December, however it feels to me, unless Wednesday’s CPI report surprises well to the upside we’ll see another cut in coming on December 18^th, bring the FFR to 437bps.

Why the Fed should plan to hold steady on December 18^th: GDP growth in the 3^rd quarter came in at 2.8% and the Atlanta Fed is currently estimating GDP growth in the 4^th quarter to come in around 3.3%. Regardless that we’re in a cutting cycle or not, these are great numbers. There is momentum in the economy and the new administration adds tailwinds to the outlook.

I 100% understand that inflation data is difficult to speculate, however, as sticky as core inflation has been as we hover around the 3 handle, and we already know that a vast number of implemented tariffs will be inflationary for the US economy… Perfect chart below from Torsten Slok, Chief Economist at Apollo… I digress, my point.

Source: Apollo Global Management as of 12/7/2024, BEA, Haver Analytics

As I said above, if we see an inflation print that comes in-line or beneath expectations on Wednesday, we’ll see rates coming down another 25bps in two weeks. But also to my point above with respect to strong GDP and sticky core-inflation, should we see the Fed cut in two weeks, January will be the first pause since the cutting cycle began in September. You’ll recall, just last week when Jerome Powell was speaking at the Deal Book Conference that he was a bit more hawkish than we’ve recently seen, stating that the labor market is not under duress and inflation continues to remain stubborn.

What’s the play:

We have closed out our short on the yield curve (at a profit) however, I’m contemplating putting some vol ahead of the inflation print on Wednesday – BofA highlighted in a recent piece that S&P options market is pricing just a 64bps move for this Wednesday, the smallest implied reaction to CPI since inflation started picking up in 2021..

However, I’m eyeing vol in rates, opposed to the equity index level: $TLT Jan 31 $95 P - $2.18 | $IEF Jan 17 $96 P - $1.26

We’re still long $DXY and have been long USD/CAD, USD/MXN, USD/EUR since early November. I have yet to make up my mind whether these positions will still be in my portfolio after the first of the year, however analyzing the current macros across Canada, Mexico and Europe, these positions will stay.

Into year-end, I see Equities continuing to rise. From a technical perspective, RSI in the S&P 500 is flagging overbought, however, MACD bands have yet to show any convergence and from a seasonality perspective, the second half of December has historically been the second strongest period of the year, performing +1.0% on average, 69% of the time, therefore, I stand bullish and I do not anticipating making many changes to the portfolio.

Moving into 2025 – 10 Thoughts That Are Top of Mind for US Markets in 2025:

· “Uncertainty” when it comes to policy from the new administration and how that effects inflation, after coming into the White House on January 20^th.

· A lot of which I mentioned above is how much the Fed cuts in 2025 and whether or not the trend is still intact and if this looks like a traditional easing cycle – “Black Friday” shopping data was strong and the US consumer continues to spend at a healthy rate, with near full employment, easing financial conditions, coupled with the US in growth mode, the risk for a re-inflationary environment is strong.

· What will fiscal discipline will look like throughout the first year of Trump’s second Presidency.

· A continuation in equity market broadening as the bottom 493 constituents of the S&P 500 will see a tick-up in earnings growth through 2025.

· Flow into US equities, even with a higher forward multiple (22.5x), were over $141B in a recent four week period, which is the most on record and not to mention the MSCI World Index is comprised of more than a 67% allocation to the US.

· Eyeing a pull-back in US Equities in the 1^st or 2^nd Quarter of 2025 will be healthy and will ultimately propel equities over summer and into the back-half of the year (My gut tells me, post inauguration day – January 20, pre-tax day – April 15)

· M&A, Financing and PE Deal Flow on the Rise

· The New Industrial Revolution – AI, Data Centers and Power

· Recession Risk for 2025: 10%

· S&P 500: $6,800 Price Target for YE 2025