The final session of 2024 on Wall Street was, like the handful of sessions before it, uninspiring.

US shares meandered into the new year on the back foot, having slipped from record highs, but nevertheless boasting the best back-to-back annual gains since the dot-com boom.

You can conjure any number of year-end dynamics to explain or otherwise excuse slippage during the traditional “Santa Rally” stretch. Or you might just suggest the bull was exhausted after so much running. Maybe equities were “tired of winning.”

I don’t know. No one cared all that much on New Year’s Eve, I can assure you. There was drinking to do. Tomorrow, in the US, there’ll be college football to watch.

It’s worth noting, as the Journal did Tuesday, that US ETFs enjoyed $1 trillion of inflows in 2024, a record-breaking haul that skewed heavily towards US equity funds last month following the election. The linked article cited State Street’s research department, but I’ve highlighted similar statistics on a number of occasions lately.

The figure above uses EPFR’s data through mid-December (there were some anomalous flows just after mid-month which it’s best to strip out).

From mid-October to mid-December, investors poured nearly $200 billion into US stocks, while equity funds focused on global shares (excluding the US) saw a net outflow over that period. The yawning gap illustrated by the figure may suggest the “US exceptionalism” / American “TINA” theme is in the process of overshooting. Or already has.

Consider this: The State Street data cited by the Journal showed that 97% of net inflows to equity products last month went to US funds. As one analyst noted, some of this is performance-chasing, but it’s hard to separate that from narrative buy-in, and even if you can distinguish, it’s a kind of chicken-egg scenario: If the US macro-policy narrative is magnetic, and the accompanying flows are driving performance, and that outperformance serves to enhance the magnetism, you’re left to ponder a seeming (note the emphasis) perpetual motion machine, further enhanced by an AI fever dream.

That’s all set against (and predicated upon) assumptions about US economic resiliency and fewer Fed cuts than previously anticipated for 2025, factors which, together with inflows to USD assets, pushed the dollar higher still into year-end. And then there’s the term premium-driven selloff at the long-end of the Treasury curve, discussed in these pages (and doubtlessly among Scott Bessent’s advisors) in recent days.

As the simple figure shows, the greenback’s the strongest since the “wrecking ball” days of September 2022 (i.e., peak Fed hawkishness on the heels Jerome Powell’s “bad cop” Jackson Hole address that year).

Beware the read-through for risk assets of “too much” US exceptionalism: Trimmed Fed cut bets (on the back of a robust economy), a strong dollar and rising long-end yields are a recipe for tighter financial conditions.

“[W]hat’s generally been a bear-steepening in UST curves and accompanying higher USD, has meant a substantial tightening of financial conditions, which is evidencing itself both in US economic surprise indices nearing two-month lows as data resumes missing on the margin versus expectations [and] EM currencies really coming-off sharply as well [exacerbated by] generic implications of Trump tariff potentials,” Nomura’s Charlie McElligott said late Tuesday. “All of which means a more precarious starting place for risk [in 2025] despite the extremely constructive sentiment around US economic prospects in light of policy tailwinds going forward,” he added.