Asset managers are advising clients to adopt a defensive stance by increasing bond allocations amid soaring equity prices and limited potential for further Federal Reserve rate cuts. Vanguard recommends a portfolio of 38% stocks and 62% fixed income, while Invesco suggests focusing on defensive sectors. "Stocks look extremely expensive on a historical basis," says Will Smith, a high-yield manager at AllianceBernstein. "It's going to be really hard to have stock returns over the next decade nearly as high as they've been over the past decade."

SIFMA has urged the Securities and Exchange Commission to modernize Rule 15c2-12, citing outdated guidelines and underestimated compliance burdens on underwriters. The rule requires underwriters to ensure ongoing financial disclosures from state and local bond issuers. SIFMA advocates modernizing technology and reviewing exemptions to reduce the burden on firms. "Such common-sense updates could reduce the burdens of the rule on broker-dealers without undermining the rule's effectiveness," SIFMA said.

The International Organization of Securities Commissions has released draft recommendations on pre-hedging that largely mirror existing industry codes, such as the FX Global Code and the Financial Markets Standards Board guidelines. The draft suggests dealers pre-hedge only for genuine risk management, act fairly toward clients and minimize market impact.

Michael Barr's resignation as the Federal Reserve's vice-chair for supervision may delay the finalization of the Basel III endgame capital requirements. His departure, set for February 28, 2025, has led the Fed to announce it will not pursue any major rulemakings until a successor is confirmed. Potential successors, such as Michelle Bowman and Christopher Waller, have expressed the need for significant changes to the Basel III proposal, which could further impact the timeline.

The US ETF industry reached new heights in 2024 with record inflows of $1.1 trillion. Equity funds were the primary contributors, drawing in $773.2 billion, while fixed income ETFs attracted $302.1 billion. This surpassed the previous record set in 2021.

The upcoming earnings season is being viewed as crucial for reviving the stock market rally that has lost momentum since the presidential election. With the Federal Reserve unlikely to cut interest rates soon, corporate earnings growth becomes a key focus for investors. Analysts expect a 12% profit increase for S&P 500 companies, marking the largest year-over-year gain since late 2021.

The US IPO market, expected to return to pre-pandemic levels in 2025, faces challenges from rising Treasury yields. Yields on 30-year Treasurys recently surpassed 5%, potentially affecting valuations of high-growth companies and leading some to delay IPOs. "Rates are one of the key potential headwinds" for the IPO market, said Robert Stowe, head of Americas equity capital markets at Barclays Plc. "If there's an impact on the equity market then there will be an impact on the IPO market."

Hedge funds increased bearish bets on US stocks ahead of a stronger-than-expected jobs report, according to Morgan Stanley and Goldman Sachs. The report showed a gain of 256,000 jobs in December, leading to a 1.54% drop in the S&P 500. Hedge funds shorted sectors such as staples and health care while buying European and Asian stocks.

Goldman Sachs is creating the Capital Solutions Group to expand its financing operations and compete with private credit funds. The new unit will focus on transactions such as leveraged buyouts and will be led by Peter Lyon and Mahesh Saireddy. Loans to nonbank financial firms totaled $86 billion at the end of the third quarter, up from $65 billion a year earlier.

Discounted rates expire on Jan. 10! Register now to join us in Orlando, FL, from Feb. 12-14, for the annual Asset Management Derivatives Forum - your exclusive opportunity to connect with market participants from all sides of a trade and holistically examine the landscape for derivatives markets. As we build out the 2025 program with co-host FIA, preview the program to see what we have planned so far. Topics include Treasury Clearing, Equity Derivatives, Interest Rate Markets, Regulatory Issues, Operations, and more!