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Macrosynthesis
TLDR
- S&P up 25% in 2024, Nvidia up 170%
- Debt ceiling reinstated, default risks loom
- Biden Rejects U.S Steel Takeover
- Rivian hits targets, shares jump 24.5%
- Carvana faces fraud claims, shares drop 19%
2024: A Year of Resilience, Market Triumphs, and Political Turmoil
The global financial landscape of 2024 painted a picture of remarkable resilience and growth, even as political storms gathered on multiple fronts. Wall Street celebrated historic gains, with the S&P 500 surging 25% and the Nasdaq climbing 28% - a rare consecutive-year performance that echoed only a handful of times in the past century. At the heart of this rally stood NVIDIA, whose stock skyrocketed over 170% on surging AI demand, while fellow tech giants Alphabet, Meta, and Tesla helped push markets to unprecedented heights.
Of note, the average bull market lasts 5.5 years, while the average bear market lasts 14 months.
The U.S. economy displayed remarkable stability. Inflation settled at 3%, unemployment held steady at 4%, and GDP growth maintained a robust 3% annualized rate through the middle quarters, buoyed by strong consumer activity and investment. This economic health prompted measured responses from central banks, with the Federal Reserve and European Central Bank reducing rates to 4.4% and 3.25% respectively.
Yet beneath these positive indicators lay significant challenges. A flash crash in Japanese markets, triggered by the unwinding of the yen carry trade in August, sent temporary shockwaves through global financial systems. More dramatically, South Korea's democratic foundations trembled when President Yoon Suk Yeol's declaration of martial law in December led to his swift impeachment and suspension by the National Assembly, introducing new uncertainties to regional markets.
The U.S. political landscape underwent its own seismic shift as President Biden's withdrawal from the presidential race cleared the path for Kamala Harris's Democratic nomination. Donald Trump's subsequent victory sparked market optimism, with investors anticipating deregulation and business-friendly policies. In a major rebuke of left-leaning policies towards immigration, social issues, and economic policy, 89% of American counties shifted rightwards in the 2024 election.
In commodities and cryptocurrencies markets, the year brought its own drama. Oil prices fluctuated around $74 per barrel, reflecting geopolitical tensions and variable Chinese demand, while Bitcoin made history by briefly crossing the $100,000 threshold amid growing institutional acceptance and Trump's promise to create a national Bitcoin stockpile.
2025: A Strong Start to the Year. Tech Leads, Steel Slips
Wall Street roared back to life last Friday, breaking a five-day slump as technology stocks powered a broad market rally. The S&P 500 climbed 1.2%, while the tech-heavy Nasdaq 100 surged 1.7%, and the Dow Jones Industrial Average added a robust 339 points. Technology companies led the charge, with Tesla shares soaring 8.2% on the back of strong China sales figures, while semiconductor giant Nvidia gained 4.4% and nearly delisted Super Micro Computer delivered an impressive 10.9% advance. Tesla's gains came despite a Cybertruck being set on fire in front of the Trump hotel in Las Vegas by a Green Beret in an alleged act of suicide.
The day's optimism faced one notable setback in the steel sector, where U.S. Steel shares tumbled 6.5% following President Biden's decision to block its $14.9 billion acquisition by Nippon Steel on national security grounds. However, broader economic sentiment received a boost from manufacturing data showing new orders at their highest levels since early 2023.
Despite Friday's robust performance, the week's earlier losses still left their mark, with all three major indices closing the week in negative territory. This mixed picture suggests investors remain cautiously optimistic while navigating ongoing economic and geopolitical uncertainties. Likewise, with S&P 500 valuations now higher than they were in December 2000 due to the high valuations of their major components, the Mag 7, investors are wondering not if but when the market pullback is coming.
Pandemic-Era Savings Depleted, Economic Pressures Mount
The U.S. consumer landscape shifted dramatically in 2024 as pandemic-era savings dried up. The $2.1 trillion in excess savings accumulated during the COVID-19 lockdowns was entirely spent by mid-year, leaving a cumulative deficit of $170 billion. This depletion is already tightening financial conditions for households and amplifying the economic pressures on borrowers. Homeless rates just hit a record high, driven in part by a lack of affordable housing, high inflation, high immigration rates, and relaxed West Coast drug policies.
With excess savings exhausted, consumers pushed costs to their credit cards to the tune of $1 trillion dollars. Not all of these costs are being paid back. In the past two years, the charge-off rate - the percent of bad loans written off by credit companies - has risen 86 percent to 4.69 percent. That's a level last seen in 2011.
The Federal Reserve’s ongoing battle to rein in inflation has further strained household budgets by making mortgages unaffordable, leading to increased borrowing costs and diminished purchasing power. These dynamics are not isolated to lending markets but are expected to ripple across the broader economy, potentially dampening growth in sectors heavily reliant on consumer demand. Ironically, the best way to bring down high costs of living from housing costs is by reducing the Fed borrowing rates - a policy that flies in the face of efforts to cool inflation in other areas of the economy that was overstimulated by excess government spending during COVID.
Adding to these financial pressures is the growing U.S. national debt, which reached a record $36.2 trillion in 2024. The average interest rate on this debt has more than doubled to 3.4% over the past three years, and interest payments now exceed the annual budgets of every U.S. Federal agency.
Expectations for the Musk-led government spending cuts to reduce Federal spending were seen in the valuations of government contractors like Lockheed Martin (LMT), Booz Allen Hamilton (BAH), SAIC, and ICF International (ICFI), which were slashed by over 20 percent in just two months as the stocks sold off. Similarly, renewable energy stocks like First Solar (FSLR) and SunRun (SUN) sold off huge on the belief that Trump would end all federal incentives for solar power.
On the flip side, expected Trump tax cuts and reduced regulations for finance, oil, gas, and manufacturers led to outsized gains for financial firms, consumer discretionary stocks, utilities, and industrials, which significantly outperformed other sectors by 2:1 and even 3:1. Across all industries, the best performers were the semiconductors, whose index (SMH) was up 50% over the past year.
Debt Ceiling Drama Returns
The U.S. debt ceiling, suspended since mid-2023, was reinstated in early January 2025, once again limiting the government’s borrowing capacity. The Treasury now faces the challenge of managing finances under the cap, with the debt limit expected to be reached between January 14 and 23. Treasury Secretary Janet Yellen has warned that, without congressional action to raise or suspend the ceiling, the department will need to employ “extraordinary measures” to prevent a default. These stopgap tactics, such as reallocating retirement fund investments, could delay a fiscal crisis until summer.
Bond Market vs. Fed: A Worrying Disconnect
Since the Federal Reserve began its “pivot” in September 2024 with a series of rate cuts totaling 100 basis points, the bond market has moved in the opposite direction. The yield on the 10-year Treasury note has surged by 85 basis points, even as bond prices—measured by the bond ETF $TLT—have fallen nearly 11% in just three months. This is highly unusual, as bond prices typically rise when rates fall, leading to lower yields.
This divergence signals a troubling disconnect. Mortgage rates have climbed from 6% to 7% over the same period, amplifying borrowing costs at a time when monetary policy is supposed to ease financial conditions. The bond market seems to be “fighting the Fed,” reflecting skepticism about the sustainability of rate cuts amid persistent inflation.
Fed Chair Jerome Powell has downplayed the issue, but the growing gap between bond market behavior and policy goals could undermine economic recovery efforts and increase financial instability heading into 2025.
Stubborn Inflation Raises Concerns for 2025
Despite the Fed’s aggressive rate cuts, November inflation data highlighted ongoing challenges. Core CPI, excluding food and energy, rose 0.3% for the fourth straight month, with shelter and food prices remaining key contributors. The slowdown in rents—up just 0.2%, the smallest increase since 2021—offered some relief, but broader inflation pressures persist, complicating the Fed’s strategy.
While lower rent growth may hint at easing price pressures in 2025, looming tariffs and geopolitical uncertainties could reignite inflationary risks. Bond investors remain cautious, pricing in potential headwinds as they await clearer signs of sustained disinflation. The Fed faces a delicate balancing act as it navigates a challenging economic landscape.
Energy, Utilities Outperformed Last Week
All sectors were down last week save for energy and utility stocks. Energy stocks rose on an improved demand outlook driven by cold spells in the U.S. and Europe. Utilities companies rose seemingly in step.
Next week brings several critical U.S. economic updates. On Monday, the S&P Global Services PMI for December will provide insights into the service sector's health. Tuesday features the JOLTs job openings report, offering a look at labor market demand, followed by the ISM Services PMI. Midweek, the ADP employment report arrives on Wednesday, while Friday culminates with the December Nonfarm Payrolls report, unemployment rate, and Michigan Consumer Sentiment, all crucial for gauging economic momentum and Federal Reserve policy implications.
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Natural Gas
-9% (1D Chg)
+10.22% (1M Chg)
Propane
+11.65% (1W Chg)
+3.13% (1M Chg)
Cocoa
+17.19% (1W Chg)
+171.46% (YoY Chg)
Eggs
+47.84% (1M Chg)
+162.9% (YoY Chg)
Company News
LevelFields AI-flagged Events Last Week
In the latest market moves, MRC Global and Constellation Energy emerged as the top 1-day gainers, rising 4.81% and 4.04%, respectively, following positive developments like a stock buyback for MRC and billion-dollar contracts for Constellation. Bank OZK and Janover saw modest increases of 0.34% and 0.51%, boosted by a dividend hike and crypto adoption news. Similarly, Cytek Biosciences climbed 3.96% on stock buyback news, while AppTech Corp. gained 2.44% after the announcement of a CEO departure. On the downside, Carvana suffered a significant one day loss of 11.22%, driven by negative short-seller reports, while ACADIA Pharmaceuticals declined 1.34%, despite being added to the S&P SmallCap 600 index.
Microsoft Commits $80 billion to Build more AI-focused Data Centers
Microsoft President Brad Smith, in a new blog post, called this moment a "golden opportunity for American AI" and outlined the company's vision under the new Trump administration. Microsoft plans to invest over $80 billion in AI data centers globally in FY 2025, with half of the investment focused in the U.S. This comes after CEO Satya Nadella highlighted "capacity constraints" that slowed AI expansion due to the lengthy process of building data centers. The new plan addresses these scaling challenges and positions Microsoft for significant AI growth. We'll be breaking down how to play this for our Level 2 readers soon.
Biden Blocks Nippon Steel’s $14 Billion Acquisition of U.S. Steel
President Biden’s decision to block Nippon Steel’s $14 billion bid for U.S. Steel signals a growing trend of protectionism in U.S. economic policy. Citing national security concerns, Biden argued that domestic steel production is critical to safeguarding supply chains and maintaining infrastructure resilience. “Without domestic steel production and steel workers, our nation is less strong and less secure,” Biden said in his statement.
Supporters of the decision, including the United Steelworkers union, applauded Biden for prioritizing domestic jobs and industries. “Nippon Steel has a long history of undermining U.S. markets by dumping its products,” said union president David McCall, emphasizing the need to keep U.S. Steel under American control.However, critics argue that the decision could deter foreign investment, harm U.S. Steel’s modernization efforts, and reduce global competitiveness. Nippon had pledged $2.7 billion to upgrade aging U.S. Steel plants and promised job security and bonuses for workers. With U.S. Steel shares falling over 7% after the announcement, the decision could have long-term implications for the U.S. manufacturing sector and its reputation as a reliable destination for capital.
Rivian Soars After Meeting 2024 Production Targets
Rivian stock surged 24.5% on Friday, marking its best day since going public in 2021, after the EV maker reported 2024 production and delivery numbers in line with revised expectations. The company produced 49,476 vehicles, delivering 51,579, with fourth-quarter deliveries surpassing estimates at 14,183 units.
The rally followed a challenging year in which Rivian faced a 43% stock decline due to production shortfalls and cash burn. However, Rivian announced that a critical component shortage no longer constrains production, fueling investor optimism ahead of its February earnings report.
Hindenburg Research Short Targets Carvana
Hindenburg Research has launched a scathing critique of Carvana, disclosing a short position and calling the company’s turnaround efforts a “mirage.” The report accuses the online used-car retailer of relying on questionable financial practices, including the use of unstable subprime loans and alleged accounting manipulation, to present an overly optimistic picture of its financial health. It also scrutinizes the relationship between CEO Ernie Garcia III and his father, Ernie Garcia II, who owns DriveTime and is Carvana’s largest shareholder.
It is worth highlighting the Garcias’ controversial history. Ernest Garcia II, convicted of bank fraud in the 1990s during the collapse of Charles Keating’s Lincoln Savings Bank, has amassed billions from Carvana’s growth. Critics argue this past raises ethical questions about the company's leadership.
Hindenburg’s report, titled “Carvana: A Father-Son Accounting Grift for the Ages,” alleges that Carvana has been offloading risky loans to a related entity, masking underlying weaknesses in its balance sheet. The report claims that lax underwriting standards and artificially inflated loan values are temporarily boosting income while concealing long-term risks. Additionally, it alleges that Carvana uses transactions with DriveTime to avoid markdowns by selling vehicles at a premium, thus distorting its revenue figures.
Another key accusation involves Carvana’s loan extensions. Hindenburg suggests that Carvana is manipulating delinquencies by extending repayment terms through an affiliate of DriveTime, allowing the company to avoid reporting a rise in default rates. The report also highlights insider trading activity, noting that the Garcias sold billions in stock while Carvana’s valuation surged.
In response, Carvana dismissed the report as “intentionally misleading and inaccurate,” arguing that the claims are recycled from previous short-seller attacks. However, the report has raised serious questions about Carvana’s financial practices and governance, fueling investor skepticism about the sustainability of its turnaround strategy.
Shares of Carvana fell 19.22% following the report’s release, marking the first significant decline in months for the company, which saw its stock surge nearly 300% in 2023. With a 19,000 P/E and $6 billion in debt, it looks like there's a lot further the stock could drop.
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