1. The market has become yield sensitive again.

The major U.S. indexes closed red today as stronger-than-expected economic data crushed hopes for a first-quarter rate cut.

Treasury yields surged, with the 10-year hitting its highest level since 2007, weighing on stocks as investors grappled with higher-for-longer rate expectations.

Here’s the S&P 500 heatmap. 2 of 11 sectors closed green, with energy (+1.00%) leading and technology (-2.01%) lagging.

Also a remarkable bad day for Nvidia, with a new high on the same day it closed lower than 50 days ago.

2. Earnings for the S&P are forecasted to grow at double digits in 2025.

After the concentrated EPS growth from the magnificent 7 in 2024, earnings growth should broaden out to the other 493 companies in the S&P.

3. “Re-industrialization” and “Re-shoring”.

While the US indices are trading at elevated multiples relative to the rate environment, industrial equities look attractive in the context of the US “re-shoring” theme.

With structural tech diffusion reducing the benefit of low-cost labor, the scales are tilting back towards domestic production following ~40 years of outsourcing.

Following two decades of under-investment and stagnation, the US is in the very early inning of re-industrialization and perhaps a multi decade opportunity.

We are seeing US manufacturing production capacity generate material growth for the first time in a decade, a tailwind for US Industrials that cannot be overstated.

Last but not least, the implementation of Trump 2.0 tariffs is a positive catalyst for Industrial EPS revisions.

4. Industrials are trading at the lowest forward PEG ratio of any S&P Index.

The 'PEG ratio' (price/earnings to growth ratio) is a valuation metric for determining the relative trade-off between the price of a stock, the earnings generated per share (EPS), and the company's expected growth. In general, the P/E ratio is higher for a company with a higher growth rate.

As an example, the P/E ratio of 17 for the industrials can be divided by the expected growth rate of 15% to arrive at a PEG ratio of 1.13. That is considered cheap.

5. In which industrial verticals are orders already accelerating into 2025?

To monitor the rate of change, we look at % change in orders over the trailing 3 months vs. the prior 3 months (Aug – Oct vs. May – July).

We are seeing strength in Electrical Equipment (+4.4%), Material Handling Equipment (+3.2%), Defense (+3.1%) and HVACR (+2.2%).

6. When US rates go up, US commercial real estate goes down.

You add buckets of leverage and you have the perfect storm for a weak real estate market.

7. Eventually, one runs out of greater fools.

Something strange is going on at MicroStrategy.

The company has amassed over two per cent of all bitcoin in existence, funded through a combination of shares and convertible bonds.

This strategy has turned the software firm into something akin to a bitcoin ETF, albeit one trading at a big premium to its net asset value. The stock is up over 20 times since the pivot to bitcoin in August 2020.

According to JPMorgan analysts, MicroStrategy accounted for an astonishing 28 per cent of capital inflows into the cryptocurrency market in 2024.

The premium to NAV holds as long as bitcoin keeps ascending, and that premium is the glue that holds the entire strategy together.

By selling stock at 2-3 times NAV, MicroStrategy is in effect buying bitcoin at a substantial discount. But the whole mechanism is a kind of Ponzi scheme where more and more credulous investors must be found to buy from the earlier investors.

Eventually, one runs out of greater fools.

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