Treasury yields were higher following the November jobs report which showed a bigger than expected decline in the unemployment rate. The report suggests that the labor market remains tight which could prolong the Fed’s hiking cycle. However, the bulk of the gain in yields was given up in ensuing sessions as traders remain more focused on weakening inflation and softer economic growth.

According to the Labor Department, the US economy added 199,000 jobs in November which was just above consensus expectations of 190,000 jobs added and an improvement from an increase of 150,000 jobs in October. The unemployment rate dropped to 3.7% below consensus expectations of 3.9%. Some note that the report was helped by auto and entertainment workers returning to work after strikes. 

Some traders are looking for labor market weakness as the next impetus for the Fed to shift its policy. Clearly, this report dispelled notions that the economy is contracting and provides more ammunition for the ‘soft landing’ hypothesis. 

Wage growth also moderated to fall to 0.4% monthly and 4% on an annual basis. In terms of the economy, government and healthcare were the biggest sources of jobs growth, while the retail sector and transportation & warehousing shed the most jobs.

Finsum: Treasury yields were slightly higher following the November jobs report which came in stronger than expectations. 

According to Citi, energy stocks will struggle in 2024 due to rising spare oil capacity. This is essentially the amount of oil production that can be quickly brought online and sustained for up to 3 months. Historically, energy stocks have underperformed in years with 3 million barrels per day of spare capacity. 

Currently, estimates are for an average of 4 million barrels per day of spare capacity. Due to this, the bank is forecasting oil prices to end 2024 in the low $70s. It notes that despite the formation of OPEC+, spare capacity has continued to rise with 80% of the growth coming from the US. 

YTD, oil prices are down by 4%, while energy stocks are lower by 3% despite production cuts by OPEC. Citi sees OPEC continuing to act to support the price of oil, but it will have to sacrifice market share to do so, especially given that current prices continue to support capacity growth. 

In terms of positives for the sector, it notes that many companies in the sector are in a strong financial position which makes them less sensitive to the higher-rate environment. Additionally, there has been a surge of M&A activity in the sector which should also support valuations. 

Finsum: Energy stocks have underperformed in 2023 amid falling oil prices. Citi sees this continuing in 2024 especially with increasing spare capacity. 

Charles Schwab is forecasting positive returns for fixed income as the economy slows and inflation continues to fall. However, it expects volatility to linger given uncertainty about the Fed’s policy moves. 

Schwab notes that yields have been unusually volatile as the 10-year yield has ranged between 3.5% and 5% over the past 12 months. Yet, it believes that short and long-term yields have peaked for the cycle. 

It sees downward pressure for inflation given that supply issues have abated, while it sees the impact of tighter monetary policy continuing to materialize, also adding to downward pressure on inflation. Despite this bullish forecast for bonds, it doesn’t see a return to the pre-Covid era of low rates and quantitative easing (QE). 

In terms of economic growth, Schwab notes some risks as high real rates are impacting the economy as they create more incentives for consumers to save rather than spend. Two more  headwinds are tighter lending standards at banks and the Fed continuing to unwind its balance sheet. Another factor contributing to volatility is that the Fed could elect to keep rates higher as it wouldn’t want to squander gains made in the fight against inflation.

Finsum: Charles Schwab sees positive returns for fixed income in 2024 due to slower economic growth and falling inflation. However, it expects volatility to continue given uncertainty over the Fed.

High net-worth clients may be facing a major issue due to the upcoming expiration of the 2017 tax cuts after 2025. This will mean the expiration of higher federal gift and estate tax exemptions. The exemptions, which encompass tax-free caps on gifts during life or at death, will be $13.6 million per individual or $27.2 million for spouses in 2024 but will be cut by 50% in 2026. 

This will mean that many more high net-worth clients will be impacted by the estate tax. And, this is the time to begin planning around this new reality given that many estate tax planning strategies take months or even more than a year to implement. 

Some married couples can take advantage of the current higher levels of exemption by removing assets from their estate via lifetime gifts. According to Robert Dietz, the national director of tax research at Bernstein Private Wealth Management in Minneapolis,“The reality is you have to give away more than half to see any benefit from the gift in terms of the exclusion going away.” And for clients uncomfortable making these gifts now, they can keep control of their assets by opening a trust. 

Finsum: The expiration of the 2017 tax bill means that high net-worth clients will have to grapple with much lower exemptions on tax-free giving. 

Thanks mainly to a blend of enhanced technology, lower trading costs, and a growing appetite for personalized investment strategies, direct indexing may become a term as common with investors as mutual funds and ETFs. A recent article in USA Today highlights this trend, and when a broadly read news source such as this writes about a subject, it’s usually a clear sign it has begun to resonate with the masses.

So, what is driving this surge in popularity? The answer lies in the convergence of investor preferences and improved platform capabilities. While investors are always keen on the potential for total return, they also seek flexibility, cost efficiency, and favorable tax treatment—benefits that direct indexing is uniquely positioned to provide.

Direct indexing allows investors to tailor their holdings to reflect personal values or strategic preferences, such as ESG considerations or specific sector exposures. Moreover, the tax optimization potential of direct indexing allows for more efficient management of capital gains taxes, a feature particularly attractive to savvy investors looking to maximize their after-tax returns.

As direct indexing becomes more widely adopted by advisors and platforms, we’ll watch with interest to see if this investment approach moves from the domain of the affluent and the institutional to the everyday investor.

Finsum: Direct indexing's spread to lower account balances could make it as popular a product type as mutual funds and ETFs.