We are already two weeks into the new year and the markets are in full swing. The White House transition is critical, and the indications are that the Trump Administration will be aggressively attacking economic policy and foreign relations. Several themes are clear including crypto adoption, border security, and energy deregulation, which are all areas of potential investment. But we also consider market risks and the biggest two are international instability and a dramatic increase in long-term interest rates.
The Ukrainian War still lingers and the devastation to both Russia and Ukraine is significant. Russia has amassed more than 200,000 casualties and 550,000 injuries. In contrast, Ukraine has suffered 43,000 casualties. Neither is palatable, but if Putin loses four times as many soldiers, he may consider a nuclear option, which would cause total chaos across the region. While I’m not predicting such, I believe this battle will end somehow this year and it will influence the markets.
The other risk already percolating is rising rates as the 10-year treasury has already increased over 100 basis points to 4.79% since September. For our lifetime, the deficit hasn’t really mattered to the bond market and paltry rates have noted that. If rates doubled because the market became concerned about the viability of the government to pay its obligations, then stocks would tumble. Again, I’m not predicting such, but the emergence of the “DOGE” committee indicates that the federal budget is a priority and things like social security and Medicare may be tackled. A large spike in rates means that they must be tackled.
Even though we are less than a week into the year, markets don’t rest and there is much to be done. We are analyzing and allocating accordingly. Schedule a meeting with any thoughts or inquiries, and Happy New Year.
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