1. Records Keep Falling in Historic Rally
The S&P 500's remarkable run continues unabated, hitting its 51st all-time closing high of the year. At 6,001, the index has surpassed even the most optimistic Wall Street forecasts, trading 600 points above the highest 2024 year-end price target and 23% above the average target of 4,861. This marks the strongest start to any year since 1995 and the 11th best in history, with the index crossing twelve 100-point milestones in 2024 alone.
Key Takeaway: The market's momentum remains extraordinarily strong, defying skeptics and setting multiple records.
2. Nvidia Joins the Dow as Tech Leadership Shifts
In a symbolic changing of the guard, Nvidia has replaced Intel in the Dow Jones Industrial Average. The contrast between these semiconductor giants couldn't be starker: while Nvidia has gained an astounding 2,770% over the past five years to become the world's largest company with a $3.65 trillion market cap, Intel has declined 48% to $113 billion. Intriguingly, despite being the largest company in the Dow by market cap, Nvidia's price-weighted contribution to the index is just 2.1%, ranking 21st among the 30 components.
Key Takeaway: The replacement highlights the dramatic shift in technology leadership from traditional semiconductors to AI-focused computing.
3. Buffett's Growing Cash Mountain Raises Questions
Warren Buffett's Berkshire Hathaway has doubled its cash position over the past year to a record $325 billion, with $35 billion of the $48 billion increase in the third quarter coming from net stock sales, including reductions in Apple and Bank of America holdings. The company now holds an unprecedented 28% of assets in cash, double its historical average of 14%. This defensive positioning comes as valuations reach extreme levels, with the S&P 500's CAPE ratio exceeding 38, higher than 98% of historical readings.
Key Takeaway: The world's most famous value investor is finding fewer attractive opportunities in today's market.
4. Fed Begins Easing Cycle
The Federal Reserve initiated its easing cycle with a 25-basis point rate cut, bringing the Fed Funds Rate to 4.50-4.75%. Markets anticipate another cut in December to 4.25-4.50%, completing 100 basis points of easing for 2024. However, expectations for 2025 have moderated, with markets pricing in just 50 basis points of additional cuts for the entire year.
Key Takeaway: While monetary policy is becoming more accommodative, the pace of future easing may be slower than initially expected.
5. Post-Election Market Winners and Losers
The post-election period has produced clear winners and losers across asset classes. Bitcoin has surged 28%, setting new records and surpassing multiple $1,000-point milestones. Tesla has rallied 31%, rejoining the trillion-dollar market cap club. Bank stocks and small caps have shown renewed strength, with the Russell 2000 reaching its first all-time high since November 2021. On the losing side, long-term Treasury bonds have weakened as yields rise, international stocks have underperformed, and Chinese equities have declined 7%, dragging emerging markets to a 25-year low relative to U.S. stocks.
Key Takeaway: The election results have accelerated existing trends favoring U.S. assets over international markets.
6. Rising Government Debt Costs
Interest payments on U.S. national debt have surged to a record $1.1 trillion annual rate, representing a 120% increase over the past four years. This comes as the Fed's balance sheet reaches its lowest level since August 2020, down $2 trillion from its peak, though another $2.8 trillion in quantitative tightening would be needed to fully unwind the pandemic-era expansion.
Key Takeaway: The cost of servicing government debt is becoming an increasingly significant fiscal challenge.
7. Social Security Updates for 2025
Social Security beneficiaries will receive a 2.5% cost of living adjustment starting January 2025. Notably, benefit payments have increased by 22% over the past four years due to inflation, marking the largest four-year increase since 1982-85. The maximum earnings subject to Social Security tax will rise 4.4% to $176,100 in 2025.
Key Takeaway: While inflation has boosted benefits, the modest 2025 adjustment suggests price pressures are normalizing.
Next week, we'll be monitoring retail sales data, housing market indicators, and ongoing corporate earnings reports for signs of whether this historic rally can continue.
