Stock Market Update Monday November 18, 2024 Equities staged a modest recovery following last week’s pullback, with the S&P 500 and Nasdaq 100 posting gains of 0.4% and 0.7%, respectively. In fixed income,
Away From Stocks: Treasurys reversed early-session weakness, leaving yields relatively unchanged across the curve, signaling stabilization in rate expectations. In commodities, WTI crude rebounded sharply, reclaiming levels above $69 per barrel, while gold extended its rally, surging to an all-time high of $2,611 per ounce as investors sought safe-haven assets. In the cryptocurrency space, Bitcoin advanced toward $92,000, maintaining its upward trajectory. Meanwhile, volatility subsided, with the VIX dipping below 16, reflecting improved market sentiment and reduced risk premiums.
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Investor sentiment around the "Trump trade" has faced some headwinds recently, but we believe concerns about its end are overstated. Rather, the current uncertainty stems from pending Cabinet appointments, particularly the key Treasury Secretary nomination. Once this announcement is made, it should help alleviate market ambiguity. Among the names circulating, Scott Besson and Howard Lutnick CEO of Cantor Fitzgerald appear to be the frontrunners. Notably, Elon Musk recently weighed in on X, suggesting Besson represents a "business-as-usual" approach, while Howard Lutnick might introduce more transformative policies. Interestingly, Howard Lutnick significant holdings in Bitcoin—reportedly valued in the hundreds of millions—could hint at a crypto-friendly posture in financial policy, though Musk's preference remains speculative.
Meanwhile, concerns over a potentially less aggressive Fed are also surfacing. However, even a moderation in rate cuts still signals dovish monetary policy, which historically supports risk assets. This narrative doesn’t justify a bearish stance at this juncture.
On the corporate front, all eyes are on Nvidia’s upcoming earnings release, which I view as a pivotal event. Once this is behind us, the market is likely to refocus on broader macroeconomic drivers, providing greater clarity for investors.
Fed Chair Powell delivered remarks at a Dallas Fed conference last week, urging caution regarding the pace of rate cuts—a tone that was interpreted by markets as somewhat hawkish. Following his comments, the probability of a December rate cut fell sharply from 85% to 58%, reflecting the market’s reaction to his cautious stance.
However, it’s important to contextualize this shift. While the immediate timeline for rate cuts appears delayed, the broader outlook remains dovish. By the end of 2025, markets are still pricing in approximately three rate cuts, signaling that the Fed’s overall trajectory has not materially shifted. Goldman Sachs’ 2025 outlook further supports this view, forecasting a Fed funds rate between 3.2% and 3.5% by the end of that period—implying five cuts between now and December 2025.
In our view, this does not represent a hawkish pivot but rather a temporary adjustment in timing. If recent market weakness stemmed from this perceived hawkishness, it seems likely that sentiment will adjust as investors reassess the Fed's dovish longer-term stance.
Finally, from a technical perspective, equity markets have pulled back to critical support levels following a period of overbought conditions. These levels often serve as a base for potential upward momentum, providing a constructive backdrop for price stabilization and recovery. The alignment of several key factors—including diminishing policy uncertainty, clarity from major earnings reports, and technical resilience—suggests that markets are well-positioned to stabilize and potentially rebound in the near term.
Moreover, with the Thanksgiving holiday approaching, trading volumes are expected to thin out significantly. Historically, low-volume environments reduce selling pressure and have a tendency to skew toward upward price action. This seasonal dynamic, coupled with the current market conditions, may provide additional tailwinds for equities as we move through the holiday week.
Tomorrow Macro News:
Schedule: November 18
10:00 AM - November Homebuilder Sentiment
Event: Release of the November Homebuilder Sentiment index.
Previous Value: 42.0
Expected Value: 43.0
Key Focus:
Assess builder confidence in the housing market.
Analyze potential impacts on housing sector stocks and related industries.
4:00 PM - September Net TIC Flows
Event: Release of the September Net TIC (Treasury International Capital) Flows data.
Previous Value: 79.157 (in billions).
Key Focus:
Evaluate international capital flows into and out of U.S. financial assets.
Consider implications for currency markets and U.S. bond demand.
Investors got the chance to review fresh inflation this last week, with CPI showing inflation no closer to the Fed's 2% target. However, Core CPI arrived roughly in line with expectations, however we believe that the October CPI report was actually better than it appears at first glance.
A 30% annualized surge in used car prices was one of the largest contributors to the rise in Core CPI MoM. used car prices were affected by previous hurricanes, it as a "distortion that will not show up in the next month cpi report. The used-car CPI component tends to lag Manheim wholesale used car prices by 2-3 months. If this trend holds, then based on recent Manheim data. this component is set to go lower.
Bottom Line:
On November 8, 2024, our proprietary algorithm issued buy signals for both the S&P 500 Equal Weight ETF (RSP) and the Dow Jones Industrial Average ETF (DIA). This development indicates that all five major indexes are now aligned with buy alerts. Consequently, any potential pullbacks in these markets should be viewed as strategic buying opportunities for investors looking to capitalize on upward momentum. Our next key cycle pivot date falls on November 15, 2024, which is expected to serve as a primary inflection point.
Our year-end outlook remains optimistic, supported by our proprietary algorithm and favorable liquidity conditions. Cash on the sidelines continues to accumulate, creating potential for a strong inflow into equities. Jerome Powell & Co. maintain a dovish stance, reflecting a "no landing" economic scenario, while China's PBOC has introduced significant monetary easing, adding further global stimulus. October's volatility aligns with historical seasonal patterns; yet we believe markets will resume an upward trajectory following the election, paving the way for a strong December rally. The VIX is projected to settle in the 10-11 range, indicating a reduction in implied volatility as we approach the holiday season, which typically supports a risk-on sentiment in equity markets.
