ANGLES.

Over the weekend, Trump fired off yet another tariff broadside on his way to the Super Bowl. This time he floated the idea of a 25% surcharge on steel and aluminum imports from anywhere in the world, but which would disproportionately impact Canada and Mexico.

Wall Street seemed to have got into a mode of treating what it regarded as Trump’s posturing as just smoke and mirrors until actual policy is implemented and stocks moved nicely higher on Monday, choosing instead to focus on the solid economic data and a generally positive earnings environment. Tech and AI led the way.

After the market close, Trump signed off on the 25% steel and aluminum global tariffs with no exceptions to begin on March 12th, calling it “the first of many” and reiterating that Canada could avoid the pain by becoming the 51st state.

Tuesday dawned with Wall Street in a bit of a different mood. Finally, here was actual tariff implementation, albeit very product-specific. Stocks stumbled out of the gate and interest rates shifted higher.

Fed chairman Powell was grilled in Congress by grandstanding senators on the Senate Banking Committee and predictably ran circles around his amateurish inquisitors, characteristically giving nothing away and saying that he does “not see any reason to be in a hurry” to cut the Fed Funds rate. Nothing new there, then.

Interest rates inched further upwards in response to his remarks and stocks choppily recovered as the session went on to finish the day barely changed.

On Wednesday morning we got the latest reading on the Consumer Price Index (CPI) measure of retail inflation. It came in hot, accelerating by more than in any single month since August 2023 to an eight-month high of 3.0% annualized, with housing, food, air travel and new/used car price inflation all moving higher by more than expected. And all this before the inevitable effect of tariffs kicks in.

Any remaining prospect of imminent rate cuts was shattered and the specter of the next move from the Fed actually being an interest rate increase began to come into focus. Markets freaked out at the opening bell. Interest rates ripped higher and stocks dumped. Tech and Small Caps were particularly pummeled.

A calm, unruffled Powell gave another star turn in front of a different set of clueless clowns in Congress and reassured markets which spent the day recovering from their early morning inflation-inspired meltdown. The NASDAQ round-tripped back to actually end the session fractionally in the green while the S&P 500 finished only slightly negative. Bonds, however, made no such recovery as interest rates remained elevated all day, particularly the 10-year Treasury rate, which determines mortgage rates.

The Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers came out on Thursday morning and confirmed the pick-up in inflation indicated by CPI. Nevertheless, interest rates pulled back a little and stocks rose on the back of yet another positive print on Weekly Jobless Claims.

Later in the day, Trump signed a memo ordering a study to look at options for imposing tariffs on a country-by-country basis. But rather than shine any light on the tariff outlook, the action left many unanswered questions about the timing and extent of the levies. Clarity on the matter was as elusive as ever.

Markets had, however, been led (by the president’s own morning social media posts, no less) to fear a possible immediate imposition of global tariffs. This mellow, half-measure fudge caused a sigh of relief on Wall Street and failed to put a dent in the continued upward momentum in stocks and the drift back lower in interest rates as the major indexes moved back within sight of new all-time high territory yet again.

On Friday morning, we learned that January’s Retail Sales fell by more than forecast, not good news for GDP although previous months’ data was revised upwards. This poked some holes in the long-held thesis of the resilient American consumer.

The tariff bluster never ends; Trump announced in the afternoon that unspecified automobile tariffs would go into effect sometime in April. As things stand, only one tariff (the 10% additional one on China) is in place despite the firehose of threats and announcements since the inauguration.

Wall Street is simply not taking the president seriously right now. It shrugged off his words (and the poor Retail Sales data) and basically took the day off as the indexes went nowhere over the course of the session to finish the week a touch higher. Interest rates continued their downward retracement, completely erasing the big spike of earlier in the week.

Can stocks rally if we keep getting these tariff threats and headlines? I think there’s a world in which they can, but it’s going to require almost universally positive news from the remaining bullish factors of i) stable economic growth (i.e., a soft landing), ii) ongoing Fed rate cuts and zero risk of a hike, iii) Big Tech/AI earnings growth/leadership and iv) an enduring hope of tax cuts.

While the incessant noise brought about by tariff headlines goes on, we should expect a choppy, volatile but basically sideways-trending market that doesn’t meaningfully or sustainably rally or decline until the news flow becomes consistently positive or negative.

OTHER NEWS ..

Give Peace A Chance? .. The prospects of the end or at least significant de-escalation of conflicts in the Middle East and Ukraine is generally viewed as a potential positive for world stock and bond markets but the devil is in the details. America is in a mode of talking, not listening.

The scenario of a Trump-driven forced Ukrainian surrender without the participation of any European negotiators and a welcoming back of Putin’s Russia into the global community, for instance, could well bring an end to the European energy crisis but longer term security concerns could be very problematic.

On Friday, U.S. vice-president Vance took a bit of time off from hanging out with German neo-Nazis to stand up in front of European military, business and political leaders in Munich supposedly to provide some details of the so-called Ukraine peace plan, but he ended up just berating his audience for some of their domestic internal policies that he happens not to like. Not a great start.

There is a strong push-me-pull-you effect going on here, but negotiations about Ukraine have not yet formally started and the Middle East ceasefire is fragile and we can expect upcoming volatility in markets, particularly in oil and natural gas prices, while the narratives develop in terms of both of these conflicts, which have become completely stalled over recent years.

Green Lights .. Trump’s more head-scratching cabinet picks are being waved through by a compliant Congress majority. Anti-vaxxer and all-round strange person Robert Kennedy is now in charge of Health and Human Services. The darling of Russian media and friend of the Assad regime in Syria, Tulsi Gabbard, is Director of National Intelligence. The FBI will be headed by Kash Patel, who has alternately promised to close the agency down and to weaponize it against Trump’s political opponents and “come after” journalists.

The Kennedy pick, in particular, is sending shivers through the healthcare sector (it’s no coincidence that it was the worst-performing sector in the S&P 500 last week) with a sense that the fox has been put in charge of the henhouse.

ARTICLE OF THE WEEK ..

Is $1 Million Still A Lot Of Money?

THIS WEEK’S UPCOMING CALENDAR ..

U.S. markets will be closed on Monday for Presidents Day.

Walmart, Alibaba Group Holding, Medtronic, Arista Networks, Block, Booking Holdings, Newmont, Devon Energy and Occidental Petroleum report this week.

What should be quite interesting minutes from the Fed's late January meeting will be published on Wednesday afternoon.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Technology (two biggest holdings: …

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit simonbrady.substack.com

Trump ushered in what the Wall Street Journal called “the dumbest trade war in history” at the weekend when his administration imposed punitive tariffs on a wide range of products from Canada (25% on non-energy goods and 10% on energy), Mexico (25%) and China (an additional 10% on already-existing tariffs) which were set to take effect on Tuesday. There was instant retaliation in kind within hours from Canada, with the other two countries predictably vowing swift responses of their own.

Ritholtz’s Callie Cox gives a comprehensive, easy-to-read overview of how tariffs work and what they could mean here.

Global financial markets had held out hope that these tariffs weren’t going to be announced and acted completely dismayed when they were. Stock markets plunged in Asia and Europe and the price of oil and the U.S. Dollar exploded higher.

U.S. investors were braced for more bloodletting in risk assets at the opening bell on just another manic Monday and they got it, albeit briefly. The S&P 500 dumped over 1.6% in a couple of minutes with the NASDAQ and Small Caps doing even worse. Crypto plummeted, gutting the baseless theory that cryptocurrency can act as some kind of tariff hedge.

Within a hour of the opening bell, however, it was announced that the Mexican tariffs would be delayed by a month, following contact between Trump and Mexican president Sheinbaum.

Stocks partially rebounded on the news and then held steady, pending a Trump/Trudeau call later in the day, but still closed lower for the session. That phone call resulted in another 30 day tariff pause, announced as markets were closing, leaving China as the only tariff victim. The Chinese retaliated with a rather muted set of levies against the U.S. to go into effect on February 10th, clearly banking on a Mexico/Canada-style deferral in the meantime.

The tariff climbdown boosted markets in Asia and Europe and when U.S. markets opened on Tuesday, stocks moved higher, led by tech names, to almost fill the gap caused by Monday’s losses. After the close, however, Alphabet/Google disappointed with revenue coming in lower than anticipated and capital expenditure blowing through estimates. The stock got butchered in the after-market. AI giant Advanced Micro Devices (AMD) suffered a similar fate after an equally alarming earnings report.

While trade tensions are not at boiling point, they are still on a low simmer that warrants careful attention and it was this sense, along with the soft earnings reports from the night before, that pushed prices lower on Wednesday morning.

Markets shrugged off as just blowhard noise the whole U.S. annexing of Gaza thing and the bizarre (but thankfully brief) suspension of all mail deliveries to the U.S. from China and Hong Kong and stocks spent the rest of the day gently recovering. By the closing bell, the indexes were lightly in the green and longer term interest rates had sunk further.

The Bank of England voted for a quarter-point cut in local interest rates ahead of the U.S. open on Thursday, but presented a toxic outlook of slashed growth projections and a prospect of higher inflation. A slow but steady upward drift in U.S. stocks continued ahead of the big Jobs Report the next day, resulting in another small gain for the indexes. After hours, Amazon disappointed just like Google, falling short of sales and profit expectations and capital expenditure much higher than anticipated. The stock was punished in a similar fashion.

The hugely important latest Jobs Report for January was released pre-market on Friday morning and produced a slight downside surprise of +143k new payrolls, wages moved a little higher and the unemployment rate fell from 4.1% to 4.0%. This evidence of a still super-charged economy pointed towards almost zero pressure on the Fed to cut interest rates any time soon and a strong narrative is rapidly growing that we may well see no rate cuts at all in 2025.

This increasingly pessimistic outlook for a lower Fed Funds rate (see FEDWATCH INTEREST RATE TOOL below) drove shorter term interest rates higher and stocks slumped. They weren’t helped by data suggesting that consumer sentiment is falling sharply. Consumers and investors are rightly concerned by all the tariff talk and chaotic governance and are losing confidence in any continuation of U.S. economic outperformance. The indexes finished the day and the week in the red.

There’s little-to-no room for legitimate disappointment on growth or earnings and tariffs are a major threat to both. Wall Street is underrating the risks right now because it simply does not believe Trump’s rhetoric about meaningfully imposing them. As such, there is definite downside risk for stock prices if it turns out that he actually follows through.

OTHER NEWS ..

Year Of The Little Guy? .. The volatile start to the year has spooked some professionals but has done little to dampen retail traders’ enthusiasm for the stock market and particularly the so-called Magnificent 7 companies. Mom-and-pop investor sentiment has reached the highest level on record, surpassing even what was seen during the meme-stock mania in 2021. Individual investor exposure to stocks is near the highest level its been since 1997.

Even as US stocks got battered on Monday by Trump’s tariff gymnastics, retail investors continued to buy in. They poured $3 billion into stocks that day and then broke the $2 billion threshold within the first 1.5 hours of trading on Tuesday — the largest inflow at that time of the trading session dating back to 2015. About 70% of the inflow went to Magnificent 7 stocks that day.

Americans Are Slapping Down The Plastic Like Never Before .. U.S. consumer debt outstanding unexpectedly surged by the most on record in December, reflecting massive increases in credit-card balances and non-revolving credit.

Total credit jumped $40.8 billion, according to Federal Reserve data released on Friday. The figure topped all estimates. Outstanding credit-card and other revolving debt increased $22.9 billion in December. Non-revolving credit, such as loans for vehicle purchases and school tuition, climbed $18 billion, the most in two years.

The delinquency rate has risen, too, with about 3.5% of card balances past due by 30 or more days and 1.8% of accounts showing as delinquent. Both figures are more than double the post-pandemic lows recorded in 2021.

ARTICLE OF THE WEEK ..

Maybe The Only Chart You Need To Understand 2025

THIS WEEK’S UPCOMING CALENDAR ..

The latest inflation data and another barrage of earnings reports will be the highlights this week.

On Wednesday, we will get to see the Consumer Price Index (CPI) measure of retail inflation for January. With the Federal Reserve's interest rate cuts on hold, investors will be looking for signs of renewed progress in slowing inflation. The following day, the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers will be released

We also get the latest Retail Sales numbers on Friday.

Companies reporting their Q4 2024 earnings this week include McDonald’s, Coca-Cola, Cisco, Moderna, Airbnb, Shopify, AMD, Super Micro Computer, Robin Hood, Coinbase, Deere, Marriot, Doordash, Wynn Resorts and Ventas.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Real Estate (two biggest holdings: Prologis, Equinix) ⬆︎ 1.5% for the week.

Last week’s worst performing U.S. sector: Consumer Cyclical (two biggest holdings: Amazon, Tesla) ⬇︎ 2.8% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price fell 0.3% last week, is up 2.6% so far this year and ended the week 1.4% below its all-time record closing high (01/23/2025).

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price fell 0.2% last week, is up 2.3% so …

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Jitters caused by yet another example of Trump tossing a hand grenade into a room and not worrying about the clean up until afterwards with the whole Colombia fiasco over the weekend ended up not being the main driver of prices on Monday morning.

That honor went to Chinese startup DeepSeek which announced that it is producing cutting-edge AI with minimal costs and no next-gen chips, potentially derailing the investment case for the entire AI supply chain, puncturing the sense of American exceptionalism in tech and maybe even undermining the bullish justification for the entire stock market rally dating back to late 2022.

The result was a total tech wreck. Nvidia plunged by 18%, Broadcom nose-dived by nearly 20% and the carnage extended to many other corners of the tech and AI market, as well as to the recently-surging Energy and Utilities sectors. Crypto markets collapsed. Bond prices surged, pushing interest rates lower as investors sought a safer haven for their money.

A knee-capping of the growth engine that has been the Magnificent Seven stocks and a bursting of the AI bubble has long been Wall Street’s biggest nightmare scenario and the tech-heavy indexes crashed at the open, with the NASDAQ quickly breaking down by almost 4% and the S&P 500 (with a 34% weighting to the Mag 7 stocks) by over 2%.

While things calmed a bit later in the session, the S&P 500 was still 1.5% lower by the close, with the NASDAQ down by double that percentage. Almost a trillion dollars was wiped off stock valuations over the course of the day including an almost $600 billion loss in Nvidia alone (greater than the entire value of Exxon-Mobil), a new record for a one-day loss in value by any company.

Stocks including Nvidia and other battered risk assets benefited from some very active bargain-hunting on Tuesday. The major indexes clawed back about two-thirds of what they lost in Monday’s bloodbath on the back of a sense that markets had maybe overreacted to the whole DeepSeek thing (ya think??).

Fed Decision Day arrived on Wednesday with Trump chest-thumping in advance of the interest rate announcement that he was much smarter than anyone at the Fed and reiterating his demand that the independent central bank lower interest rates.

As anticipated, his demand was roundly ignored by the interest rate-setting committee who are clearly taking a wait-and-see, data-dependent approach to inflation and the Fed Funds rate was left unchanged. It was up to chairman Powell to communicate the Fed’s future intentions at a potentially feisty press conference.

He did his very best to project a sense of “nothing to see here” but the financial press pack wasn’t buying it, firing question after question about the new political environment and how the Fed was going to respond, but Powell deflected them all.

The stock market reaction was muted, mainly because attention had swiftly turned away from the information vacuum that was the Powell press conference to a big slate of earnings reports coming after the closing bell and indexes finished marginally lower for the session. Bond traders gained no clarity about where Fed policy is headed and interest rates ticked a little lower.

Microsoft showed a big miss on its cloud business and Tesla once again failed to meet revenue estimates but offered somewhat rose-tinted forward guidance. Both stocks were initially punished in the after-market, driving Tesla’s price at one point below where it was in late 2021 before recovering. The assessment of Meta/Facebook’s numbers was pretty meh, but markets were impressed by old-school IBM.

None of the results were surprising enough to meaningfully impact broader markets on Thursday morning even after the European Central Bank cut local interest rates by 0.25%, the latest U.S. Q4 2024 Gross Domestic Product (GDP) estimate came in a little lower at 2.3% and weekly Jobless Claims were better than expected. Stocks drifted steadily higher for most of the session until Trump upset the apple cart by insisting that his punitive tariffs of 25% on Mexico and Canada and 10% on China will indeed be unleashed on Saturday and the indexes settled for only slight gains.

After the close, Apple handily beat estimates for revenue and profit and issued an optimistic short term outlook but the company continues to struggle with its iPhone sales in China. The stock moved higher when markets opened on Friday, strengthening the NASDAQ index where Apple is the largest holding. The early positive momentum was helped by no bad surprises from the latest Personal Consumption Expenditures (PCE) inflation measure which showed a still-muted rate of 2.6%.

But things turned ugly later in the day as tariff concerns kicked in when the White House again confirmed Trump’s plans and fears grew about how the following 36 hours would play out. Probably the country’s most influential economist right now, Claudia Sahm, said on Bloomberg TV that “even talking about tariffs can cause inflation” .

Stock prices immediately tumbled to finish Friday in the red and bring an eventful week to a close on a losing note with the promise of more tariff-driven chaos and volatility to come when markets open again on Monday morning.

OTHER NEWS ..

Now Hiring .. Musk’s Department of Government Efficiency has set up a job site to recruit software engineers and tech staffers. Key requirements on your resume: Applicants must be US citizens, agree to work in-office in Washington, DC and provide up to three examples of “exceptional ability.” If for some bizarre reason, you fancy the idea of working for Musk, you can click here to apply.

Holy Guacamole .. Americans’ love of guacamole is about to be put to the test. Mexico supplies over 90% of the avocados Americans eat, and Trump is likely to make them a lot more expensive with his plan to slap 25% tariffs on Mexican imports as early as this weekend. Exacerbating the situation is that a drought in Mexico shrank the recent harvest and reduced the average size of the crop, meaning there are fewer of the large avocados that Americans prefer.

Prices for avocados are already up 14% from a year ago. A key date on the avocado calendar is coming up next weekend with the Super Bowl, which is by far the biggest day of the year for eating avocados in the U.S.

Another Criminal Release? .. The parents of convicted fraudster Sam Bankman-Fried are apparently looking at ways to secure a pardon from crypto fanboy Trump for the one-time billionaire, holding meetings with figures considered to be in the president’s orbit agitating for the release of their son. The 32 year-old was convicted of fraud last year and sentenced to 25 years in prison. It may not be as outlandish as it seems as a thousand insurrectionists as well as Ross Ulbricht, founder of the black market drug and sex trafficking enterprise, Silk Road, are now walking free courtesy of Trump.

ARTICLE OF THE WEEK ..

What do you think the long term historical annual returns are for stocks, real estate, bonds, gold and cash? How do they stack up against each other?

Have a guess and then take a look at this article and see how you did.

THIS WEEK’S UPCOMING CALENDAR ..

It’s jobs week again and there’s another heavy slate of Q4 2024 earnings reports coming up this week. About one in four S&P 500 companies are scheduled to report, including Amazon, Alphabet/Google, Disney, PepsiCo, Novo Nordisk, Pfizer, Uber, Eli Lilly, Philip Morris, Qualcomm, Palantir, AMD, Honeywell, Conoco Phillips, Ford, PayPal, Expedia, Tyson Foods, Spotify and Chipotle.

On Tuesday, we get to see the latest Job Openings and Labor Turnover Survey. The Jobs Report on Friday is expected to show growth of +165k payrolls and an unchanged unemployment rate of 4.1%.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Healthcare (two biggest holdings: Eli Lilly, UnitedHealth Group) ⬆︎ 1.7% for the week.

Last week’s worst performing U.S. sector: Energy (two biggest holdings:…

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit simonbrady.substack.com

Investor attention was focused on the Capitol in Washington DC on Monday rather than on the New York Stock Exchange which was closed for Martin Luther King Day.

Once sworn in, Trump doubled down on much of his campaign rhetoric in his inaugural address, including some of the more “out-there” proposals, notably promising an expansion of U.S. territorial claims not only on earth but also in space (that had First Buddy Musk bouncing up and down in giddy excitement).

The new president and the Republicans have the wind in their sails with full control of Congress, a MAGA-friendly media ecosystem newly-unshackled from any kind of fact-checking or accountability and fawning fanboy executives of some of the largest U.S. companies bootlicking and kissing the ring. As a result, a blizzard of executive orders (many of which are sure to be the subject of extensive litigation) were issued after the market close. It should be noted that most of these orders tended to light a fuse rather than cause an immediate explosion.

From Wall Street’s perspective, Trump continues to ping-pong between the financially impactful (threatening, rather than imposing, tariffs on Mexico and Canada on day one, notably sparing China and Europe from his plans for the time being and barely a mention on his first day for crypto or the Federal Reserve) and what was nothing more than the tossing scraps of red meat to his voter base (renaming bodies of water and mountains, releasing armed rioters and drug kingpins from prison, declassifying JFK files, TikTok flip-flops, Panama, Greenland, Mars, blah, blah, blah).

The conclusion from traders was that it could all have been much worse on the tariff front and stocks shifted nicely higher in what was essentially a relief rally on Tuesday, also bolstered by a slate of well-received earnings reports. Interest rates drifted a little higher. Crypto bros sulked about being dissed on day one by their new hero and the recent dizzying price spike reversed sharply.

At the unveiling of an AI investment initiative called Stargate featuring Oracle, OpenAI and Softbank (the Japanese bank best known for having poured billions upon billions into the basket case of a company that was WeWork) on Tuesday evening, Trump began oddly riffing on other topics and vaguely floated the idea of a 10% tariff on all Chinese imports, raising eyebrows and lowering stock prices in Asia.

The creation of Stargate (which was, interestingly, heavily slammed by Musk - an avowed enemy of OpenAI and its management), a spectacular earnings report from Netflix and something of a stabilization of interest rates boosted stocks further on Wednesday (particularly tech/AI names) along with a continuing absence of clarity on tariffs, leading Wall Street to maybe start to believe in the possibility that Trump might just be bluffing as a negotiating tactic at least when it comes to the timing and extent of levies.

Yet more solid earnings reports carried stocks higher on Thursday on what was largely a Trump surprise-free day with tumbleweed continuing to blow around when it came to anything concrete on tariffs. The S&P 500 got back to doing what it does best, breaking records again, closing at the index’s first all-time record high of 2025.

Stocks took a breather at the open on Friday with a few less striking earnings reports, including disappointing news out of Boeing and Texas Instruments and traders taking some profits from the week’s gains leading to a slightly soggy ending to what was a respectable holiday-shortened week.

Trump’s ping-ponging continued on tariffs. Just a couple of days after musing about imposing 10% tariffs on China starting on February 1st in front of the world’s press, he told Fox News he’d “prefer not” to have to impose any levies on China at all. Decisiveness and clarity seem as far away as ever.

The lack of any hard tariff news was partially responsible for the rally in stocks last week. But that’s mostly because fears surrounding the extent of tariffs and their timing were probably overblown and not because the associated risks (higher inflation, damaged corporate earnings and slower economic growth) have diminished in any way. Tariff headlines will continue to be a volatility-inducing event for markets until we have full transparency on this administration’s actual plans.

It’s still a relatively small sample size, but the Q4 2024 earnings season has so far been extremely impressive with only a few exceptions. A good number of the big dogs are reporting this week (see THIS WEEK’S UPCOMING CALENDAR below) which may confirm or reverse that, but right now things are looking generally very positive on the earnings front and that is driving stocks higher despite all the other distractions that are flying around.

OTHER NEWS ..

Trump vs. The Bond Vigilantes? .. Speaking on Thursday, hours before the Bank of Japan’s decision to raise local interest rates to their highest level in 17 years, Trump told the Davos mob in a video call that he is going to “demand that interest rates drop immediately” around the world. The benchmark 10 year U.S. Treasury interest rate promptly rose higher. What Jerome Powell and company say this week when the Fed is fully expected to leave rates unchanged and the resulting actions of bond traders is going to be much more consequential. They have far more firepower than Trump can even dream of.

At least Trump’s first-week rhetoric had the healthy effect of diverting attention from the self-absorbed, detached-from-reality grandstanding nonsense spewed at the so-called World Economic Forum at Davos last week, much of which went mercifully under-reported in favor of the never-ending stream of stories pouring out of Washington DC.

New Addicts .. A new type of addict is showing up at Gamblers Anonymous meetings across the country; retail day-traders hooked on the market’s riskiest trades in stocks and crypto. Most of these addicts are younger men, according to report last week from the Wall Street Journal. In a world where buying and selling stocks on apps is as easy as ordering food delivery or buying a t-shirt on Amazon, doctors and counselors say they are seeing a rapidly increasing number of cases of compulsive gambling in financial markets, often with very damaging results, including, in extreme cases, suicide following devastating, life-altering losses.

ARTICLE OF THE WEEK ..

How much does it cost to be entertained by your investments? A lot, it turns out.

THIS WEEK’S UPCOMING CALENDAR ..

A packed agenda of Q4 2024 earnings reports and interest-rate decisions from the Federal Reserve and European Central Bank (ECB) will keep investors focused this week.

The Federal Reserve will announce an interest rate policy decision on Wednesday. Markets are overwhelmingly pricing in no change. All eyes, however, will be on the press conference with Fed chairman Jerome Powell having to answer what will likely be some very pointed questions from the financial press pack.

The ECB is expected to cut its benchmark interest rate target on Thursday.

Earnings season shifts into high gear this week with reports from Apple, Microsoft, Tesla, Meta/Facebook, Exxon- Mobil, Chevron, IBM, Intel, Mastercard, Visa, AT&T, Caterpillar, Southwest Airlines, Starbucks, General Motors, T-Mobile, Lockheed Martin, Comcast, General Dynamics and many others.

This week we will also get the latest estimate of Q4 Gross Domestic Product (GDP) as well as the latest Durable Goods report.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Technology (two biggest holdings: Apple, Nvidia) ⬆︎ 3.9% for the week.

Last week’s worst performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) ⬇︎ 2.1% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price rose 2.7% last week, is up 3.7% so far this year and ended the week 0.3% below its …

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit simonbrady.substack.com

Over the weekend, oil prices rallied to their highest levels in five months, as a fresh wave of US sanctions against Russia’s energy industry threatened to slash supplies from one of the world’s top producers and only added to what is a growing list of financial market worries.

Stock indexes came out of the gate on Monday morning by adding to the losses that have plagued investors so far in 2025, not helped by news of disappointing Apple iPhone sales, Moderna slashing revenue estimates and even Nvidia slipping into the red for the year after Biden’s move to expand AI chip export restrictions to more than 120 countries.

Interest rates began the day by resuming their upward trajectory ahead of upcoming inflation and retail sales data, with no initial sign of any reversal of recent advances. A valiant late day surge in the S&P 500 as interest rates stabilized a little pushed the index slightly into the green by the close but the NASDAQ still finished lower for the session.

The Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers was released pre-market on Tuesday and came in at a better-than-expected annualized rate of 3.3%, even more good news for the economy and even less reason for the Fed to consider cutting interest rates any further.

There was something of a surprising relief rally when the market opened, but the enthusiasm waned as the day wore on as jitters developed about what the CPI release may show and stock prices closed lightly lower.

It was super-busy before the market open on Wednesday morning. We learned as Q4 2024 earnings season got under way that profits at Goldman Sachs more than doubled while JPMorgan and Wells Fargo both posted hefty, forecast-beating increases in profits. For its part, Citibank swung back to profitability.

Traders then finally got to see the latest Consumer Price Index (CPI) measure of retail inflation and it was almost exactly what they had anticipated, with the annualized headline rate at +2.9% and the core rate (excluding food and energy) coming in slightly lower than expected. Under the hood, there were hopeful signs of more muted rises in the prices of shelter, air travel and even eggs.

The futures market-most favored expectation for the timing of the next Fed rate cut immediately pulled back from October to July, although no-one seriously believes that there’ll be any kind of cutting going on at the next Fed meeting at the end of this month.

Wall Street delivered a standing ovation to the inflation bullet-dodge. Interest rates crumbled and stocks blasted higher. There was more good news as word emerged of a possible Middle East ceasefire agreement. It was great day at the office for all the stock indexes which ended the session near their highs of the day.

The early trend of impressive earnings continued on Thursday with upbeat reports from Morgan Stanley, Bank of America and Taiwan Semiconductor. Retail Sales data showed a continued high level of spending by the American consumer. Stock prices calmed following the previous day’s rocket ride and basically flatlined, finishing slightly lower, with the NASDAQ sinking the furthest.

The upward momentum in stocks and slump in interest rates resumed on the final trading day of the Biden administration on Friday morning with the apparent corpse of multiple interest rate cut hopes in 2025 beginning to show flickering signs of life and the International Monetary Fund (IMF) raising its forecast for global economic growth, driven mostly by expansion in the United States. The indexes all finished nicely higher, led by the NASDAQ, to bring what ended up being a week of solid gains to a close.

At what feels like something of a crossroads for markets, I thought I’d look at the two extreme examples of what a dream scenario and a nightmare one for stocks would look like and what to keep an eye out for. As always, the truth will probably end up somewhere in between these extremes. But if it doesn’t this is what you can expect.

Dream scenario ..

* The Fed clarifies that it has not paused rate cuts

* Economic data moderates and returns to steady Goldilocks readings

* The 10 year Treasury interest rate stabilizes in the mid-to-low 4% zone

* Trump’s tariff threats prove to be more bluster than reality

This turn of events could legitimately send the S&P 500 bouncing back through 6000 and beyond as it reinforces the near-perfect market narrative of i) still-easing Fed with at least gradually declining interest rates, ii) solid economic growth (soft landing) and iii) a re-focus on the pro-growth benefits of a Trump administration rather than all the additional nonsense and distraction that come with it.

Nightmare scenario ..

* The Fed confirms or conspicuously fails to deny a pause in rate cuts, ending the easing cycle

* Economic growth strongly accelerates or suddenly reverses implying a growth scare

* The 10-year Treasury interest rate surges back towards and breaks through 5%

* Trump actually enacts sweeping and extensive tariffs that disrupt and damage global trade and the US economy and inevitably drive up inflation

Combined, this set of events would undermine or even destroy the positive narrative upon which the entire stock market rally of the last two years is based and a very sudden and very steep drop in stock prices should be expected.

OTHER NEWS ..

Americans Are Unhappy About Their Money .. A new joint poll from Yahoo Finance and Marist found that 78% of Americans are unsatisfied with how much money they've saved as higher costs have strained budgets, led to credit card debt and depleted excess savings they may have built up. The survey is a snapshot of banked American adults, providing an alternative data point to the official statistics that confirms today's troubling current lower savings rate, which run contrary to many of the other measures of Americans that point to a healthy consumer, but one who loves to spend rather than save as evidenced recently by Retail Sales numbers.

Cheat (allegedly!) .. Elon Musk cheated Twitter shareholders out of over $150 million by deliberately failing to disclose his growing stake in the platform as required by law ahead of a takeover in 2022, the Securities and Exchange Commission said in a lawsuit following a two year investigation. The complaint was disputed by Musk’s lawyers, but he’s also facing similar litigation from individuals and pension funds, seeking compensation for losses incurred by his illegal behavior.

ARTICLE OF THE WEEK ..

The bond market is taking center stage in financial markets and bossing the direction of stocks right now. Here’s what you need to know.

THIS WEEK’S UPCOMING CALENDAR ..

Stock and bond markets will be closed on Monday for Martin Luther King Day.

The pointless orgy of out-of-touch arrogance and self-love that is the nauseating World Economic Forum (WEF) at Davos, Switzerland somehow managed to schedule itself around the same time as the US Presidential inauguration, the date of which has been known since 1933. So much for the world’s supposed intelligentsia.

Back on planet earth, people with real jobs who actually do understand how global financial markets work have a busy week ahead of them.

They will need to navigate the possibility of a flurry of post-inauguration executive orders from Trump as well as an avalanche of Q4 2024 earnings reports, including from Netflix, American Express, Procter & Gamble, American Express, Verizon Communications, 3M, Charles Schwab, Johnson & Johnson, Texas Instruments, NextEra Energy, D.R. Horton and United Airlines.

The Bank of Japan will announce a highly anticipated interest rate decision on Friday and is expected to hike interest rates by a quarter of a point, to 0.50%.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) for the third week in a row ⬆︎ 6.3% for the week.

Last week’s worst performing U.S. sector: Healthcare (two biggest holdings:…

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The week began with growing concerns on Wall Street about the potentially chaotic nature of the upcoming administration and its propensity to balloon the federal deficit by trillions of dollars and to reignite higher inflation based partly on increasingly bizarre online musings from Trump and Musk. These worries are being reflected by steadily rising interest rates, including that of the important 10-year Treasury note, from which mortgage rates pivot (as of this week, I will now be tracking market interest rates for you on a weekly basis in this report, see below).

Bond vigilantes are starting to flex in advance of the US inauguration and are currently using the UK, where interest rates are skyrocketing to levels not seen since the Great Financial Crisis of 2008, as a petrie dish. Meanwhile, the steady drumbeat of global political upheaval continued, last week specifically in Canada and Austria, with Musk spraying gasoline on fires all over the world, including openly plotting the overthrow of the democratically-elected UK Prime Minister, as reliably reported by the Financial Times and even encouraging the United States to “liberate” the British people.

Stock traders looked past all these worries at the open on Monday however, apparently unable to resist the enticement of recently-discounted equity prices ahead of a lot of crucial labor market data later in the week and early morning reports of a possible walk-back by Trump on the nature and scale of his proposed tariffs. A push to a new all-time high for Nvidia stock didn’t hurt either and the major indexes ended the session higher despite a late day backslide, with Big Tech and AI names very much taking the lead.

On Tuesday morning, we learned that there are still over 8 million job vacancies in the US, considerably more than expected. This dealt something of a blow to interest rate cut hopes since strong growth in economic activity combined with plenty of available jobs are a recipe for potentially higher inflation levels (before we even consider the obviously inflationary effects of tariffs) and therefore less action by the Fed in the foreseeable future. This all pushed interest rates higher and stocks significantly lower.

The pressure continued to build in the bond market on Wednesday as interest rates maintained their upward trajectory, partly driven by Trump appearing to up the ante on NATO defense spending to 5% of GDP (the US currently pays 3%). The release of the Fed minutes from its last meeting reinforced the idea of an upcoming halt in rate cuts. Stocks experienced a choppy session ahead of a day off to be followed by Friday’s pre-market labor market data, but ended up little changed.

The stock market was closed on Thursday for Carter’s state funeral but the bond market is where the real action is at the moment and it was operational until 2pm ET during which time interest rates drew a breath and eased back a bit following their recent spikes.

The Jobs Report on Friday was considered critical and here’s why .. it’s the first big economic data point of the year and recently strong economic readings have pressured stocks. Although the narrative is that there’s virtually no chance that the Fed will cut rates at its January 29th meeting, the contents of the Jobs Report could still impact the Fed’s language and whether or not they signal a longer-term pause in rate cuts in their announcement that day.

At 8:30am ET, the report came in much hotter than expected with a lower 4.1% unemployment rate and +256k new payrolls, crushing estimates of +165k. This confirmed the outstanding strength of the US economy and reinforced the idea of American exceptionalism within the global economy.

It put a fork in hopes of any imminent rate cuts from the Fed and Wall Street reacted accordingly with interest rates and the US Dollar roaring higher and stocks and bonds - very much in a “good news is bad news” mode right now - dropping like a stone and the indexes finished near the lows of a ghastly day to close out a very difficult week. Futures markets now imply a most-favored expectation of no Fed rate cuts before October at the earliest.

The interest rate-driven bond market is leading the stock market by the nose these days and it’s difficult to see how that changes any time soon. The upcoming market catalysts (inflation readings this week, the inauguration next week with accompanying executive orders, the Fed interest-rate setting meeting) are all going to have an outsized effect on the pace and trajectory of interest rates across the yield curve (and thereby bond prices) and it is what happens in this arena that will determine the behavior and direction of the stock market in the short term.

OTHER NEWS ..

Beep, Beep, Beep .. Musk backtracked massively on Thursday, admitting that trimming even $1 trillion from federal spending would be “an epic outcome” for his unofficial pet project, the Department of Government Efficiency. But no-one with an ounce of intelligence - and certainly no bond traders - had ever believed his laughable original claim of achieving $2 trillion in federal spending cuts, so the effect on interest rates of his colossal re-setting of expectations was negligible.

The same goes for Trump suddenly extending the timeline for him to single-handedly end the Ukraine war from 24 hours into his presidency to “several months”. Reality bites when it comes to freewheeling campaign soundbites versus real world considerations but, to financial markets, these reversals don’t matter at all, since nobody on Wall Street ever took the preposterous original assertions seriously anyhow.

Better Behaved .. Americans seem to be learning their lesson when it comes to debt. Outstanding US consumer debt actually fell in November by the most in over a year as credit card balances plunged. Total credit dropped by $7.5 billion, according to Federal Reserve data released on Wednesday. Credit card and other revolving debt decreased by $13.7 billion, the biggest fall since early in the pandemic, having surged a month earlier. Non-revolving credit, such as car loans and college tuition, increased by $6.2 billion.

ARTICLE OF THE WEEK ..

Popular myth .. dividend-paying stocks are a really good idea.

No, they’re not. They are a sure way to underperform the stock market over time.

THIS WEEK’S UPCOMING CALENDAR ..

The latest inflation data and the start of Q4 2024 earnings season are the highlights this week.

On Wednesday, the latest Consumer Price Index (CPI) measure of retail inflation will come out. It is forecast to be up 2.9% from a year earlier. This comes a day after the publication of the Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers.

We will also see the latest Retail Sales numbers on Thursday.

The earnings season kickoff starts with reports from JPMorgan Chase, Wells Fargo, Citigroup, Goldman Sachs, Bank of America, Morgan Stanley, BlackRock, UnitedHealth Group and Taiwan Semiconductor.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) for the second week in a row - up 1.9% for the week.

Last week’s worst performing U.S. sector: Real Estate (two biggest holdings: Prologis, Equinix) - down 3.0% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price fell 2.0% last week, is down 0.9% so far this year and ended the week 4.5% below its all-time record closing high (12/06/2024).

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price fell 3.7% last week, is down 1.9% so far this year and ended the week 10.6% below its all-time record closing high (11/08/2021).

MARKET INTEREST RATES:

FED FUNDS: ⬌4.38% (unchanged)

3 MONTH: ⬆︎4.36% (4.34% a week ago)

2 YEAR: ⬆︎…

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The death of former President Carter on Monday means that, in keeping with tradition, US stock markets will be closed this coming Thursday, January 9th for the funeral.

Monday was the penultimate trading day of 2024 and the session kicked off with more end-of-year institutional position adjustments and momentum-unwinding across the board. This put stocks very much on the back foot again, crystallizing the distinct absence this year of any kind of Santa Claus rally.

What started out as a mildly concerning fall in stock prices threatened to snowball into a really ugly session with the major indexes at one point all facing losses of over 2%, but dip-buyers came to the rescue, slicing the losses to “only” around 1% on the day. Still, the entire“Trump-bump” post-election gains were erased after less than eight weeks.

The best-ever consecutive two calendar year stretch this century for the S&P 500 came to a close on Tuesday, but went out with a whimper. The indexes dropped further over the session, dragged down primarily by continuing falls in the prices of 2024’s biggest darlings in a low trading volume environment.

The festive season’s poor performance was obviously disappointing, but it’s important to understand that nothing substantially negative occurred and institutional year-end rebalancing (selling big winners and reallocating to laggards), low volumes and “B-teams” manning the trading desks were all major contributors to the pullback.

Also, these two back-to-back middle-of-the-week holidays don’t come often but when they do, they essentially create two dead weeks in the market with low liquidity which can generate exaggerated moves in either direction that are not necessarily reflective of prevailing sentiment.

As they say at Boeing, when one door closes, another one opens. So it was a different landscape that faced traders when they returned to their posts on Thursday to make a start on the new year. Late December’s window-dressing was in the rear-view mirror and focus could return to the opaque subject of trying to figure out what lies ahead in 2025 and beyond.

Stocks began in a cautiously hopeful mood, but turned around and took a dive in the afternoon on the back of a bad miss on Tesla vehicle sales to finish the day moderately lower across the board.

Domestic politics reared its head again on Friday. Biden blocked Nippon Steel’s takeover of US Steel, whose stock promptly plunged on the news. The House Speaker vote in Congress ended up not being quite the embarrassing s**t-show it might have been as Johnson squeaked in with slimmest majority in a Speaker vote since 1930.

Stocks moved solidly higher, partly as a result of the dodged congressional bullet. Tech very much led the way in a monster snap-back for Wall Street following five consecutive sessions of daily losses but the S&P 500 and the NASDAQ still ended in the red for the week, however.

The stock market has pulled forward a lot of future positives, so simply fulfilling those expectations won’t of itself push stocks materially higher. The market got interest rate cuts in 2024 and now expects more of them, so the Fed cutting one or two times won’t be enough to propel markets meaningfully higher from here. Investors priced in a soft landing in 2024 and it materialized, but now it needs to stay there and a substantial slowing of the economy will spark hard landing fears but then any surprise acceleration will reduce the likelihood of any further interest rate cuts, which markets won’t take well.

However, higher expectations don’t mean stocks can’t rally in 2025. They absolutely can. But it’s going to take new, additional positive surprises to make that happen. These include i) actual tax cuts and deregulation that’s quicker and more effective than expected, ii) the Fed cutting more than twice on the back of inflation falling quicker than expected, iii) actual resolution of the ongoing wars in Ukraine and the Middle East and iv) compelling evidence that AI is finally starting to actually boost profitability and productivity for end-user companies and not just making chip companies earnings explode higher.

If some or all of those things happen, then stocks could absolutely move higher in 2025. However, the growing interplay of politics, economics and markets will make the paths of stocks, bonds, commodities and currencies even harder to read than usual.

There’s no respite before we have to face all of this, there are a number of important dates to circle on the calendar just in the next month:

* Jobs Report on Friday, January 10th, the Fed is extremely focused at the moment on this data point

* Q4 2024 earnings season starts on Monday, January 13th, markets still anticipate double-digit earnings growth in 2025

* CPI retail inflation reading on Wednesday, January 15th, will it remain sticky or even shift higher?

* Trump’s inauguration on Monday, January 20th, with likely immediate executive orders

* Fed interest rate decision on Wednesday, January 29th, markets are currently expecting no cut

The fundamentals for this market are good as we start 2025, but there are also great expectations and meeting those expectations starts right away and these are the key events that will likely determine if those positive expectations are met (and stocks start the year with gains) or if we see a continuation of the declines of the past two weeks.

OTHER NEWS ..

Warning! .. Alcoholic drinks like beer and wine should carry warnings of their links to cancer, the US’s top doctor said. Evidence of links between drinking and cancer has been rising for decades, yet fewer than half of Americans recognize that it raises their chances of developing several cancers, Surgeon General Vivek Murthy said Friday.

Alcohol causes about 100,000 cases of cancer and 20,000 related deaths each year in the US, far more than the 13,500 alcohol-associated annual traffic fatalities. Adding a cancer warning would highlight severe health concerns for products that more than 70% of US adults consume at least once a week, with some $260 billion in 2022 nationwide sales.

The prices of shares of drinks makers from around the world fell hard after the announcement.

Hindenburg’s Latest Victim .. Carvana is the latest firm to be targeted by prominent short-seller Hindenburg Research of high levels of impropriety in a report alleging the auto retailer’s loan portfolio carries substantial risk and that its apparent growth is unsustainable and essentially fake. Hindenburg took a short position on Carvana’s stock after conducting extensive research that included interviewing former employees.

The report, titled: “Carvana: A Father-Son Accounting Grift for the Ages,” makes a number of claims, including that Carvana has very lax underwriting standards and uses a company owned by the father of CEO Ernest Garcia III to boost results.

Hindenburg’s previous reports of dodgy dealings at various firms have tended to mostly vindicated eventually, despite squealing denials at the time from all their “victims” and Carvana’s reaction last week was no different.

Luxury Costs More .. Rolex raised prices on some of its most popular models after gold values surged in 2024. The biggest luxury Swiss watch brand began the year by hiking prices as much as 8% on some models made from precious metals.

A yellow gold Day-Date with a 40-millimeter black dial now costs over $45k as of January 1st, up from $42k, according to Rolex’s website in France. A yellow gold GMT-Master II costs $46k, up from $42,500.

Price increases can be indicative of the demand for premium luxury products, the cost of materials and labor as well as inflation. Gold recorded its biggest annual price increase in 14 years in 2024, soaring 27%.

ARTICLE(S) OF THE WEEK ..

* I hate to be a party-pooper, but are you prepared for the tax consequences of all those crypto gains from 2024? You’d better be, because the IRS sure is.

* Wall Street “experts” know NOTHING!

THIS WEEK’S UPCOMING CALENDAR ..

Markets will be closed on Thursday in …

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With the risk of a government shutdown pushed out to March, traders breathed a small sigh of relief over the weekend. But the chaotic intervention by Trump/Musk won’t be quickly forgotten by Wall Street, which is likely to view the whole political debacle as something of a preview of what can easily and frequently happen in 2025 and beyond.

A holiday-riddled week that traditionally sees Santa bearing gifts for investors began quietly with the indexes mostly positive overall on low trading volume by the close on Monday, with Big Tech leading and Small Caps lagging. Trump’s sudden interest in Greenland (again) and the Panama Canal and Musk’s ill-informed threat to slash the workforce at the supposedly “absurdly overstaffed” Federal Reserve (see OTHER NEWS below) as well as his enthusiastic endorsement of neo-Nazis in Germany were all pretty much dismissed by Wall Street traders as simply a bunch of blowhard nonsense that wasn’t going to have any meaningful real-world consequences and was therefore nothing to worry about. Hmmm. Maybe.

Tuesday was a half day for the stock market but prices continued to move higher ahead of the Christmas holiday. Gains accelerated into the 1pm ET close and the major indexes closed higher by over 1%. Not bad for just three and a half hours work.

When volumes are ultra-low, indexes can be disproportionately impacted by what would normally be rather innocuous movements in individual stocks. This amplification was on display as the indexes were supported by the apparent ending of the barista strike at Starbucks and a turnaround from American Airlines after it quickly resolved what had looked like a nasty technical outage earlier in the day.

When they returned from the Christmas break, traders took stock prices somewhat lower out of the gate on Thursday morning in a knee-jerk reaction to the news that recurring applications for unemployment benefits had risen to its highest level in more than three years, indicating that it is taking longer for out-of-work Americans to find a job. Initial unemployment claims, however, came in at +219k for the week, a touch lower than expected.

This all seemed to confirm Fed chairman Jerome Powell’s assessment from the previous week that the labor market is cooling, but not yet at a rate that is raising many concerns. A low volume recovery in the afternoon took the indexes back to basically unchanged at the close.

Any hopes that Santa might still belatedly show up on Wall Street faded on Friday as the major indexes, driven by substantial profit-taking and inventory-dumping in Big Tech names ahead of the year-end, gave back almost the entire week’s gains. This effectively rendered the whole week kind of redundant as prices ended Friday only a fraction higher than where they began Monday.

I tend to agree with the notion that some of December’s politically-generated market chaos could well provide an unfortunate preview of next year. However, the key to navigating this market in 2025 will be knowing the difference, in real time, between alarming but ultimately unimportant headlines that cause brief market pullbacks but quickly flame out and data and news that actually invalidates bullish factors and legitimately jeopardizes the rally.

Having said that, for all the distractions out there (politics, tariffs/trade, cabinet appointments, etc.) economic growth remains the key support pillar for this current bull market and the data is clearly showing that a soft landing still remains the most likely outcome.

Last summer’s concerns of a more intense and rapid slowdown have now largely been erased, but sentiment is no longer quite so excessively euphoric as it was for much of 2024 and markets will start the year with most investors a little more sanguine in their outlook.

This should all theoretically give us some reassurance that the rally should be able for the most part to withstand any Fed or Trump/Musk-related volatility that emerges in the coming weeks and months.

OTHER NEWS ..

Welcome Back To The United States, Mr. Kwon .. Crypto crook Do Kwon, founder of the fraudulent Terraform platform, once famously announced that he didn’t interact with poor people.

Well, he could potentially have to adapt to having some financially-challenged very close neighbors for the next hundred years or so as he faces the possibility of a massive prison sentence if convicted in the US after his extradition from Montenegro was confirmed last week. Kwon was intercepted in spring of 2022 in the Eastern European country while on the run from US authorities over the $40 billion collapse of the TerraUSD stablecoin and has been held locally since then.

Nothing To Cut Here .. First Man-Crush Elon Musk used one of his blizzard of recent scattergun and frankly bizarre angry-old-man Twitter/X posts to call the Federal Reserve “absurdly overstaffed” in his role as joint-head of the made-up unofficial agency with no executive powers whatsoever, the new Department of Government Efficiency.

The Federal Reserve Board in Washington and its twelve regional reserve banks across the entire US employs about 24k people. That’s considerably less than comparable central banks overseas, most of which oversee much smaller economies than the US. More importantly, unlike most parts of the federal government, the Fed doesn’t actually receive any funding through the congressional budgetary process. It earns its own income, primarily from the interest it receives on government securities that it has acquired through open market operations. In fact, the Fed is usually a source of positive revenue for the government, gifting any income above its expenses to the nation’s cash stockpile. Before its rapid interest-rate hikes in 2022, it was sending about $100 billion a year of surplus earnings to the US Treasury.

Difficult to see how to DOGE this one. The likely real reason behind his sudden belligerence is simply that the Fed has in the past been a target of Musk’s new-found BFF, President-elect Trump, for its monetary policy. Trump recently argued that he should have a say in Fed decision-making and the setting of interest rates. He ridiculed chairman Jerome Powell’s role as “the greatest job in government,” saying, “you show up to the office once a month and you say, ‘Let’s see, flip a coin.’ ‘‘

ARTICLE OF THE WEEK ..

You’re about to get invited to a party by Wall Street. Make sure you say you are busy and can’t go.

THIS WEEK’S UPCOMING CALENDAR ..

It will be another holiday-shortened week, as 2024 comes to an end. Both stock and bond trading markets will be closed on Wednesday for New Year’s Day.

There will be no impactful economic data releases or any major earnings reports this week.

LAST WEEK BY THE NUMBERS:

Last week’s market color courtesy of finviz.com

Last week’s best performing U.S. sector: Technology (two biggest holdings: Apple, Nvidia) for the second week in a row - up 2.2% for the week.

Last week’s worst performing U.S. sector: Consumer Defensive (two biggest holdings: Costco, Walmart) - down 0.4% for the week.

* SPY, the S&P 500 Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest U.S. companies. Its price rose 0.42% last week, is up 25.2% so far this year and ended the week 2.1% below its all-time record closing high (12/06/2024).

* IWM, the Russell 2000 Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest U.S. stocks. Its price rose 0.1% last week, is up 10.8% so far this year and ended the week 8.3% below its all-time record closing high (11/08/2021).

AVERAGE 30-YEAR FIXED MORTGAGE RATE:

* ⬆︎ 6.85%

One week ago: 6.72%, one month ago: 6.81%, one year ago: 6.61%

Data courtesy of: FRED Economic Data, St. Louis Fed as of last Thursday.

FEAR & GREED INDEX:

“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffet.

The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not …

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As we entered 2024’s final full week of trading, political turmoil raged around the world. A vote of no-confidence brought down the German government, French national debt was downgraded by credit agencies after the selection of a new Prime Minister, Canada’s finance minister resigned in reaction to what she saw as Trudeau’s wimpy response to Trump’s tariff threats, presidential impeachment proceedings in South Korea continued, a Chinese spy scandal in the UK engulfed two former Conservative prime ministers as well as the royal family and attempts went on to sustainably fill the post-Assad political vacuum in Syria.

Despite the global turbulence, there was green all over the screens in New York on Monday ahead of Wednesday’s highly-anticipated Fed interest rate cut. Big tech names forcefully led the way again and built nicely on record highs for the NASDAQ-100 index, which waved goodbye and good riddance to dogs like Moderna and SuperMicro Computer and welcomed in big data and crypto giants Palantir and MicroStrategy as part of a periodic shakeup of its component stocks.

Retail sales came in stronger than expected on Tuesday morning, up +0.7% in November with a solid upside revision for October. Under the hood, evidence continued to show that American consumers could be preempting Trump’s tariffs with a more buy-now approach to certain big ticket items.

While not seen as a hurdle for an interest rate cut the following day, the continued robust US economic performance is putting 2025’s anticipated cuts in increasing jeopardy and the indexes stumbled in response, ending the session lower.

Fed Day finally rolled around on Wednesday and it proved to be a wild ride. Stocks were quiet in advance of the 2pm ET committee statement and subsequent press conference starring chairman Jerome Powell. Far more interesting than the announcement of the fully-expected quarter point Fed Funds rate cut to 4.375% was the release of the latest quarterly so-called Dot Plot chart, which shows the Fed committee members’ projections of what will happen to interest rates in 2025 and beyond.

At both their June and September meetings, the members signaled a total of four interest rate cuts over the course of eight meetings in 2025. Those expectations were cut in half to only two next year with just a handful more anticipated through the end of 2027.

This horrified markets and stocks completely crapped out with the greatest pain being felt in Big Tech and Small Caps. It was the worst Fed Day for equities since 2001. Bonds followed suit as interest rates soared on the news of the expected rate cut slowdown.

At the press conference, a rather defensive Powell batted away reporter questions about how much of the gloomier outlook for cuts was due to the potential for higher inflation next year caused by tariffs under a Trump administration, but he did concede that the Fed needed to slow down and be more cautious with its decision-making right now as it was “walking into a dark room full of furniture”. He muttered some variation of the word “uncertain” 17 times. He also pointedly failed to rule out the possibility of the Fed having to actually raise interest rates next year.

Egged on by First Buddy Elon Musk, Trump then tossed a huge bucket of gasoline onto the dumpster fire, shocking markets just before the closing bell by barging in and trashing the 1500+ page bipartisan compromise bill crafted by Congress that was designed to avert a government shutdown by the end of the week. This swiftly torpedoed the rescue measure as many Republican lawmakers who just hours earlier had been perfectly supportive of the bill suddenly flipped and fell in line behind the president-elect and his new Mini-Me.

A closure of the Federal government starting at the weekend and an end to multiple disaster aid programs was not on anyone’s bingo card. There had previously been a 100% certainty that the deadline would be extended one way or another, which is why it had barely registered as a concern.

As dazed traders reconvened on Thursday morning following depressed Asian and European sessions, they learned that US Gross Domestic Product (GDP) economic growth estimates for Q3 had been revised up from 2.8% to 3.1% and that the Bank of England had decided to not cut interest rates in the UK.

The initial sense when markets opened was that the previous day’s wipeout may have been overdone and some dip buyers took advantage, stepping in to scoop up some of the more battered and bruised stocks. But the rebound became more and more half-hearted as the session wore on and by the close it had completely fizzled and the indexes slipped back into the red again with the S&P 500 falling to its lowest point since the election.

Stock prices didn’t fall because of the risk of the shutdown itself, but because this is exactly the kind of unhinged political chaos that financial markets fear from the Trump/Musk circus that appears to have already rolled into town weeks before the inauguration.

Thursday night’s dismal failure of Congress’ botched Plan B to avoid a shutdown hung over markets like a bad smell when the opening bell rang on Friday and stocks initially continued their slide (although the release of a better-than-expected Personal Consumption Expenditures PCE inflation indicator of +2.4% annualized took some of the edge off the pessimism) while Congress continued to pitifully fumble around trying to cobble together a Plan C, a version of which was eventually passed by the House after the markets closed. Circle March 14th on your calendar as the next time we’ll probably be going through this same sorry mess all over again.

Things quickly turned around late morning, though, as Wall Street traders decided that enough was enough with the broad stock market 3% to 4% cheaper than it was on Monday - right in the middle of the traditional season for loading up on stocks - and were tempted back into buying mode. The indexes all closed substantially higher on the day, although still well down for the week.

Although the index has been hitting new all-time record highs consistently over the last few weeks, last Wednesday marked the 13th straight trading day that more than half the S&P 500 stocks fell during the session, a record-ever streak for this measure.

The simple fact is that a fully-fledged stealth stock market pullback has been under way since before Thanksgiving but, until last week’s shenanigans, it had been obscured under the radar by headline-grabbing positive readings from the heavily Mega Cap-weighted S&P 500 and NASDAQ indexes.

OTHER NEWS ..

Living Longer Again .. Average life expectancy in the U.S. increased by almost a year in 2023, rebounding to a level not reached since the pandemic, according to figures released Thursday by the Centers for Disease Control and Prevention.

US average life expectancy was 78.4 years in 2023 ‒ nearly eleven months longer than in 2022 ‒ mostly due to far fewer COVID deaths. It was the second consecutive year that the nation's life expectancy increased after dropping by more than two years between 2019 to 2021. In 2022, COVID was the fourth leading cause of death, but it dropped to the tenth place last year.

Rates dropped for nine of the top ten causes of death. Only the death rate for cancer, which is the second leading cause of mortality, did not change significantly. Heart disease remained the leading cause of death in America, followed (in order) by cancer, accidents/homicide (including all gun-related deaths), stroke, respiratory disease, Alzheimer's, diabetes, kidney disease, liver disease and then COVID.

ARTICLE OF THE WEEK ..

“Not all investment mistakes are created equal. Some are annoying. Some are self-inflicted. Some are painful. And some you can’t come back from.”

THIS WEEK’S UPCOMING CALENDAR ..

Investors are heading into a historically low trading volume but winning week for the stock market. Since 1950, the S&P 500 has gained an average of 1.3% over the Christmas and New Yea…

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After the rapidly spiraling events in Syria over the weekend, attention was temporarily refocused on geopolitics and the potential tinderbox that is the Middle East region, where the chess pieces were being moved around following the abrupt disintegration of the Assad regime as everyone tried to work out who are the “goodies” and who are the “baddies” in this story. Both the U.S. and Israel immediately carried out self-interested attacks on Syrian soil.

Stocks dipped at the open on Monday on low-key, pretty indifferent trading and continued to drift aimlessly lower across the board as the day went on, ahead of Wednesday and Thursday’s inflation reports, the last major data to be released before the Fed’s next interest rate-setting meeting on December 18th.

Tuesday saw something of a recovery at the outset but traders began to sell Oracle stock after its earnings report failed to meet elevated expectations and the effect rippled out enveloping Dell, Hewlett Packard and other tech names that have been propping up market advances lately - with the day’s moves accentuated by the continued low volume environment. The indexes all finished lower again.

When it came out pre-market on Wednesday, the Consumer Price Index (CPI) measure of retail inflation proved to be rather sticky, rising to a +2.7% annualized rate, a larger increase than the +2.6% of the prior month. This was, however, entirely as expected and stocks quickly picked up steam, relieved to have dodged a nasty surprise ahead of this week’s Fed interest rate decision and impressed by the housing/shelter component of the inflation data, which finally showed a significant drop.

Big Tech stocks very much led the way as the losses from earlier in the week were quickly erased with the NASDAQ closing above 20k for the first time ever and Apple, Alphabet/Google, Amazon, Meta/Facebook and Tesla all setting their own individual all-time record high stock prices.

Also erased were any remaining doubts that we will get a further interest rate cut of 0.25% on Wednesday (see FEDWATCH INTEREST RATE TOOL below), although the number and pace of any cuts in 2025 is becoming increasingly uncertain.

A lot happened before Trump rang the opening bell at the New York Stock Exchange on Thursday. We saw an expected quarter point rate cut from the European Central Bank (ECB), an unexpected full 1.00% hike in Brazil and the latest U.S. Producer Price Index (PPI) measure of wholesale inflation experienced by manufacturers which came in hotter than expected at +3.0% annualized, it’s highest level since February 2023.

We also got disappointing earnings and outlook from Adobe, who joined Oracle in the dog house as Wall Street swiftly crushed the stock price by almost 15% at one point.

Traders resumed their rather ho-hum attitude following Wednesday’s Big Tech party, shifting back into a mostly wait-and-see mode, this time with eyes on the upcoming Fed meeting (the forward guidance offered rather than the interest rate cut itself, which is now assumed) as well as how Trump’s cabinet nominees play out and the indexes ended the session lower.

Over two-thirds of S&P 500 stocks fell on the day and that’s the ninth day in a row that more than half the stocks in the index have moved lower - the longest such streak since 2001. Despite the deluge of record all-time highs, there is turmoil developing beneath the surface.

Friday the 13th saw Broadcom rip by 25% (building on its 60% gain already in 2024 and becoming the eighth-ever company to be valued at over a trillion dollars) after predicting a boom in demand for its AI chips and initially tech-heavy indexes moved higher as a result.

However, rising concerns that interest rate cuts in 2025 may not match the lofty expectations upon which this rally has been built (something I have been banging on about in these reports for ages now) soured sentiment somewhat and the broad stock market finished unchanged for the day.

The S&P 500 was slightly down for the week, Small Caps were down by more but the NASDAQ scored a small weekly gain.

The path to a continued rally into year-end is clear on the back of performance chasing, seasonal factors and technical momentum, but at the same time we should all be prepared for 2025 to start with some volatility around headlines from potential policy disappointment, a possibly slower pace of interest rate cuts next year, geopolitical saber-rattling and the big wild card; tariffs.

There are signs in the recent economic data that consumers are bringing forward the purchase of big-ticket items like cars to get ahead of potential tariff-related price increases. Whether Trump is just full of it when he barks about tariffs or whether he will actually follow through on all or most of his threats is becoming an increasingly important question as they obviously pose an inflation risk as well as negatively impacting earnings potential of U.S. exporters once other countries retaliate (and make no mistake, they will).

As long as growth remains solid, the Fed is cutting rates and earnings/corporate outlook are all positive, those potential problems can just be viewed as bumps along the road in a still-upward trending market.

Bottom line, the rally is justified, but it’s strongly assuming that virtually nothing bad happens in the near-term. If that assumption is proven wrong then, given the stretched valuations of U.S. stocks, the dreaded 10%+ decline trapdoor could well quickly swing open, catching everybody off guard.

OTHER NEWS ..

Ooops, Where Did My Economic Data Go?! .. US economic indicators can move global markets by trillions of dollars at a time and in a matter of milli-seconds. The agencies that collect and publish those statistics have been pleading for an extra few million, to maintain the integrity of the financial world’s most important numbers. Now they face an even tougher fight to get it, as Donald Trump heads back to Washington with a plan to slash the federal bureaucracy.

Well before Trump won reelection on a platform that hardly prioritized reliably sourced data, the Bureau of Labor Statistics and its peers in Washington were sounding the alarm that they’re increasingly starved of funds, just when it’s becoming harder and costlier to collect the information needed for some of the most critical gauges.

Solid statistics matter far beyond financial markets. The Federal Reserve stresses that its interest-rate decisions are guided by incoming economic data. Businesses rely on government-produced figures when planning new investments. National and local politicians need them at their fingertips to guide policy decisions—from tariffs on China to the best location for hospitals or housing—that shape the lives of everyday Americans.

World’s Smallest Violin Plays In Chicago .. Michael Jordan finally managed to sell his sprawling Chicago-area mansion, settling for $9.5 million. That’s a significant price cut from the original asking price of $29 million, despite the property boasting nine bedrooms, 19 bathrooms, a regulation-sized basketball court (of course) and a cigar room (also of course). He’s not the first billionaire to sell in the area for way less than he expected. Ken Griffin, CEO of Citadel, recently sold one of his Chicago condos for 53% below what he originally paid.

ARTICLE OF THE WEEK ..

Gen Z has lived through an almost unbroken chain of financial crises of one kind or another and it’s having a massive effect on their attitudes about pretty much everything which is going to affect the society they will eventually shape for the rest of us.

THIS WEEK’S UPCOMING CALENDAR ..

The Federal Reserve concludes a two-day meeting on Wednesday. Markets are fully expecting the announcement of a quarter of a percentage point cut to the federal-funds rate. The Bank of England and Bank of Japan both announce monetary-policy decisions on Thursday.

The main economic data to watch next week is the Fed’s favorite inflation measure, the Personal Consumption Expenditures (PCE) pr…

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