1. Moving the market

The latest inflation readings provided a boost to the markets, with the S&P 500 and Nasdaq achieving solid gains, while the Dow lagged. The Consumer Price Index (CPI) met expectations, showing a 0.3% rise from October and a 2.7% increase year-over-year. The Federal Reserve’s preferred measure, the core CPI, which excludes volatile food and energy prices, also rose by 0.3% for the month and 3.3% year-over-year.

Although this data indicated a faster pace than the previous month, traders speculated that it wasn’t high enough to prevent the Fed from cutting rates later this month, with the odds of a rate cut now at 99.9%.

Despite the anticipation of rate cuts, bond yields surged as prices dropped, while other assets like stocks, gold, the dollar, crude oil, and cryptocurrencies remained bullish.

The mega tech sector reached a new record high, gaining in 11 of the past 13 days. The dollar advanced for the fourth consecutive day, which typically would have negatively impacted gold, but the precious metal rallied by nearly 1.3% to close above $2,750.

Bitcoin also spiked above $102,000, and crude oil reclaimed its $70 level, closing at a two-week high.

While traders have priced in a 0.25% rate cut for December, expectations for 2025 have significantly decreased, from six 0.25% cuts three months ago to just two for the entire year.

This makes me ponder: How will the markets respond to these changing expectations, especially since steadily rising rate cut expectations have been a key driver of the current equity bull market?

1. Moving the market

Today, the traditional seasonal softness of mid-December persisted, with major indexes fluctuating without clear direction and ultimately closing in the red, despite a surge in small business optimism.

An early rally in the Mega-Tech sector hit a ceiling, reversed, and erased initial gains, making the Nasdaq the biggest loser of the day. Additionally, the most shorted stocks fell again, wiping out last Friday’s advances.

Bond yields climbed, and the dollar rallied for the third consecutive day. Bitcoin tumbled but managed to bounce off yesterday’s lows, while gold maintained its upward momentum, reclaiming the $2,700 level.

Traders are now focused on tomorrow’s CPI report, which could significantly influence the Federal Reserve’s interest rate policy at its December 17-18 meeting.

Expectations are for a headline inflation increase of +0.3% for November and +2.7% over the past 12 months. Any softening of the CPI data could revive equity bulls, while worsening inflation data would give bears the upper hand.

Which outcome will we see?

1. Moving the market

Equities declined ahead of key inflation data expected later this week, causing the major indexes to slip into the red.

However, gold defied the trend with a solid advance. Nvidia and Advanced Micro Devices faced pressure, with Nvidia dropping nearly 3% and Bank of America downgrading AMD from a “buy” to a “neutral” rating.

Last week’s gains in the S&P 500 and Nasdaq were driven by the November jobs report, which showed stronger-than-expected growth. This moderate growth has kept traders hopeful that the Federal Reserve will lower interest rates later this month, with current odds at 88%.

China’s economic stimulus measures boosted their markets, while momentum in the U.S. markets turned bearish. Despite this, the Mega Cap Tech sector held steady for the second consecutive day.

Bond yields edged higher, and Bitcoin briefly surpassed $100,000 before losing momentum and finding support at $96,500. Gold experienced a notable rise, and the dollar advanced after an initial dip.

Despite Bitcoin’s correction, it continues to follow global liquidity trends with a slight lag. The following chart suggests potential upside towards the $125,000 level before a larger correction might occur: