Economic data surprises to the upside, again

The U.S. economy expanded at a strong 3.3% rate in the fourth quarter of 2023, contributing to a full-year real GDP growth of 3.1%, outperforming earlier forecasts. Meanwhile, the Fed’s favorite inflation gauge, the Personal Consumption Expenditure (PCE) Price Index, showed a 2.6% year-over-year increase in December and a 2.9% increase when excluding food and energy prices. Both figures were supportive of the previous month's Fed pivot and conducive to further growth and a “no-landing” scenario.

• We have written about our skepticism in regard to a consensus “soft-landing” scenario
• Our view has been that the more likely scenarios are an accelerating economy or a harder landing likely caused by an exogenous shock
• With the Fed pivot in mid-December, we have put more weight on the accelerating economy scenario
• This week’s reports further supported that view
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Bitcoin falls following ETF approvals

Bitcoin has retreated by north of 20% in the last few weeks to $40,000, before rebounding somewhat. The price action followed the much-anticipated approval of spot Bitcoin ETFs, which were approved two weeks ago. Many had suggested that this would be a “buy the rumor, sell the news” type of event, however the reality is a bit more nuanced.

• Many attribute the fall of Bitcoin in the last two weeks to significant selling pressure out of Grayscale’s Bitcoin Trust (GBTC)
• GBTC was one of the original vehicles set up to give individuals easy access to Bitcoin
• It has however always been plagued with egregiously high fees, and before the ETF approval, trading above or below its net asset value
• Since the ETF approval, it is estimated that several $billion of bitcoin has been liquidated from GBTC, likely in favor of lower fee ETF products
• It is too soon to tell, but we still believe easy access ETFs will be a source of significant demand for the asset, likely to drive the price higher

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Microsoft reaches $3 trillion

Microsoft’s stock traded through the $3 trillion market cap this week for the first time, the second company to do this following Apple. Microsoft has been a real juggernaut since the mid-teens, compounding value by switching to a cloud-based software subscription model and building out its cloud and hardware businesses. The market cap has grown a stunning 10x over the past 10 years, over 5 times more than the S&P 500.

• The company has done a tremendous job under Satya Nadella’s leadership over the last decade
• The market is enthusiastic given its partnership with Open AI and the potential to reap the benefits of generative AI
• However, if Microsoft were to grow as fast this decade, as it did the last, it would be a $30 trillion company
• As a point of reference, the total capitalization of the US stock market today is ~$50 trillion
• While not out of the realm of possibilities, it seems we may begin to witness the concept of “size is the enemy of returns” here

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