Slow week ahead of the Fed’s decision 16/12/2024

HOT stories for today

US market wrap:

• The stock market wrapped up a sluggish week, with the Dow declining 1.8% and posting losses for seven consecutive sessions. The S&P 500 fell 0.64%, retreating in four of the past five sessions, while the Nasdaq Composite outperformed slightly, managing a 0.34% gain for the week.  On Friday, Broadcom became the latest entrant to the elite trillion-dollar club.
• Meanwhile, the gap between two key stock market indices widened, with the equal-weighted S&P 500 continuing to diverge from its market-cap-weighted counterpart. Nvidia's shares remain under pressure amid a downturn in semiconductor stocks. At the same time, FartCoin made headlines with its most dramatic move of the week—briefly soaring to a market cap exceeding $640 million. This week's primary focus is on the Federal Open Market Committee meeting on Tuesday and Wednesday, where Federal Reserve officials are widely anticipated to cut the benchmark interest rate once more.

Correction: This year or the next?

• The stock market has surged 27% leading up to the Federal Reserve’s final meeting. But is a market correction imminent? Wall Street’s holiday optimism has waned, with stocks cooling off last week as investors brace for the Fed’s anticipated interest rate cut. As U.S. indices showed their first signs of weakness in quite some time, doubts about the market's resilience began to surface. The Dow extended its longest losing streak since early 2020, while the S&P 500 and Nasdaq also struggled to maintain momentum.
• Market watchers are also eyeing a potential correction, given the lack of significant pullbacks since October 2022. Talley Leger, chief strategist at the Wealth Consulting Group, predicts year-end gains from seasonal cheer but warns of possible turbulence in 2025. Adding to investor caution, megacap tech stocks dominate the S&P 500’s performance, underscoring the rally’s uneven foundation.  This week’s spotlight is on the Fed, expected to cut rates by 25 basis points on Wednesday. However, inflation concerns and rising Treasury yields could complicate the path forward. Can the Fed balance rate cuts with its inflation fight, or will higher yields disrupt markets further?

Stocks on the move:

• Super Micro Computer (SMCI, -5%): The struggling server manufacturer has enlisted Evercore Inc. to help raise capital and strengthen its financial position. 
• Western Digital (WDC, -1%): CEO David Goeckeler noted that the data storage solutions provider is facing greater-than-expected pricing challenges this quarter. 
• Upstart Holdings (UPST, +10%): Needham upgraded the AI-driven lending platform from Hold to Buy, assigning a $100 price target, suggesting a 15% upside. 
• Affirm (AFRM, +3%): The buy-now-pay-later firm announced a major capital partnership with Sixth Street, representing its largest funding commitment to date at $4 billion.

Today’s action

• Asia-Pacific markets mostly declined on Monday, reversing earlier gains as investors turned their attention to significant central bank decisions this week, including the Bank of Japan (BOJ) and the People’s Bank of China (PBOC). The BOJ is expected to hold interest rates steady during its Thursday announcement, while the PBOC is set to release its loan prime rates on Friday. Meanwhile, traders are digesting a flurry of economic data from China, including November figures for industrial production, retail sales, and home prices.
• European markets are gearing up for a mixed open, with traders focused on the Federal Reserve’s upcoming policy meeting. U.S. stock futures showed little movement early Monday, with the Dow Jones Industrial Average futures reaching 49 points, or about 0.1%. S&P 500 and Nasdaq 100 futures hovered slightly above the flatline.Investors are also eyeing preliminary purchasing managers index (PMI) data, which will be released before the market opens. MicroStrategy shares may see action on the corporate front after the bitcoin proxy was named a new addition to the Nasdaq 100 index.

Wahtclist: AVGO, UPST, AFRM, META, NVDA, SMCI, COIN

Bitcoin

• According to Coin Metrics, Bitcoin surged to a new all-time high above $106,000 on Sunday evening, gaining over 4% to $105,207 and briefly reaching $106,509. Ether also rose 4%, approaching the $4,000 mark, while the broader crypto market gained 4%, as measured by the CoinDesk 20 index. The rally comes ahead of the Federal Reserve’s policy meeting this week, where a widely expected 25-basis-point interest rate cut could provide further support for Bitcoin.
• Investors see lower interest rates as a positive for Bitcoin, which often trades like a tech stock and benefits from a weaker dollar and increased money supply. The cryptocurrency is now up 8% for the month, 50% since the U.S. presidential election, and 145% year-to-date. Optimism surrounding a more favorable regulatory environment and discussions of a potential national strategic Bitcoin reserve under the incoming Donald Trump administration have further fueled its momentum. As Bitcoin’s rally accelerates amid these macroeconomic and regulatory shifts, could it signal the start of a broader transition for cryptocurrencies into mainstream financial markets? 
  Watchlist: Bitcoin: 90 000-106 000, Ethereum: 3000-3923, Solana: 220-265

Forex

• EUR/USD began the week on a strong note, trading near 1.0520 during Monday’s Asian session. The Euro's gains were supported by a weaker US Dollar (USD) and soft US Treasury yields, as markets brace for the Federal Reserve’s expected 25-basis-point rate cut on Wednesday. The CME FedWatch tool reflects near certainty of the cut, adding pressure to the USD. Additionally, the Euro found support after French President Emmanuel Macron named centrist ally François Bayrou as Prime Minister.
• In contrast, the Japanese Yen (JPY) extended its decline against the US Dollar for a sixth straight session, briefly touching a three-week low before recovering slightly during the Asian trading hours. The Yen remains under pressure as markets widely anticipate the Bank of Japan (BoJ) will hold interest rates steady this week. Elevated US bond yields are also driving demand away from the low-yielding Yen.
  Watchlist: EUR/USD: 1.0300-1.0650, USD/JPY: 149-157

Basic Materials

• Gold prices staged a modest rebound on Monday after hitting a one-week low near the $2,644-$2,643 range during the Asian session. However, the yellow metal struggled to sustain its recovery, weighed down by expectations of a less dovish Federal Reserve (Fed). Market participants increasingly believe the Fed will take a cautious approach to rate cuts next year, as progress in bringing inflation closer to the 2% target appears to have stalled. This outlook supports elevated US Treasury yields, creating headwinds for non-yielding gold. Geopolitical tensions and softer US bond yields, however, provide some support for the safe-haven XAU/USD.
• Meanwhile, West Texas Intermediate (WTI) crude oil prices corrected lower, trading around $70.50 per barrel during the Asian session on Monday, after gains in the previous session. The rise in crude prices was driven by growing expectations of tighter global supply, fueled by potential new US sanctions on "dark fleet" tankers and Chinese banks to curtail Russia's oil revenue. Additionally, ongoing sanctions on Iran and Russia contribute to supply concerns.
  Watchlist: GOLD 2530-2790, US Oil: 65.00-73.00

The TEFS Analyst team wishes you a successful day!