As we entered 2024’s final full week of trading, political turmoil raged around the world. A vote of no-confidence brought down the German government, French national debt was downgraded by credit agencies after the selection of a new Prime Minister, Canada’s finance minister resigned in reaction to what she saw as Trudeau’s wimpy response to Trump’s tariff threats, presidential impeachment proceedings in South Korea continued, a Chinese spy scandal in the UK engulfed two former Conservative prime ministers as well as the royal family and attempts went on to sustainably fill the post-Assad political vacuum in Syria.
Despite the global turbulence, there was green all over the screens in New York on Monday ahead of Wednesday’s highly-anticipated Fed interest rate cut. Big tech names forcefully led the way again and built nicely on record highs for the NASDAQ-100 index, which waved goodbye and good riddance to dogs like Moderna and SuperMicro Computer and welcomed in big data and crypto giants Palantir and MicroStrategy as part of a periodic shakeup of its component stocks.
Retail sales came in stronger than expected on Tuesday morning, up +0.7% in November with a solid upside revision for October. Under the hood, evidence continued to show that American consumers could be preempting Trump’s tariffs with a more buy-now approach to certain big ticket items.
While not seen as a hurdle for an interest rate cut the following day, the continued robust US economic performance is putting 2025’s anticipated cuts in increasing jeopardy and the indexes stumbled in response, ending the session lower.
Fed Day finally rolled around on Wednesday and it proved to be a wild ride. Stocks were quiet in advance of the 2pm ET committee statement and subsequent press conference starring chairman Jerome Powell. Far more interesting than the announcement of the fully-expected quarter point Fed Funds rate cut to 4.375% was the release of the latest quarterly so-called Dot Plot chart, which shows the Fed committee members’ projections of what will happen to interest rates in 2025 and beyond.
At both their June and September meetings, the members signaled a total of four interest rate cuts over the course of eight meetings in 2025. Those expectations were cut in half to only two next year with just a handful more anticipated through the end of 2027.
This horrified markets and stocks completely crapped out with the greatest pain being felt in Big Tech and Small Caps. It was the worst Fed Day for equities since 2001. Bonds followed suit as interest rates soared on the news of the expected rate cut slowdown.
At the press conference, a rather defensive Powell batted away reporter questions about how much of the gloomier outlook for cuts was due to the potential for higher inflation next year caused by tariffs under a Trump administration, but he did concede that the Fed needed to slow down and be more cautious with its decision-making right now as it was “walking into a dark room full of furniture”. He muttered some variation of the word “uncertain” 17 times. He also pointedly failed to rule out the possibility of the Fed having to actually raise interest rates next year.
Egged on by First Buddy Elon Musk, Trump then tossed a huge bucket of gasoline onto the dumpster fire, shocking markets just before the closing bell by barging in and trashing the 1500+ page bipartisan compromise bill crafted by Congress that was designed to avert a government shutdown by the end of the week. This swiftly torpedoed the rescue measure as many Republican lawmakers who just hours earlier had been perfectly supportive of the bill suddenly flipped and fell in line behind the president-elect and his new Mini-Me.
A closure of the Federal government starting at the weekend and an end to multiple disaster aid programs was not on anyone’s bingo card. There had previously been a 100% certainty that the deadline would be extended one way or another, which is why it had barely registered as a concern.
As dazed traders reconvened on Thursday morning following depressed Asian and European sessions, they learned that US Gross Domestic Product (GDP) economic growth estimates for Q3 had been revised up from 2.8% to 3.1% and that the Bank of England had decided to not cut interest rates in the UK.
The initial sense when markets opened was that the previous day’s wipeout may have been overdone and some dip buyers took advantage, stepping in to scoop up some of the more battered and bruised stocks. But the rebound became more and more half-hearted as the session wore on and by the close it had completely fizzled and the indexes slipped back into the red again with the S&P 500 falling to its lowest point since the election.
Stock prices didn’t fall because of the risk of the shutdown itself, but because this is exactly the kind of unhinged political chaos that financial markets fear from the Trump/Musk circus that appears to have already rolled into town weeks before the inauguration.
Thursday night’s dismal failure of Congress’ botched Plan B to avoid a shutdown hung over markets like a bad smell when the opening bell rang on Friday and stocks initially continued their slide (although the release of a better-than-expected Personal Consumption Expenditures PCE inflation indicator of +2.4% annualized took some of the edge off the pessimism) while Congress continued to pitifully fumble around trying to cobble together a Plan C, a version of which was eventually passed by the House after the markets closed. Circle March 14th on your calendar as the next time we’ll probably be going through this same sorry mess all over again.
Things quickly turned around late morning, though, as Wall Street traders decided that enough was enough with the broad stock market 3% to 4% cheaper than it was on Monday - right in the middle of the traditional season for loading up on stocks - and were tempted back into buying mode. The indexes all closed substantially higher on the day, although still well down for the week.
Although the index has been hitting new all-time record highs consistently over the last few weeks, last Wednesday marked the 13th straight trading day that more than half the S&P 500 stocks fell during the session, a record-ever streak for this measure.
The simple fact is that a fully-fledged stealth stock market pullback has been under way since before Thanksgiving but, until last week’s shenanigans, it had been obscured under the radar by headline-grabbing positive readings from the heavily Mega Cap-weighted S&P 500 and NASDAQ indexes.
OTHER NEWS ..
Living Longer Again .. Average life expectancy in the U.S. increased by almost a year in 2023, rebounding to a level not reached since the pandemic, according to figures released Thursday by the Centers for Disease Control and Prevention.
US average life expectancy was 78.4 years in 2023 ‒ nearly eleven months longer than in 2022 ‒ mostly due to far fewer COVID deaths. It was the second consecutive year that the nation's life expectancy increased after dropping by more than two years between 2019 to 2021. In 2022, COVID was the fourth leading cause of death, but it dropped to the tenth place last year.
Rates dropped for nine of the top ten causes of death. Only the death rate for cancer, which is the second leading cause of mortality, did not change significantly. Heart disease remained the leading cause of death in America, followed (in order) by cancer, accidents/homicide (including all gun-related deaths), stroke, respiratory disease, Alzheimer's, diabetes, kidney disease, liver disease and then COVID.
ARTICLE OF THE WEEK ..
THIS WEEK’S UPCOMING CALENDAR ..
Investors are heading into a historically low trading volume but winning week for the stock market. Since 1950, the S&P 500 has gained an average of 1.3% over the Christmas and New Year's holidays. Stock and bond markets will close early on Tuesday and remain closed on Wednesday for Christmas.
There will be barely any economic data releases to contend with other than a Durable Goods report and some residential sales data.
No major companies are reporting earnings during the holiday week but Q4 earnings season kicks off on January 15th with results from some big banks like JPMorgan Chase, Citigroup and Wells Fargo.
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing U.S. sector: Technology (two biggest holdings: Apple, Microsoft) - down 1.0% for the week.
Last week’s worst performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) - down 5.7% for the week.
SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price fell 2.0% last week, is up 24.4% so far this year and ended the week 2.7% below its all-time record closing high (12/06/2024).
IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price fell 4.5% last week, is up 10.6% so far this year and ended the week 8.5% below its all-time record closing high (11/08/2021).
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
⬆︎ 6.72%
One week ago: 6.60%, one month ago: 6.84%, one year ago: 6.67%
Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
Data courtesy of CNN Business as of Friday’s market close.
FEDWATCH INTEREST RATE TOOL:
Where will interest rates be after the Fed’s next meeting on January 29th?
0.25% higher than now .. ⬇︎0% probability (3% a week ago)
Unchanged from now .. ⬆︎91% probability (78% a week ago)
0.25% lower than now .. ⬇︎9% probability (19% a week ago)
What is the most commonly expected number of 0.25% interest rate cuts in 2025?
⬇︎2 (down by one from a week ago)
All data based on the Fed Funds interest rate (currently 4.375%). Calculated from Federal Funds futures prices as of the market close on Friday. Data courtesy of CME FedWatch Tool.
% OF S&P 500 STOCKS TRADING ABOVE THEIR 50-DAY MOVING AVERAGE:
⬇︎25% (127 of the S&P 500 stocks ended last week above their 50D MA and 373 were below)
One week ago: 47%, one month ago: 55%, one year ago: 84%
% OF S&P 500 STOCKS TRADING ABOVE THEIR 200-DAY MOVING AVERAGE:
⬇︎55% (275 of the S&P 500 stocks ended last week above their 200D MA and 225 were below)
One week ago: 65%, one month ago: 69%, one year ago: 69%
Closely-watched measures of market breadth and participation, providing a real-time look at how many of the S&P 500 index stocks are trending higher or lower, as defined by whether the stock price is above or below their more sensitive 50-day (short term) and less sensitive 200-day (long term) moving averages which are among the most widely-followed of all stock market technical indicators.
The higher the reading, the better the deemed health of the overall market trend, with 50% considered to be a key pivot point. Readings above 90% or below 15% are extremely rare.
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