by Ivan Martchev
November 26, 2024
There are only three full trading days this week. We are off on Thursday for Thanksgiving and back on Friday for half a day. On short weeks like this, volumes tend to go down, and if there is no big surprise, the market tends to glide higher. Such is the long-term history of Thanksgiving weeks on Wall Street.
The only spoiler alert is the geopolitical situation, where the Russians have shot at Ukraine for the first time in history with an unstoppable hyper-sonic missile. While the missile’s six warheads had direct strikes, it is more or less a warning shot for all parties to this proxy war – that it can be escalated, if need be, which is what I hoped would not happen. If the Ukrainian front or the Middle East war stay more or less on their current trajectory without escalation, I think the stock market will celebrate the holidays.
Last week was choppy but positive with the rotation of technology into the value part of the market again. The thing about rotations is that they don’t necessarily happen the same way every day. The Nasdaq 100 Index did notably under-perform on Friday but come Monday or Tuesday it very well may start moving again. My working assumption is that we are likely to have a positive November and December, possibly even January, with the only unpredictable factor being geopolitics, which can always spoil this setup.
Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.
The other issue bothering investors would be interest rates, where we have notable yield curve steepening, where bond yields are going up, as the Fed is cutting the Fed funds rate. This is also a “Trump trade,” as Treasury buyers fear tax cuts and overall trade volatility and are hedging their bets by selling Treasury futures. To be fair, President Trump has not done anything official yet, other than nominate a highly accomplished financier, Scott Bessent, which has somewhat calmed the markets. Since I don’t believe that the things Trump wants to accomplish will be easy on the trade, fiscal and tax fronts, having Bessent as Treasury Secretary, if confirmed by the Senate, makes me feel better.
I think Treasury yields have overshot and are likely to stabilize or even drift a little lower by year end. Bond market volatility this year has been high or even higher at times compared to stock market volatility, with inflation drifting lower and the Fed cutting rates. This volatility should persist in 2025, as we see which way trade negotiations break, which should be more aggressive than in Trump’s first term.
If he does manage to end the Ukraine war, that would be a huge positive for Europe as flying unstoppable hyper-sonic missiles is the last thing Europeans needs at this time. There should be a peace dividend for the Old Continent, but I seriously doubt the Russians will retreat from what they control in Ukraine, and they will advance further by the time Trump takes office.
Happy Thanksgiving.
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