Stock Market Update Monday January 6, 2025 The first non-holiday trading week of 2025 commenced with equities exhibiting broad-based strength. The S&P 500 (SPX) advanced by 0.55%, while the Nasdaq 100 (QQQ) surged 1.15%. Remarkably, the market has maintained resilience near the 6000 threshold on the SPX, despite persistent headwinds in the Treasury market. Technology and AI stocks led the rally, with Nvidia gaining 3.43%, Micron climbing 10.45%, Applied Materials increasing by 4.36%, and ASML Holdings rising 7.58%. Conversely, Palantir was a notable underperformer, declining 4.97%.
Away From Stocks: Long-dated Treasuries faced continued selling pressure, as the 10-year yield climbed two basis points to 4.62%, and the 30-year yield added three basis points to settle at 4.85%. In the commodities space, WTI crude oil slipped below $74 per barrel, while gold edged lower to $2,637 per ounce. Meanwhile, bitcoin extended its gains, approaching the $102,000 mark, and the VIX (CBOE Volatility Index) eased to settle just above 16, signaling a slightly calmer market backdrop.
Equities have faced considerable headwinds since the Federal Reserve’s “hawkish rate cut” on December 18th 2024, a move that was widely interpreted as more aggressive than expected despite the nominal easing of policy. Equity markets have been bleeding lower, with eight out of the past twelve trading sessions closing in the red. The -8% slide over this short span underscores the palpable market pain, as sentiment continues to sour.
The central focus for market participants now centers on inflation expectations. We, however, maintain a contrarian view: inflation is not re-accelerating despite the concerns raised by the recent uptick in U.S. 10-year Treasury yields. While the steepening of the yield curve has left many puzzled, we firmly believe that inflation is not experiencing a sudden resurgence as feared.
Why We Believe Inflationary Pressures Are Overstated:
Examining the primary drivers of inflation over the past five years reveals little evidence to support a material resurgence:
Housing: Indicators are signaling weakening demand and softening price pressures, especially in major urban areas, as affordability remains a challenge.
Auto Insurance: Premium increases are decelerating after a period of structural adjustment in the insurance market.
Used Cars: The only recent pressure came from hurricane-induced “panic demand,” but this is unlikely to sustain over the long term.
Labor Markets: The Fed has explicitly noted that wage growth—while steady—does not pose significant inflationary risks at this time.
Tomorrow Macro News:
January 7, 2025
8:30 AM: November Trade Balance (Actual: -78.2, Forecast: -73.836)
10:00 AM: December ISM Services PMI (Actual: 53.5, Forecast: 52.1)
10:00 AM: November JOLTS (Actual: 7.7m, Forecast: 7.744m
Bottom Line:
We are closely monitoring the SPY ETF this week, as it is crucial for the market to close above 586.12, the green line on the SPY ETF Daily Chart, by the end of this week.
In light of the sell signals identified by our proprietary algorithm for the SPX500, RSP ETF, Nasdaq100, QQQ ETF, IWM ETF, and DIA ETF, we advise against deploying dip-buying strategies or attempting to bottom-fish the market. A more prudent approach would involve prioritizing strategic positioning in anticipation of the market's next buy alert from our proprietary algorithm, rather than engaging in speculative efforts to predict a bottom. This disciplined stance minimizes exposure to potential downside risk while preserving capital for more opportune entry points.
Cycle Pivot:
We expect the next market shift to occur between January 6-10, 2025, which could lead to a sell-off. However, we will wait for confirmation from our proprietary algorithms before issuing a sell signal. We do not attempt to predict exact market highs or lows. Instead, our strategy focuses on preparing for the next market direction based on strong, data-driven signals rather than guesses.
We consider BlackRock to be a key stock in the market.
