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: From AI to Sustainability: 10 Investment Themes for 2025 to Keep on Your Radar

• 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 META, AVGO, PLTR, ULTA, TPR, GMED, APO

• 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

A Modest Rate Cut with a Hawkish Twist

The Fed delivered a widely expected quarter-point rate cut at its December meeting, lowering the federal funds rate to a target range of 4.25%–4.5%. This marked the culmination of a year-long cycle of monetary easing that has reduced rates by a full percentage point from their September peak of 5.5%. However, it was the Fed’s projections for 2025 that captured market attention and sparked volatility.

The updated dot plot revealed a scaled-back pace of rate cuts, with only two reductions expected in 2025 compared to the four outlined in September. This cautious outlook reflected concerns about lingering inflation and uncertainty surrounding tariff policies, both of which could shape the trajectory of the economy in the coming year. Powell underscored these factors, noting that while inflation has moderated significantly from its pandemic-era highs, it remains above the Fed’s 2% target. Core personal consumption expenditure (PCE) inflation is now projected to reach 2% only by 2027, suggesting a long runway for achieving price stability.

Adding to the uncertainty are potential changes in trade and tariff policies under the incoming administration. Powell acknowledged these policy shifts could have meaningful, though difficult-to-predict, effects on inflation and economic activity.

Markets React: Bond Yields Rise, Stocks Stumble

Markets were swift in their response to the Fed’s updated projections. Bond yields climbed sharply, with the 10-year Treasury yield rising above 4.5%, reflecting reduced expectations for aggressive rate cuts. The yield increase also mirrored stronger economic growth and persistent inflation prospects. Equities, meanwhile, faced a sell-off, with the S&P 500 experiencing its second-worst day of the year, declining nearly 3% following the Fed’s announcement.

Market breadth—a measure of the proportion of stocks trading above their 50-day moving averages—deteriorated sharply during the week. By Thursday, just 21% of S&P 500 components traded above this threshold, down from 70% at the end of November. This decline in breadth underscores the outsized influence of a handful of mega-cap stocks, particularly in the technology, communication services, and consumer discretionary sectors, on recent market gains.

The hawkish tone of the Fed’s December meeting served as a reset for market expectations, bringing them more in line with the Fed’s cautious outlook. According to the CME FedWatch Tool, markets are now pricing in just one rate cut for 2025, leaving room for potential surprises should the Fed adopt a more accommodative stance.

Economic Fundamentals Remain Resilient

Amid the volatility, the Fed offered a reassuring view of the economy’s health. Updated projections pointed to better-than-expected growth and a robust labor market. U.S. GDP is now forecasted to grow by 2.1% in 2025, up from 2.0% in the September projection, while the unemployment rate is expected to edge lower to 4.3% from the prior estimate of 4.4%. These figures reflect a resilient consumer and a labor market that has weathered the Fed’s restrictive policy stance.

Recent economic data reinforce this narrative. Third-quarter GDP growth was revised upward to an annualized 3.1%, driven by robust consumer spending, which grew at a healthy 3.7% pace. The Fed’s GDP-Now forecast suggests fourth-quarter growth will remain strong at approximately 3.2% annualized, well above the historical trend range of 1.5%–2.0%. Retail sales figures for November also exceeded expectations, rising 0.7% after a 0.5% gain in October, signaling continued consumer strength.

Inflation: Progress with Persistent Challenges

Inflation continues to be a central focus for policymakers. While recent data suggest progress, core PCE inflation remains elevated at 2.8% year-over-year, slightly below consensus expectations but still above the Fed’s long-term goal. Headline PCE inflation, which includes food and energy prices, also rose 2.4%, below the Fed’s 2025 forecast of 2.5%.

Notably, the inflationary dynamics are shifting. Goods inflation showed signs of cooling, with a month-over-month decline in prices. However, services inflation remains the primary driver of PCE, underscoring the challenge of achieving a broad-based disinflationary trend. Powell emphasized that the Fed will remain cautious as it assesses incoming data, balancing the risks of entrenched inflation with the need to support economic growth.

Political Uncertainty Clouds the Outlook

Complicating the economic picture is the looming threat of a government shutdown. As Congress struggled to pass a temporary funding measure, investor sentiment wavered. While shutdowns have historically had limited market impact, prolonged disruptions could weigh on sectors reliant on federal spending, such as defense contractors and insurers. Moreover, political gridlock may pose challenges to the incoming administration’s pro-growth agenda, particularly on issues such as tax reform and infrastructure investment.

Opportunities Amid Volatility

Despite the market turbulence following the Fed’s hawkish pivot, long-term investors have reason to remain optimistic. The underlying drivers of the ongoing bull market—strong corporate earnings, resilient consumer spending, and innovation-led growth—remain intact. With the S&P 500 up approximately 24% year-to-date and the Dow Jones Industrial Average posting a 14% gain, markets have delivered robust returns in 2024, even after factoring in the recent pullback.

Bond markets, too, present opportunities. Elevated yields in the investment-grade bond market, particularly in the seven- to 10-year segment, offer attractive entry points for balanced investors looking to reallocate cash holdings. The combination of higher yields and moderated rate-cut expectations could provide a favorable environment for fixed-income strategies in 2025.

Looking Ahead: A Year of Transition

As the Fed navigates its dual mandate of price stability and full employment, 2025 is shaping up to be a year of transition. While the direction of interest rates is clear—lower in the medium term—the pace and magnitude of cuts will depend on the interplay of inflation, economic growth, and policy uncertainty. For investors, this evolving landscape underscores the importance of diversification, discipline, and a long-term perspective.

Market volatility, though unsettling in the short term, can create opportunities to rebalance portfolios, add quality investments, and position for growth in the years ahead. As Powell aptly noted, the U.S. economy remains “in a really good place,” providing a solid foundation for navigating the challenges and opportunities of the year to come.

Futures Markets Snapshots