1. Moving the market

This morning, traders were still grappling with Fed Chair Powell’s hawkish comments from yesterday, indicating that he is likely to cut interest rates only twice next year, down from the four reductions forecasted in September.

The pressing question now is: what will policymakers do in 2025? If inflation worsens, as I believe it will, they may have to refrain from cutting rates altogether and possibly reverse course.

Despite this uncertainty, bullish sentiment and bargain hunters lifted the indexes out of their slump, with all three major indexes starting the session on a positive note. However, a late-day sell-off dragged the S&P 500 and Nasdaq back into the red, while the Dow managed to eke out a small gain.

The latest data releases presented a mixed picture. The final revision to Q3 GDP was strong, jobless claims were solid, and existing home sales improved. However, manufacturing continued to decline. In summary, soft data was trending downward, while hard data remained flat.

Mega Tech stocks experienced a volatile session, bond yields surged, the dollar reached two-year highs, and Bitcoin fell below the $100k mark. Gold slipped below $2,600 but rebounded to close positively.

Additionally, U.S. sovereign risk of default is rising again, as highlighted by ZH, due to the potential government shutdown tomorrow night.

Will cooler heads prevail?

1. Moving the market

The major indexes edged higher ahead of the Federal Reserve’s interest rate announcement, with the Dow leading the way despite its recent worst performance in 46 years.

Although the index is less than 4% below its all-time high, a shift from “old economy” shares to the tech sector pulled the Dow down. This decline was exacerbated by the Dow’s underweighting of technology stocks.

The Fed’s announcement of a 0.25% rate cut, which was expected to please the markets, had the opposite effect.

Fed Chair Powell’s comments about moving cautiously and seeking progress on inflation contradicted market trends, as inflation has been rising alongside strong economic data since the rate-cut cycle began. Powell’s belief that inflation is transitory or that disinflation is occurring seems to be at odds with market realities.

Traders reacted negatively to the Fed’s hawkish statement, causing rate cut expectations for 2025 to plummet and leading to a market-wide collapse.

The most shorted stocks were dumped, Mega Cap stocks plunged, market breadth worsened, gold fell below its 100-day moving average, and Bitcoin approached its $100k mark but managed to hold steady for now.

Bond yields surged, with the 10-year yield reclaiming its 4.50% level, while the dollar was the only asset class to benefit, rising to its highest level since September 2022.

Our Trend Tracking Indexes (TTIs) also declined but remain above their respective trend lines for now. If this trend reversal continues, we may soon enter “Sell” mode and move back into the safety of our money market accounts.

1. Moving the market

This morning, the major indexes declined, with the Dow Jones Industrial Average marking its first 9-day losing streak since 1978. This streak began after the index surpassed the 45,000 level for the first time earlier this month.

Traders attribute these losses to a rotation from “old” economy stocks to the new technology sector. However, Nvidia, which was recently added to the Dow, also struggled, dipping into correction territory yesterday and losing an additional 1.2% today.

Conversely, Broadcom has emerged as a new tech favorite, reaching new highs on Monday, while Alphabet, Apple, and Tesla also hit record levels.

Today’s market pullback was anticipated ahead of the Federal Reserve’s decision on interest rates. Wall Street remains concerned that the Fed might make a policy error, potentially leading to a market blow-off top or accelerating inflation.

The US macroeconomic data index suffered another blow today, with negative reports on core retail sales, industrial production, and capacity utilization affecting the market and driving away bullish investors.

The major indexes retreated further, with the breadth indicator worsening for the 12th consecutive day, marking the second-longest stretch of weakness in 100 years. This indicates that market advances are being driven by only a few stocks, with the majority not participating.

While Nvidia nears a 13% drawdown from its highs, Bitcoin is testing new record levels. Bond yields reversed yesterday’s rally, the dollar remained in a tight range, and gold dipped below its 50-day moving average.

Will tomorrow’s Fed decision on interest rates lift the equity markets out of their current slump?

1. Moving the market

The major indexes started the week on a positive note, with two out of three heading higher, led by the Nasdaq. However, AI chip powerhouse Nvidia did not participate in the upswing and slipped into red territory.

The Federal Reserve will commence its final FOMC policy meeting of the year tomorrow, with results to be announced on Wednesday. A 0.25% rate cut is anticipated, but traders will be keenly watching for any changes to forward guidance, especially given the recent worsening of inflation numbers. The ongoing discussion revolves around whether these numbers signify the beginning of a new trend.

While the S&P 500 continues to inch higher, underlying indicators paint a less optimistic picture. As highlighted by ZH, market breadth, which measures advances versus declines, has worsened for 11 consecutive days.

Mega Cap stocks are showing prolonged strength to the upside. However, tech darling Nvidia plunged into correction territory today, down over 12% from its record high. In contrast, Broadcom surged higher, joining the $3 trillion club.

Bitcoin underwent a rally over the weekend and surged this morning, nearing $108,000 before pulling back. Its ratio to gold also reached record levels, with one Bitcoin now equivalent to 40 ounces of gold.

Bondholders have faced continuous challenges, with yields rising for the seventh consecutive day. Meanwhile, the dollar ended a six-day winning streak by dipping slightly lower, and gold followed suit but found support at $2,650.

Traders are hopeful for a rate cut but also question its wisdom given the current market levels and overall economic conditions.

Are the released data points indeed accurate?