Welcome to this week’s edition of our market insights! We have plenty to cover, from the stock market’s performance to cryptocurrency trends, macroeconomic forecasts, and more.

🌷 “Tulips Growing” – A Look at Market Trends

• High Short Interest vs. S&P 500: Since the stock market lows in early August, there’s been a remarkable trend. Stocks with high short interest have outperformed the S&P 500 by 25%, driven largely by retail investors. This echoes previous periods of market euphoria.

  

  S&P 500 vs High Short Interest Index.

   

• Valuation Concerns: While some are excited by these high flyers, caution is warranted. History suggests that overextended stocks often face a correction.

  

  S&P 500 Forward P/E ratio – Source: J.P. Morgan

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📅 Weekly Market Performance Highlights

• S&P 500 & NASDAQ: Both indexes rose by 1.7% this week, driven by seasonality and inflows into passive investments. The coming weeks traditionally favor a bullish trend as we approach the year-end.
• Cryptocurrency Surge: Bitcoin continues its parabolic rise, nearing the $100,000 mark. Similarly, gold has rebounded, and oil (WTI) trades above $70.
• Dollar Strength: The U.S. Dollar gained nearly 1% this week, partly due to weaker economic signals from Europe, highlighting a shift in global economic expectations.

📉 Sector and Industry Movements

• Market Broadening: There’s an expansion beyond the tech-heavy “Fabulous Seven.” Industrials, materials, and other cyclical sectors have outperformed the broader market.

  

   

• Interest Rates & Fed Outlook: The U.S. 10-year Treasury yield remains around 4.42%. With inflation expectations stabilizing, the Federal Reserve is less likely to maintain aggressive rate hikes. The December meeting will be crucial, with a 50/50 chance of a 25 basis point adjustment.

📊 Key Charts & Analysis

• Euro vs. Dollar: The Euro dropped to 1.035 amid weaker European economic data, while the U.S. economy remains relatively strong. The yield differential between U.S. and European bonds underscores this divergence.

  

  U.S. 2y – EUR 2y (lhs) vs EURUSD (rhs inverted)

• NVIDIA’s Earnings Surprise: Despite solid financials, NVIDIA’s stock saw mixed reactions post-earnings. This reflects broader market dynamics, with investor focus shifting from earnings to macro factors.

📆 Looking Ahead: Key Catalysts

• Thanksgiving Week Trends: Historically, the Thanksgiving week is bullish, with the S&P 500 typically gaining about 0.8% to 0.9%. This seasonal pattern is expected to continue, although recent market strength may temper gains.

  

  S&P 500 Thanksgiving week Performance.

• December Options Expiry: There’s a significant options setup for mid-December, particularly around the 615 level on the SPY, suggesting potential for a 3-4% market move.

  

  SPY 20 Dec 2024 Open Interests

• Macro Events & Earnings: Key economic data and earnings next week include U.S. GDP, PCE inflation, and regional PMI reports. Notable earnings to watch are Dell, Crowdstrike, and HP, particularly for insights into AI-driven trends.
• MSTR MicroStrategy crazy week in one chart:

  

  Weekly Volume in B $ – Source: Eric Balchunas.

📈 Passive Investing & Inflows

• The market’s recent rise is largely due to consistent daily inflows, suggesting a mechanical, rather than fundamentally driven, uptrend. Watch for shifts in ETF flows and options trading as a gauge of sentiment.

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Have a great trading week!

Greg

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