1. Moving the market

The markets opened on a positive note following last week’s pullback. The chip sector played a significant role in driving stocks higher, with Nvidia gaining nearly 5% early on, while Broadcom and Micron added 2.9% and 9%, respectively.

Early bullish sentiment was further supported by a Washington Post report suggesting that Trump’s tariff plan would be “narrower” than expected, targeting only critical imports. This marked a shift from campaign promises of “universal” tariffs in the 10%-20% range. However, this report turned out to be false, and the dollar recovered somewhat from an early sell-off.

Despite this, automakers advanced as fears of a global trade war eased. Traders are now keen to see how the markets perform during the first five trading days of the year, a period historically seen as an indicator of the year’s overall market direction.

While the Dow lost its early momentum and closed roughly unchanged, the S&P 500 and Nasdaq managed to close in the green. However, the negative breadth, with more declining stocks than advancing ones, indicates underlying weakness, as only a small number of S&P members contributed to the upswing.

The Mega-Cap tech sector reached new record highs today but faded by the end of the session. Gold struggled to find support after an early drop and failed to close in the green.

Meanwhile, Bitcoin surged, peaking at $102,000, its highest level in three weeks. With the incoming administration being extremely Bitcoin-friendly, a new all-time high could be on the horizon.

1. Moving the market

After a weak close to an otherwise strong 2024, the markets opened on a positive note, buoyed by Nvidia and the energy sector, which helped to boost bullish sentiment.

However, despite this encouraging start, the major indexes reversed course, and the gains evaporated, leading to a moderate close in the red. The silver lining was that the markets bounced off their worst levels, with Small Caps managing to eke out a green close.

Tech giant Tesla struggled, losing about 4% in early trading after reporting a decline in 2024 deliveries, while Apple’s stock also slipped into the red.

The so-called Magnificent 7 were the main drivers of last year’s market action, with Nvidia achieving a remarkable 171% gain for the year and Apple adding a solid 30%. However, these outsized gains led to profit-taking, which pulled the S&P 500 down during the last four trading days of 2024.

As we enter 2025, the question remains whether this tech-heavy performance will be sustainable. Despite this uncertainty, relentless exuberance and optimism persist, with traders pointing to economic strength and earnings growth as reasons for more upside potential.

Bond yields stayed in a tight range, while Bitcoin rallied back over $97.5k, remaining unchanged for the last month.

The dollar surged, but this was ignored by gold, which started strong and advanced by 1.20%. Not to be outdone, crude oil followed suit and recouped its $73 level.

Despite a shaky start, history suggests that the first two weeks of January are usually strong, as ZH posted with this chart.

Will history repeat itself?

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!