As we feared, the end-of-year rally fizzled out, but this barely tarnished an exceptional 2024 vintage which saw the main US indices (S&P 500 and Nasdaq 100) record performances of around 25%. However, not all segments of the market can boast such results, with mid-caps and small-caps posting much more modest gains. It has to be said that the persistently high level of interest rates on the bond market contrasts somewhat with the multiple cuts implemented by the Federal Reserve. This discrepancy is due in particular to the substantial increase in spending under the Biden era, which is "taking advantage" of the end of its mandate to push the pedal down even further. At the same time, investors seem hesitant about the new administration's ability to significantly reduce federal spending. As a result, the US 10-year yield continues to flirt with its 4.55% zone. With a peak recorded at 4.66%, we'll give the breakout the benefit of the doubt in this period of low volumes. We'll now need to get back up to 4.38% to avoid a further rise towards 5.00/5.10%, and reopen the way for an easing towards 4.12/00%.

Occasionally, some of our readers lose sight of the stock market's main driving force. Simply and schematically, the S&P 500 tracks GDP growth.

Source: Bloomberg

To be more precise, the S&P 500's behavior is modelled on corporate earnings forecasts, which are closely linked to growth forecasts for the economy as a whole.

Source: Bloomberg

Classically, GDP is used to measure economic growth, calculated as follows:

GDP = C + I + G + (X-M) of which :

C = (Consumption) Consumption (household)

I: (Investment) - Business investment

G : (Government) - Government spending

(X - M) : Export - Import, i.e. balance of trade

The problem with this formula is that it essentially reflects expenditure rather than production. Pushing the vice, a country's GDP would rise even if the government had fun burning, literally, its money, sending out a false sense of security about the strength of its economy. With the risk that, one day, the cat's out of the bag and the whole edifice collapses.