Muhlenkamp January 2025 Quarterly Letter

2025-02-05 07:25:00 ET

Summary

• Inflation remained above the Federal Reserve's 2% target but was manageable, with GDP growth at 2.6% and unemployment rising to 4.2%.
• The Federal Reserve cut short-term interest rates, but long-term rates increased, un-inverting the yield curve and potentially boosting bank lending.
• Tech stocks led market gains in 2024, while energy, gold, and select Chinese companies were highlighted as valuable investments and inflation hedges.
• Key concerns include potential recession signs, inflation trends, interest rate movements, and the economic impact of the new Trump administration.

Fellow Investors,

A year ago, we told you that we thought we were in an era of higher inflation (higher than we had seen from 2009 to 2021) and that it was possible we could see a recession in 2024. As it turned out, the inflation high water mark for the year occurred at the end of March with a Consumer Price Index (CPI) reading of 3.5% and bottomed the end of September with a reading of 2.4%. The latest CPI number is from the end of November, and it came in at 2.7%. We did not see a recession in 2024 and the Federal Reserve Bank of Atlanta's latest GDPNow™ estimates on 2 January 2025 is for real GDP growth of 2.6%. So, we saw inflation that's higher than the Federal Reserve target of 2.0% but not completely crazy and reasonable GDP growth. U.S. unemployment increased early in the year breaking above 4.0% in May 2024 and remaining there through the end of the year, with the November 30 th number coming in at 4.2%....

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