In This Issue

• Market-On-Close: All of last week’s market-moving news and macro context in under 5 minutes + futures-snapshots

• Special Coverage: The Santa Claus Rally: Unpacking the Market Mechanics Behind the Year-End Surge

• The Latest Investor Sentiment Readings

• Institutional Support & Resistance Levels For Major Indices: Exactly where to look for a turn in markets this week in SPY, QQQ, IWM & DIA

• Institutional Activity By Sector: Institutional flow by sector including the top names institutionally-backed names in those sectors

• Top Institutional Orderflow In Individual Names: All of the largest sweeps and trade blocks on lit exchanges and dark pools

• Investments In Focus: Bull vs Bear arguments for FTNT, VSCO, BAM, RL, MOMO, MRVL, FTXL

• Top Institutionally-Backed Gainers & Losers: An explosive watchlist for day traders seeking high-volatility

• Normalized Performance By Thematics YTD (Sector, Industry, Factor, Energy, Metals, Currencies, and more): which corners of the markets are beating benchmarks, which ones are overlooked and which ones are over-crowded

• Key Econ Events and Earnings On-Deck For This Week

Market-On-Close

The U.S. financial markets have exhibited remarkable resilience and complexity over the past year, driven by a confluence of economic factors, corporate performance, and monetary policy shifts. Last week, this resilience was on full display as the Nasdaq Composite briefly surpassed the milestone 20,000 mark, capping off another chapter in a year characterized by strong market performance. The narrative underpinning these gains includes solid economic growth, robust corporate earnings, moderating inflation, and the initiation of monetary easing by central banks. However, as we approach 2025, signs of stalling progress in inflation improvement have introduced uncertainty into the outlook, particularly regarding the future actions of the Federal Reserve and other global central banks.

The November CPI Report: A Mixed Bag

The release of the November Consumer Price Index (CPI) offered a nuanced view of inflation's trajectory. On the one hand, the data provided some reassurance, as the results aligned with expectations, quelling fears of an inflationary resurgence. Core inflation, which excludes volatile food and energy prices, rose by 0.3%, keeping the annual rate steady at 3.3% for the third consecutive month. While this figure marks a significant decline from the 6.6% peak in 2022, it remains above the Federal Reserve's 2% target.

Notably, prices for discretionary goods and services, including cars, furniture, hotels, and airfare, accelerated during the month. This uptick likely reflects the strength of consumer spending, which has proven resilient despite economic headwinds. The impact of recent hurricanes also played a role in boosting demand and prices for certain goods, such as automobiles.

Encouragingly, shelter inflation—a key driver of price pressures in recent years—showed signs of easing. Housing costs increased by just 0.2%, the smallest monthly gain since early 2021, and the annual rate fell below 5% for the first time in over two and a half years. Market-based measures of rents and home prices suggest that this disinflationary trend may have further to go, offering hope that housing inflation will become less of a burden on the overall CPI.

Central Bank Actions: The Federal Reserve and Beyond

The Federal Reserve is widely expected to announce another rate cut following its December meeting. The November CPI data, coupled with a modest uptick in unemployment and subdued producer price inflation, have reinforced market expectations for a quarter-point reduction. Futures markets now assign a 97% probability to this outcome, reflecting heightened confidence among investors.

However, as we look ahead to 2025, the Fed faces a delicate balancing act. While the direction of monetary policy is clear—rates are expected to move lower—the pace and depth of easing remain uncertain. The Fed must navigate competing pressures, including persistent inflation, a robust labor market, and potential changes in fiscal and trade policies. Policymakers may adopt a more cautious approach in 2025, with projections suggesting a shallower rate-cutting cycle. Current forecasts point to two or three rate cuts next year, leaving the federal funds rate in the range of 3.5% to 4% by year-end.

The U.S. is not alone in grappling with these challenges. The Bank of Canada recently lowered its policy rate by half a percentage point, marking the fastest and deepest rate-cutting cycle among advanced economies. Meanwhile, the European Central Bank (ECB) and the Swiss National Bank also trimmed rates last week, citing downside risks to growth and inflation. These moves highlight the global nature of the current economic environment, where central banks are striving to strike a balance between supporting growth and containing inflation.

Market Performance: The Nasdaq Shines Amid Mixed Results

Amid these developments, the Nasdaq Composite achieved a historic milestone, briefly surpassing the 20,000 mark. This achievement underscores the strength of the technology sector, which has been a driving force behind the market's gains. Notable performers last week included semiconductor companies such as Broadcom, Nvidia, and Advanced Micro Devices, which benefited from robust demand and positive earnings results.

In contrast, the S&P 500 and Dow Jones Industrial Average faced headwinds, with the S&P posting a fractional decline and the Dow dropping nearly 2%. Large-cap growth stocks outperformed their value counterparts, continuing a year-long trend that has seen growth equities dominate. This dynamic was evident in the performance of key growth names like Tesla and Alphabet, which delivered double-digit gains last week.

Despite these gains, market breadth remains a concern. The Russell 2000 Index of smaller-cap stocks underperformed the S&P 500 for a second consecutive week, reflecting uneven participation in the rally. Sector performance was similarly mixed, with communication services and consumer discretionary leading the way, while other sectors lagged.

Inflation and Labor Market Dynamics

The interplay between inflation and labor market trends remains a focal point for policymakers and investors alike. While headline CPI ticked higher to 2.7% in November, the underlying trend suggests a deceleration in price pressures. Producer price inflation, which often serves as a leading indicator, rose by just 0.4%, and leading indicators point to a moderation in future inflation.

On the labor front, the past week's data painted a mixed picture. Initial jobless claims surged to a two-month high, raising concerns about potential softening in the labor market. Continuing claims also climbed, suggesting that unemployed individuals are taking longer to find jobs. These developments, combined with a slight uptick in the unemployment rate in November, indicate a cooling labor market that may provide the Fed with additional justification for easing monetary policy.

The Strength of the U.S. Dollar and Its Implications

The strength of the U.S. dollar has emerged as a defining feature of the current economic environment. Divergent monetary policy paths between the U.S. and other major economies have bolstered the dollar against a basket of currencies, providing both opportunities and challenges. On the one hand, a strong dollar makes imported goods cheaper, helping to moderate inflation. On the other hand, it poses headwinds for U.S. exporters and multinational companies, which must contend with reduced competitiveness abroad.

From an investment perspective, the dollar's strength has supported U.S. equities, which tend to outperform during periods of currency appreciation. However, it has weighed on international and emerging market stocks, contributing to their relative underperformance.

Investor Sentiment and Market Outlook

Investor sentiment has remained buoyant, supported by strong economic data and the prospect of pro-growth policies following the U.S. presidential election. The NFIB Small Business Optimism Index recorded its largest monthly jump in three decades, reflecting renewed confidence among business owners. Capital spending, which had been delayed due to election uncertainty, is expected to rebound, potentially sustaining economic momentum into 2025.

However, elevated sentiment comes with risks. As expectations rise, the market becomes more vulnerable to periodic disappointments. The third year of a bull market is historically choppier, and with borrowing costs expected to remain relatively high, valuations may face limitations.

Conclusion: A Winning Formula Amid Uncertainty

As we close the year, the U.S. financial markets continue to demonstrate resilience in the face of uncertainty. The winning formula—comprising strong economic growth, rising corporate profits, moderating inflation, and monetary easing—remains largely intact. While challenges lie ahead, including the potential for slower disinflation and a more cautious Fed, the backdrop remains broadly supportive of balanced and diversified portfolios.

Looking ahead, the direction of monetary policy, the trajectory of inflation, and the health of the labor market will be key determinants of market performance. For investors, the focus should remain on long-term fundamentals, with an eye toward managing risks and capitalizing on opportunities in a dynamic and evolving landscape.

Futures Markets Snapshots

S&P 500: Sector Insights