With the risk of a government shutdown pushed out to March, traders breathed a small sigh of relief over the weekend. But the chaotic intervention by Trump/Musk won’t be quickly forgotten by Wall Street, which is likely to view the whole political debacle as something of a preview of what can easily and frequently happen in 2025 and beyond.
A holiday-riddled week that traditionally sees Santa bearing gifts for investors began quietly with the indexes mostly positive overall on low trading volume by the close on Monday, with Big Tech leading and Small Caps lagging. Trump’s sudden interest in Greenland (again) and the Panama Canal and Musk’s ill-informed threat to slash the workforce at the supposedly “absurdly overstaffed” Federal Reserve (see OTHER NEWS below) as well as his enthusiastic endorsement of neo-Nazis in Germany were all pretty much dismissed by Wall Street traders as simply a bunch of blowhard nonsense that wasn’t going to have any meaningful real-world consequences and was therefore nothing to worry about. Hmmm. Maybe.
Tuesday was a half day for the stock market but prices continued to move higher ahead of the Christmas holiday. Gains accelerated into the 1pm ET close and the major indexes closed higher by over 1%. Not bad for just three and a half hours work.
When volumes are ultra-low, indexes can be disproportionately impacted by what would normally be rather innocuous movements in individual stocks. This amplification was on display as the indexes were supported by the apparent ending of the barista strike at Starbucks and a turnaround from American Airlines after it quickly resolved what had looked like a nasty technical outage earlier in the day.
When they returned from the Christmas break, traders took stock prices somewhat lower out of the gate on Thursday morning in a knee-jerk reaction to the news that recurring applications for unemployment benefits had risen to its highest level in more than three years, indicating that it is taking longer for out-of-work Americans to find a job. Initial unemployment claims, however, came in at +219k for the week, a touch lower than expected.
This all seemed to confirm Fed chairman Jerome Powell’s assessment from the previous week that the labor market is cooling, but not yet at a rate that is raising many concerns. A low volume recovery in the afternoon took the indexes back to basically unchanged at the close.
Any hopes that Santa might still belatedly show up on Wall Street faded on Friday as the major indexes, driven by substantial profit-taking and inventory-dumping in Big Tech names ahead of the year-end, gave back almost the entire week’s gains. This effectively rendered the whole week kind of redundant as prices ended Friday only a fraction higher than where they began Monday.
I tend to agree with the notion that some of December’s politically-generated market chaos could well provide an unfortunate preview of next year. However, the key to navigating this market in 2025 will be knowing the difference, in real time, between alarming but ultimately unimportant headlines that cause brief market pullbacks but quickly flame out and data and news that actually invalidates bullish factors and legitimately jeopardizes the rally.
Having said that, for all the distractions out there (politics, tariffs/trade, cabinet appointments, etc.) economic growth remains the key support pillar for this current bull market and the data is clearly showing that a soft landing still remains the most likely outcome.
Last summer’s concerns of a more intense and rapid slowdown have now largely been erased, but sentiment is no longer quite so excessively euphoric as it was for much of 2024 and markets will start the year with most investors a little more sanguine in their outlook.
This should all theoretically give us some reassurance that the rally should be able for the most part to withstand any Fed or Trump/Musk-related volatility that emerges in the coming weeks and months.
OTHER NEWS ..
Welcome Back To The United States, Mr. Kwon .. Crypto crook Do Kwon, founder of the fraudulent Terraform platform, once famously announced that he didn’t interact with poor people.
Well, he could potentially have to adapt to having some financially-challenged very close neighbors for the next hundred years or so as he faces the possibility of a massive prison sentence if convicted in the US after his extradition from Montenegro was confirmed last week. Kwon was intercepted in spring of 2022 in the Eastern European country while on the run from US authorities over the $40 billion collapse of the TerraUSD stablecoin and has been held locally since then.
Nothing To Cut Here .. First Man-Crush Elon Musk used one of his blizzard of recent scattergun and frankly bizarre angry-old-man Twitter/X posts to call the Federal Reserve “absurdly overstaffed” in his role as joint-head of the made-up unofficial agency with no executive powers whatsoever, the new Department of Government Efficiency.
The Federal Reserve Board in Washington and its twelve regional reserve banks across the entire US employs about 24k people. That’s considerably less than comparable central banks overseas, most of which oversee much smaller economies than the US. More importantly, unlike most parts of the federal government, the Fed doesn’t actually receive any funding through the congressional budgetary process. It earns its own income, primarily from the interest it receives on government securities that it has acquired through open market operations. In fact, the Fed is usually a source of positive revenue for the government, gifting any income above its expenses to the nation’s cash stockpile. Before its rapid interest-rate hikes in 2022, it was sending about $100 billion a year of surplus earnings to the US Treasury.
Difficult to see how to DOGE this one. The likely real reason behind his sudden belligerence is simply that the Fed has in the past been a target of Musk’s new-found BFF, President-elect Trump, for its monetary policy. Trump recently argued that he should have a say in Fed decision-making and the setting of interest rates. He ridiculed chairman Jerome Powell’s role as “the greatest job in government,” saying, “you show up to the office once a month and you say, ‘Let’s see, flip a coin.’ ‘‘
ARTICLE OF THE WEEK ..
You’re about to get invited to a party by Wall Street. Make sure you say you are busy and can’t go.
THIS WEEK’S UPCOMING CALENDAR ..
It will be another holiday-shortened week, as 2024 comes to an end. Both stock and bond trading markets will be closed on Wednesday for New Year’s Day.
There will be no impactful economic data releases or any major earnings reports this week.
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, Nvidia) for the second week in a row - up 2.2% for the week.
Last week’s worst performing U.S. sector: Consumer Defensive (two biggest holdings: Costco, Walmart) - down 0.4% 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 rose 0.42% last week, is up 25.2% so far this year and ended the week 2.1% 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 rose 0.1% last week, is up 10.8% so far this year and ended the week 8.3% below its all-time record closing high (11/08/2021).
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
⬆︎ 6.85%
One week ago: 6.72%, one month ago: 6.81%, one year ago: 6.61%
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?
Unchanged from now .. ⬇︎89% probability (91% a week ago)
0.25% lower than now .. ⬆︎11% probability (9% a week ago)
What is the most commonly expected number of 0.25% Fed interest rate cuts in 2025?
⬌2 (unchanged 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:
⬆︎26% (128 of the S&P 500 stocks ended last week above their 50D MA and 372 were below)
One week ago: 25%, one month ago: 69%, one year ago: 90%
% OF S&P 500 STOCKS TRADING ABOVE THEIR 200-DAY MOVING AVERAGE:
⬆︎56% (282 of the S&P 500 stocks ended last week above their 200D MA and 218 were below)
One week ago: 55%, one month ago: 75%, one year ago: 75%
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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