1. Cooler-than-expected consumer price growth and strong bank earnings put the bulls back on track, with big tech, and financials leading the charge.

“The CPI and PPI report were better than expected”, Ed Yardeni says.

"Still there's still some sticky areas of both inflation rates in the services area. I think it still keeps the Fed on pause."

With the Fed’s next meeting two weeks away, all eyes now turn to earnings and Trump’s inauguration to determine the next major catalyst for the market.

Here’s the S&P 500 heatmap. 10 of 11 sectors closed green, with financials (+2.55%) leading and consumer staples (-0.34%) lagging.

2. By the looks of its energy demand, the Chinese economy is not slowing down one bit.

3. The only way to solve this insatiable demand for power is nuclear.

Here is the number of planned nuclear power reactors worldwide as of May 2024, by country.

4. In the US/EU, analysts see strong renewable capacity growth despite policy noises.

Electrification and accelerating data center development results in a strong power demand outlook, with analysts forecasting a structural pick-up in capex growth (6%/10% CAGR for US/EU through 2030E).

The below chart shows BNEF’s forecasts on solar capacity growth of 1900 GW in US/EU.

5. While a case for diversification is strong over the long term, it has been a detriment to performance in 2024 with market concentration pushing to a 60-year high and mega-caps outperforming at the expense of large-caps and small/mid-caps.

Similar to 2023, the persistence of “winners winning” in the crowded mega-caps favored passive funds.

This has led to an unhealthy and narrow market leadership with market concentration reaching record levels.

We expect this year to be better for active management with a broadening of earnings across stocks, styles, sectors, and themes.

However, “active to passive rotation” remains a structural headwind. Passive funds now account for 59% of AUM in the US and 54% globally based on funds tracked by EPFR.

6. “On bubble watch”.

Howard Marks is co-founder of Oaktree Capital Management and manages about $200 Billion. Recently, Howard Marks released his latest memo titled “On Bubble Watch” sharing his thoughts on market valuations going into 2025. (Warren Buffet is a reader)

“We’re not in a bubble yet, since a bubble is more a state of mind than a quantitative calculation”, says Howard Marks.

However, he sees 5 cautionary signs in 2025:

• Optimism since 2022 market lows

• High S&P 500 valuations

• AI-driven excitement, leading to speculative investment

• Overconfidence in the Magnificent Seven’s long-term dominance

• Automated index fund buying may have inflated gains

7. Fingerspitzengefühl.

Warren Buffett bought $400 million worth of Occidental Petroleum on December 19.

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