1. Moving the market

On the last day of 2024, the major indexes initially found support, but sentiment shifted at midday, leading to a red close. The S&P 500 has now closed lower for four consecutive days.

Despite this, the index recorded its second consecutive annual gain of over 20%, thanks to rate cuts, better-than-expected economic growth, and advances in the tech and AI sectors.

Enthusiasm around the latest AI developments, which promise significant productivity boosts, helped some members of the Mag 7 basket, like Nvidia and Apple, reach record prices and unprecedented capitalizations.

Despite the Federal Reserve’s support through a full percentage point cut in its benchmark interest rate since September, the bond market reacted negatively, with the 10-year yield rising by the same amount.

Traders are viewing the Fed’s aggressive rate cuts as a potential policy error, which could impact the markets in the coming weeks and months, especially after December ended as a losing month for the S&P 500. Upward momentum has softened, and our TTIs are now close to signaling a “Sell.”

Reviewing 2024, economic data continues a downward trend, and concerns about stagflation have resurfaced. The US Dollar had its best year since 2015, gaining 7% against other fiat currencies. Gold also had its best year since 2010, but Bitcoin outshone both, with annual gains of 156% in 2023 and 119% in 2024.

Bond yields were mixed but ended the year higher. Despite the month ending on a sour note, retail investors remain confident that stocks will rise in the next 12 months, according to ZH.

With market levels at extreme highs and the Buffet indicator in the danger zone, coupled with weakening economic data, a cautious stance might be more prudent than reckless optimism.

Happy New Year!

1. Moving the market

The markets opened sharply lower today, with bullish sentiment notably absent as the major indexes fell more than 1.5%.

However, they managed to bounce back from their worst levels of the day. Despite the light trading volume typical of a holiday-shortened week, traders found no clear catalyst for the market’s movements. Even lower bond yields couldn’t prevent the bears from dominating.

Although the major indexes are still below their record highs, they have posted some of the best year-to-date gains since 2021. The S&P 500 and Dow are up over 25% and 14%, respectively, while the Nasdaq leads with a gain of over 31%.

Nevertheless, concerns are growing that year-end profit-taking has sapped upward momentum after recent losses, suggesting a possible pause following the significant upswing.

Surging bond yields, despite the Federal Reserve’s efforts to lower them, have contributed to recent market weakness. It remains to be seen if this trend will continue to negatively impact markets as we enter 2025.

Soft survey data continued its post-election decline, while Pending Home Sales exceeded expectations but diverged from rising interest rates.

Mega-cap tech stocks took an early dive but rebounded thanks to dip buyers, nearly breaking even. Bitcoin followed a similar path, dropping early but staging a strong recovery to close in the green.

Bond yields finally fell, with the 10-year yield sliding to 4.54%, a small but encouraging improvement. The dollar also recovered from a significant drop, which ultimately cost gold a positive close.

As we approach the last trading day of the year, will the bulls find something to cheer about despite a lackluster December?

1. Moving the market

The major indexes went through moderate declines early in the session as the markets absorbed recent gains from the holiday week, commonly referred to as the Santa Claus rally.

This phenomenon typically occurs during the last five trading days of the year and the first two days of January. Historically, the S&P 500 has averaged a return of 1.3% during this period, significantly outperforming the market’s average return of 0.3%, according to LPL Research.

This rally is primarily driven by retail investors, as many institutional investors are not active during this time. Therefore, this positive period does not necessarily indicate what will happen in January and February.

In economic news, weekly jobless claims improved slightly from 225,000 to 219,000. However, continuing claims rose to 1.91 million, the highest level since November 2021, signaling potential economic weakness.

Today, the most shorted stocks saw a squeeze higher, but this was insufficient to keep the major indexes in positive territory after a midday rebound, except for Small Caps.

Bond yields fell after an early rise, and the dollar edged slightly higher. Gold defied the trend, gaining 0.71% on the day, while Bitcoin lost its Christmas Eve gains, joining crude oil, which fell back below $70.

With only three trading days left in the year, will the bulls be able to complete the Santa Claus rally?