Central banks’ climbdown from the post-pandemic inflation peaks commenced amid both optimism and trepidation. As 2024 draws to a close, reality has set in, and rates have been recalibrated accordingly. This was true even before the Federal Reserve’s strongly hawkish meeting this week. Right now, the stock market is full of contradictions as investors navigate the final inning of what’s been a stellar year. Firstly, the technology-heavy Nasdaq Composite surged to a record earlier in the week while the Dow Jones Industrial Average fell for an eighth straight day—its longest losing streak since 2018. But that was Monday. Then Wednesday arrived. Fed Chair Powell gave us a lump of coal. He said, "The slower pace of cuts for next year really reflects both the higher inflation readings we’ve had this year and the expectation inflation will be higher." Basically, Powell says FOMC sees higher inflation in 2025 and that some Fed officials might be reflecting the inflation impact of a Trump White House. So if the Fed does 2 fewer cuts expected, compared to Sept 2024, then this is a "hawkish" turn by the Fed. And this caught investors by surprise. But to us, this panicked reaction will be short lived. Markets will eventually bounce but headlines out of Washington will not help sentiment either as the risk of a government shutdown ratcheted higher. Right now, breadth deterioration, upward pressure on rates, dollar strength, VIX spike, stretched valuations, tariff worries, legislative complications and G7 (and beyond) political uncertainty are the go-to bearish talking points. My view is that is well known. What is also well known is we have a strong economy, solid earnings and fundamentals, favorable seasonality, strong equity inflows, and the Trump administration deregulatory push. Taken altogether, the contradictions create a knuckleball of uncertainty as we head into 2025. We maintain that Wednesday's post-Fed selloff represents a "stay the course" moment rather than a reason for strategic shifts. The fundamental backdrop remains constructive for equities, and while some market adjustment is natural, we anticipate investors will view this pullback as a buying opportunity.

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Accenture (ACN-US) stock rose after fiscal first quarter results beat expectations and raised its revenue growth outlook for fiscal 2025. Revenue climbed 9% (in U.S. dollar terms) year-on-year to $ $17.7B, surpassing analysts' estimates. "We delivered broad-based revenue growth across both consulting and managed services, and across each market and industry group, gaining market share. First quarter new bookings were $18.7 billion, including 30 quarterly client bookings of more than $100 million, and we continued to lead in helping our clients realize value with generative AI, with new bookings of $1.2 billion," said Accenture's Chair and CEO Julie Sweet. Generative AI new bookings for the fiscal fourth quarter, ended Aug. 31, were $1B. The Irish company's Consulting revenues in the first quarter grew 7% (in U.S. dollars) year-over-year to $$9.05B, while Managed Services revenues jumped 11% (in U.S. dollars) to $$8.64B. However, new bookings for the first quarter rose only 1% (in U.S. dollars) year-over-year to $18.70B. The company's total cash balance at Nov. 30 was $8.3B compared to $5B at Aug. 31, 2024. Owned in US Portfolio.

(+) Keg Royalties Income Fund (KEG.UN-T) Two distributions are expected to be declared to the Fund’s unitholders during the first quarter, three distributions in each of the second and third quarters, and four distributions in the fourth quarter. This is done to ensure that the distribution based on the Royalty Pool sales for the month of December, in any year (which is paid the following month in January) is recorded in the period in which it was earned for income tax purposes. The Fund, through The Keg Rights Limited Partnership, a subsidiary of the Fund, owns certain trademarks and other related intellectual property used by Keg Restaurants Ltd. In exchange for use of those trademarks, KRL pays the Fund a royalty of 4% of gross sales of Keg restaurants included in the Royalty Pool. With approximately 10,000 employees, over 100 restaurants and annual system sales approaching $700 million, Vancouver-based KRL is the leading operator and franchisor of steakhouse restaurants in Canada and has a substantial presence in select regional markets in the United States. KRL continues to operate The Keg restaurant system and expand that system through the addition of both corporate and franchised Keg steakhouses. KRL has been named the number one restaurant company to work for in Canada in the latest edition of Forbes “Canada's Best Employers 2024” survey, securing thirteenth place in the overall ranking across all industries in the country. Shares yield 7.74% and are up 5% in 2024 for a total return of 12%. Owned in Cash Flow Portfolio.

(+) MannKind (MNKD-US) RBC raised the company to outperform from sector perform, citing the company’s Tyvaso DPI royalty revenue opportunity and orphan lung pipeline. The company could get up to $200M per year in royalties for idiopathic pulmonary fibrosis and progressive pulmonary fibrosis, contributing to peak Tyvaso DPI royalty revenues of around $300M in 2030. RBC also believes the company’s orphan lung drug candidates MNKD-101 and MNKD-201 could come online as early as 2027, with peak sales in the 2030s of around $400M for non-tuberculous mycobacterial lung disease and roughly $500M for idiopathic pulmonary fibrosis. “In our view, MNKD's (NASDAQ:MNKD) orphan lung pipeline serves the long-term vision for the company, while Tyvaso DPI royalties continue to drive growth and share appreciation, and Afrezza provides support with serviceable revenues, with peds expansion potential,” RBC added. RBC raised its price target for the stock to $10 from $7. In the past month, MannKind Corporation has reported significant progress with its inhaled insulin product, Afrezza. The company announced encouraging six-month data from its Phase 3 INHALE-1 study, which focuses on pediatric diabetes treatment using inhaled insulin (12/16/24). Additionally, MannKind's partner, Cipla, received approval from the Central Drugs Standard Control Organization (CDSCO) in India to market and distribute Afrezza, marking a major step in bringing the first inhalable insulin to the Indian market (12/11/24). These developments have generated positive momentum for MannKind, as reflected in the increased interest in its stock. Owned in Opportunity Portfolio

.Company of the Week: Mannkind

MANNKIND INVESTOR DECK

 

Weekend Reading

RBC MacroMemo - December 17, 2024 – January 6, 2025 Key themes for 2025 1 - Sustained economic growth, 2 – Vibecession to fade, 3 – U.S. exceptionalism to persist, 4 - Animal spirits unleashed, 5 – Tricky inflation, 6 –Rate cuts slow, 7 – “No landing” scenario on the table, 8 – Tariffs, but how much?, 9 – Chinese resilience, 10 - Geopolitics in focus, 11 - Choppy Canada, Plus Canadian economic issues. RBC

Is It Too Late To Buy Bitcoin? I can’t tell you what the right percentage of bitcoin is for your portfolio, but I can tell you that 0% is probably the wrong answer. THE POMP LETTER

Sizing bitcoin in portfolios For investors who wish to include bitcoin in a multi-asset portfolio, Blackrock sees a 1-2% allocation. BLACKROCK

The Era of Living Intelligence Navigating the technology supercycle powering the next wave of innovation. FUTURE TODAY

To Whom Does the World Belong? The article explores how AI challenges traditional notions of authorship and ownership, raising critical questions about legal frameworks for intellectual property in the digital age. BOSTON REVIEW

Raskob’s Folly: When Optimism Fails John J. Raskob fueled the easy money market of the 1920's by writing that “Everybody Ought to be Rich”. Raskob’s bold claim in the August 1929 issue of Ladies’ Home Journal was typical for the time. NOVEL INVESTOR

Who can claim Aristotle? The endless battle over his legacy testifies to his great authority – and the power of his thought to make the world better. AEON

Class Cleavages by Alex Browne The irrationality of American business partisanship is a symptom of its own success. PHENOMENAL WORLD

TVs don’t actually cost 98% less than they used to... and other inflation misconceptions. We spoke to Bureau of Labor Statistics inflation expert Steve Reed to understand exactly what goes into the inflation statistics we hear so much about. SHERWOOD

Are Social Media Platforms the Next Dying Malls? It was cool to hang out at the mall—until it wasn't. Malls died because there were too many of them. Social media is now entering that same phase. THE HONEST BROKER

Diversions

"Nosferatu" Christmas Day release. IMBD

"Carry-On" Action thriller with Jason Bateman. NETFLIX

"The Brutalist" Escaping post-war Europe, a visionary architect arrives in America. ROTTEN TOMATOES

“The Secret Lives of Animals” BBC-produced nature doc with Hugh Bonneville. APPLE TV

“Beast Games” Hit YouTuber Mr. Beast puts 1,000 contestants to the tests for $5 million. AMAZON PRIME