Week in Review: 16-20 December 2024

Financial Markets

This week, the markets were shaken by hawkish statements by the FED, who signaled fewer and smaller rate cuts for 2025. The main stock market indices were down on Wednesday, and US bond yields adjusted up.

Overall, for the week, the S&P500 and the NASDAQ 100 lost 2% and 2.3%, respectively. More dramatically, the small cap index (Russel 2000) lost 4.5%, indicating a flight to quality and a risk-off attitude from investors and institutions.

Gold and silver lost 0.9% and 3.5%, respectively. Gold is on the lower range of the current trading channel, while silver is looking weaker and might continue to fall during the next days. If the price of gold doesn't remain in the current trading channel, it might go lateral or correct in the short/medium term. It seems like the rally in gold is cooling off.

WTI fell to 69.5$ and should continue in the 67-72$ range in the next week.

Bitcoin fell 7.5% and might fall back to 92-93k$ if the correction continues.

The relative strength of the US dollar (DXY) was up this week (~108). The EUR/USD is around 1.04$, the GBP/USD is at 1.26$, and the USD/JPY is at 156.4 JPY.

US M2 money supply at the date of 28th October 2024 was up by 0.42%.

The national financial conditions index (NFCI) for the week of 9th December 2024 loosened by 2% and doesn't translate signs of financial stress in the markets. Note that this indicator is delayed by a week.

US bond yields rose considerably this week, and now sit at 4.319% for the 2-year and 4.53% for the 10-year. The yield curve is uninverted and the recent moves indicate a bear steepener situation, where longer-term yields rise faster than the short-term rates.

The VIX spiked up to 28 and closed the week around 18, indicating more search for put options and fear from the part of investors/speculators.

Comment Section

This week might have marked a medium-term top in the US stock markets. We see a market correction as more likely than not, as we have been watching revenues and earnings top out in many sectors. The economic developments in Europe and in China are slow. This is the time to be selective and cautionary.

The possibility of a recessionary or stagflationary environment for the next few years should not be ruled out. The new US presidency will set the tone for worldwide cooperation, economic treaties/tariffs, and geopolitical risk (escalation or de-escalation of ongoing conflicts with Russia and the Middle East).

 

The next week (Christmas week) is going to be a short trading week. The NYSE will close early at 1:00 p.m. (1:15 p.m. for eligible options) on Tuesday, December 2024, 2024, and remain closed on the 25th of December. Markets re-open normally on the 26th December.

 

Enjoy the holidays, take care, and good luck.