Trillion-Dollar Club
The markets gave a little back this week as investors begin to slow down and the year winds to an end. It’s during this period when portfolios are reviewed one last time, final trades are made, and tax loss harvesting is completed. This is also the period during which analysts will begin releasing 2025 predictions with a gusto that would make Old Saint Nick jolly with glee. The start of the year is typically a time of hope and optimism as people make New Year’s resolutions and look to the future. Enjoy the season and the feelings of good tide and merriment as you gather with friends and family. The new year will be upon us before you know it.
Before you fall asleep in the warm embrace that was 2024, know that 2025 may look different. Of course, we don’t have a crystal ball but a new administration with a different policy focus will almost certainly create new opportunities. In the meantime, we learned this week that small-business optimism is surging as the NFIB Small Business Index rose to its highest reading since mid-2021. Elevated borrowing costs and higher price levels have weighed on businesses for some time. This month’s increase was driven in large part by a surge in small-business expectations for the economy to improve in the coming months. Easing monetary policy combined with healthy economic growth should bode well for small businesses.
As for inflation, we learned this week that while it has come down significantly, it remains somewhat stuck at current levels. Headline CPI rose 0.30% for the month, slightly above expectations, while the annual rate of 2.7% was in line. Core CPI, which excludes food and energy, rose by 0.30% in November and 3.3% annually, both in line with expectations. Wednesday’s reading marks the fourth consecutive month core CPI has risen by 0.30%. If you’re looking for a silver lining, shelter ticked lower in November, rising only 0.30% and 4.7% on an annualized basis, which is its lowest reading since early 2022. We look for the Federal Reserve to deliver another 0.25% rate cut at next week’s meeting, however, with the pace of disinflation slowing and the U.S. economy on strong footing, I expect the Fed will take a more gradual approach to rate cuts in 2025
.In company news, the AI transformation continues as Broadcom (AVGO) hits a trillion-dollar valuation on lofty forecasts. Much like NVIDIA, Broadcom is predicting a massive expansion in demand for chips that power AI and it appears investors agree. The company’s valuation hit $1 trillion today becoming the ninth-largest company by market capitalization. Its CEO, Hock Tan, said AI could present a $60 billion to $90 billion revenue opportunity over the next two years, more than four times the current size of the market. All I can say is Broadcom is in an elite group above $1 trillion, including Apple, Microsoft, NVIDIA, Amazon, Alphabet, Meta Platforms, and Tesla.
In closing, do you sometimes wonder how centenarians and supercentenarians manage to live so long? Of course, diet is usually the first explanation, quickly followed by lifestyle. More recently I’ve come across a fascinating line of inquiry that may solve this mystery once and for all. Researchers now believe the recipe for a long life is bad record-keeping. It seems much of what we know about people living to a very old age is based on faulty data. In a stunning reversal, supercentenarians often come from areas with poor health, high levels of poverty, and bad record-keeping. The not-so-wonderful secret is that in some cases, and perhaps many cases, it is simply pension fraud. In poorer countries, it is not uncommon to fake one’s birth certificate to begin collecting pension benefits earlier than would otherwise be possible. If enough people do this in a concentrated area, it skews the data dramatically. In Japan, a country that comprises many centenarians, it turns out 82% are missing or discovered to be dead. The answer to a long life may not be a good diet or exercise after all. It may just come down to pension fraud. Now you know.
Bruce J. Mason, MBA