Market Momentum: Your Weekly Financial Forecast & Market Prep
Issue 23 / What to expect Nov 25, 2024 thru Nov 29, 2024
In This Issue
Market-On-Close: All of last week’s market-moving news and macro context in under 5 minutes.
Special Coverage: What’s driving gold higher? Where is it heading? Is there a bear case?
The Latest Investor Sentiment Readings
Institutional Support & Resistance Levels For Major Indices: Exactly where to look for a turn in markets this week in SPY, QQQ, IWM & DIA
Institutional Activity By Sector: Institutional flow by sector including top names in those sectors
Top Institutional Orderflow In Individual Names: All of the heaviest-hit individual names targeted by institutions this week on Lit & Dark exchanges
Investments In Focus: Bull vs Bear arguments for RDDT, SPHR, AZTA, VGLT, RGLD, FLEX
Top Institutionally-Backed Gainers & Losers: An explosive watchlist for day traders seeking high-volatility
Normalized Performance By Thematics YTD (Sector, Industry, Factor, Energy, Metals, Currencies, and more): which corners of the markets are beating benchmarks, overlooked and over-crowded
Key Econ Events and Earnings On-Deck For This Week
Market-On-Close
The U.S. equity markets displayed robust performance over the past week, highlighting resilience and optimism heading into the year-end and 2025. Despite elevated valuations and potential policy uncertainties, the markets sustained a positive trajectory, buoyed by strong corporate earnings, resilient economic fundamentals, and broader sector participation. This weekly review explores the key drivers of the market’s strength, emerging risks, and how investors can position themselves in an evolving landscape.
Market Overview and Performance
Major U.S. stock indexes rebounded strongly, recovering losses from the prior week. The Dow Jones Industrial Average outpaced the broader market, achieving a new record high, while the S&P 500 finished just shy of its own record. The Nasdaq Composite trailed slightly, reflecting softness in mega-cap technology stocks, particularly after NVIDIA’s earnings report. In contrast, smaller-cap stocks, as represented by the Russell 2000, surged, delivering a 4.5% weekly gain. This rally reflected a rotation into cyclical and value-oriented sectors.
Bitcoin also extended its rally, climbing to new record highs, with a week-over-week gain exceeding 10%. This resurgence underscores investor appetite for speculative assets in an environment of improving sentiment and anticipation of a favorable policy environment under the incoming U.S. administration.
Corporate Earnings and Sector Analysis
Corporate earnings continued to support market performance. With nearly all third-quarter results reported, S&P 500 companies are expected to post an average year-over-year earnings gain of 5.8%, marking the fifth consecutive quarter of growth. Notable outperformers included Gap and Ross Stores, which reported earnings above expectations, buoyed by resilient consumer demand. Conversely, mega-cap tech names like NVIDIA, Alphabet, and Amazon underperformed, reflecting a mix of profit-taking and concerns over high expectations.
NVIDIA’s quarterly results underscored the dichotomy within the tech sector. While the company reported sales nearly doubling from the previous year, its guidance for slower fourth-quarter revenue growth dampened investor enthusiasm. This highlights the challenge of sustaining high growth expectations, even in sectors like AI that remain poised for long-term expansion. The underperformance of semiconductors also mirrored broader concerns over tighter export restrictions to China, a policy focus of the incoming administration.
Meanwhile, cyclical sectors like industrials, energy, and financials outperformed, driven by improving economic indicators and optimism surrounding potential pro-growth policies. Companies such as Caterpillar and Deere benefited from strong buying interest, while energy stocks rebounded amid a 6% rise in crude oil prices.
Valuations and Broader Market Trends
U.S. large-cap valuations remain elevated, with the forward price-to-earnings (P/E) ratio of the S&P 500 approximately 22, well above its historical average. However, this elevated valuation is largely concentrated in mega-cap technology stocks. Equal-weighted indices, along with mid- and small-cap stocks, trade closer to or below their historical averages, offering potential opportunities for investors seeking diversification.
This broadening of market leadership is a healthy development, as it reduces reliance on a narrow set of high-performing stocks. As of last week, 72% of S&P 500 stocks traded above their 200-day moving averages, indicating improving market breadth. Value stocks outpaced growth counterparts, with the Russell 2000 small-cap index delivering notable gains, reflecting investor rotation into less expensive and more domestically focused assets.
Economic Indicators and Policy Outlook
Macroeconomic data provided additional tailwinds for the market. Initial jobless claims declined unexpectedly to 213,000, their lowest level since April, signaling continued labor market strength. Existing home sales also rebounded, rising year-over-year for the first time since mid-2021, supported by stabilizing mortgage rates and steady job growth.
Looking ahead, the Federal Reserve’s policy remains a focal point. While inflation has moderated, the pace of disinflation has slowed, and the labor market remains tight. The market is pricing in a roughly 50% chance of a rate cut at the Fed’s December meeting, with upcoming inflation and jobs data likely to influence the decision. The divergence in Treasury yields, with short-term rates rising and long-term rates declining, reflects a cautious but optimistic outlook.
Tariffs and Inflation Concerns
Policy uncertainty, particularly surrounding tariffs, looms as a potential risk. The incoming administration’s proposal for universal tariffs could introduce inflationary pressures, as higher import costs may act as a de facto tax on consumers. However, the impact may be mitigated by currency adjustments, supply chain shifts, and exporters absorbing some of the additional costs. Historically, tariffs have contributed modestly to inflation and growth dynamics, and their ultimate impact will depend on the broader policy mix.
Investment Implications and Strategies
As valuations remain elevated in parts of the market, diversification becomes increasingly important. Value-style investments, as well as small- and mid-cap stocks, offer relative bargains and are poised to benefit from stronger domestic growth and potential policy shifts, such as lower tax rates. Conversely, mega-cap tech stocks with significant international exposure may face headwinds from geopolitical and trade uncertainties.
Investors are encouraged to maintain a balanced approach, with allocations across asset classes and sectors to navigate potential volatility. Given the supportive backdrop of resilient economic growth, rising corporate profits, and the prospect of rate cuts, equities appear well-positioned to build on their strength as leadership continues to broaden.
Conclusion
The U.S. equity markets demonstrated resilience and adaptability last week, supported by robust earnings, improving economic data, and a rotation into undervalued sectors. While risks such as elevated valuations, policy uncertainty, and geopolitical tensions persist, the broader market dynamics point to sustained strength heading into 2025. Investors who focus on diversification and align their portfolios with evolving market conditions are likely to benefit from the opportunities ahead. As the year progresses, monitoring key economic indicators and policy developments will remain critical in navigating an increasingly complex investment landscape.
Futures Markets Snapshots
S&P 500: Sector Insights
1. Sectoral Performance
Technology:
Mixed performance. Key players like Microsoft (MSFT) showed modest gains (+0.48%), while NVIDIA (NVDA) was flat (-0.02%).
Notable decliners included Adobe (ADBE) and Palantir (PLTR).
Semiconductors had mixed results: AMD (+2.56%) outperformed, while AVGO (-0.37%) and TXN (-1.55%) lagged.
Consumer Cyclical:
Strong gains for Tesla (TSLA, +9.93%), supported by the auto manufacturer’s outperformance.
Amazon (AMZN, -2.71%) declined sharply, weighing on the internet retail subsector.
Consumer Defensive:
Solid performance with companies like Walmart (WMT, +7.35%) and Coca-Cola (KO, +3.53%) showing strength.
Target (TGT) suffered a significant loss (-17.83%), highlighting potential challenges in the retail space.
Communication Services:
Mixed outcomes, with Alphabet (GOOG, -4.21%) declining sharply, while Meta (META, +0.91%) remained flat.
Netflix (NFLX, +8.96%) stood out with substantial gains.
Healthcare:
Generally positive, with AbbVie (ABBV, +7.25%) and Merck (MRK, +2.98%) leading the gains.
Biotechnology underperformed, as seen with Vertex Pharmaceuticals (VRTX, -3.16%).
Industrials:
Consistently strong across defense and aerospace subsectors, with Lockheed Martin (LMT, +3.88%) and General Electric (GE, +2.38%) among the winners.
Transportation companies like UPS also showed gains.
Energy:
Strength across the sector, with ExxonMobil (XOM, +2.08%) and Chevron (CVX, +0.58%) leading.
Financials:
Broadly positive, with JPMorgan (JPM, +1.32%) and Bank of America (BAC, +0.54%) showing strength.
Asset managers like Blackstone (BX, +9.72%) stood out.
Utilities:
Weak performance overall, with many utilities in the red, reflecting possible sectoral rotation out of defensive plays.
2. Overall Market Sentiment
The market shows a risk-on sentiment, with growth sectors like consumer cyclical, energy, and parts of technology leading gains.
Defensive sectors like utilities and healthcare exhibited weaker performance, suggesting investors are prioritizing sectors sensitive to economic growth and earnings.
3. Key Outliers
Winners:
Tesla (+9.93%), Netflix (+8.96%), AbbVie (+7.25%), and Walmart (+7.35%) highlight areas of investor confidence.
Semiconductors like Micron (MU, +6.54%) also showed notable strength.
Losers:
Target (-17.83%) stands out as a major laggard, suggesting challenges in retail operations.
Alphabet (-4.21%) underperformed, reflecting possible concerns about ad revenues or regulatory challenges.
Biotech weakness, particularly Vertex (-3.16%), signals caution in specific healthcare niches.
4. Sector Leadership
Leadership remains in consumer cyclical, energy, and parts of technology like semiconductors.
Defensive plays, including utilities, were among the weaker performers, likely reflecting shifts in investor sentiment toward riskier assets.
5. Broad Economic Implications
The outperformance of cyclical and growth sectors may signal optimism about economic resilience or expectations of favorable macroeconomic conditions, such as potential Federal Reserve easing.
Declines in utilities and mixed performance in healthcare and consumer defensive suggest rotation away from traditionally safer sectors.
This week’s performance indicates investor optimism with a clear preference for growth-oriented and economically sensitive sectors. However, caution remains in specific areas like retail and biotechnology.
ETF Insights
Broad Observations
Equity Index ETFs:
Major US indices showed strong gains:
SPY (S&P 500): +1.67%
QQQ (Nasdaq-100): +1.86%
DIA (Dow Jones): +1.99%
IVV (S&P 500 Core): +1.66%
VTI (Total US Stock Market): +2.14%
Small-cap and mid-cap indices performed exceptionally well:
IWM (Russell 2000): +4.5%
MDY (MidCap SPDR): +4.19%
Sector-Specific ETFs:
Technology:
Strong performance with SOXX (Semiconductors): +2.35% and VGT (Technology Select): +3.09%.
Energy:
Top-performing sector, with XOP (Oil & Gas Exploration): +5.55% and XLE (Energy Select): +2.68%.
Healthcare:
Modest gains for XLV (Health Care Select): +1.64%.
Financials:
Solid growth for XLF (Financials Select): +1.72% and KRE (Regional Banks): +2.96%.
Consumer Cyclicals:
Notable gains for XLY (Consumer Discretionary): +2.18%.
Utilities:
Positive week, with XLU (Utilities Select): +2.78%.
Global & International ETFs:
Emerging Markets (EEM): +0.77%.
Mixed performance across regions:
EFA (Developed Markets): +0.58%.
EWZ (Brazil): +0.77%.
Underperformance in China with ASHR (China A-Shares): -2.7%.
Commodities ETFs:
Gold (GLD): +5.6%.
Silver (SLV): +3.26%.
GDX (Gold Miners): +7.8% was a standout performer.
Leveraged ETFs:
Strong returns in leveraged ETFs tracking gains in equity markets:
TQQQ (Triple-Leveraged Nasdaq): +5.36%.
SPXL (Triple-Leveraged S&P 500): +4.8%.
Inverse leveraged ETFs underperformed:
SQQQ (Inverse Nasdaq): -5.16%.
SDOW (Inverse Dow): -5.51%.
Fixed Income ETFs:
Modest returns across fixed-income ETFs:
TLT (20+ Year Treasury): +0.34%.
BND (Aggregate Bond Index): +0.15%.
LQD (Investment Grade Corporate Bonds): +0.13%.
Crypto ETFs:
Significant gains in cryptocurrency ETFs:
BITO (Bitcoin Strategy): +8.23%.
GBTC (Grayscale Bitcoin Trust): +8.32%.
Key Takeaways
Equity markets were strong across all caps, with small and mid-caps outperforming large caps.
Technology and Energy were the dominant sectors, showcasing robust gains in ETFs.
Emerging Markets showed moderate growth, but China-focused ETFs lagged significantly.
Gold-related ETFs surged as a safe-haven asset, outperforming broader commodities.
Cryptocurrency ETFs had a standout week, reflecting bullish sentiment in digital assets.
The ETF landscape for the week suggests a risk-on environment, favoring growth sectors, small-cap equities, and speculative assets like cryptocurrencies. Defensive sectors and fixed income saw only modest gains.
Special Coverage: What’s driving gold higher? Where is it heading? Is there a bear case?
Gold, a timeless store of value and a symbol of wealth, continues to capture the attention of investors globally. Recent fluctuations in its price have raised questions about the forces driving its value, the outlook for the metal, and potential risks that could hinder its ascent.
Drivers of Gold Prices
1. Geopolitical Tensions
Gold thrives during uncertainty, often becoming the safe-haven asset of choice in times of geopolitical strife. The ongoing conflict between Russia and Ukraine has exacerbated global anxieties, pushing investors toward gold to safeguard their wealth. For example, Russia's recent escalation of attacks on Ukraine, including the use of hypersonic missiles, has reignited concerns over prolonged instability. This conflict underscores gold's role as a hedge against crises and its ability to retain value in volatile times.
2. Economic Uncertainty and Inflation
Persistent inflation and fears of a potential economic downturn have bolstered gold's appeal. As inflation erodes the purchasing power of fiat currencies, investors increasingly turn to gold to preserve wealth. Furthermore, the specter of economic instability—manifested in weak GDP growth and declining consumer confidence—has driven demand for the precious metal.
3. Central Bank Purchases
Emerging market central banks have accelerated their gold purchases, diversifying reserves to mitigate reliance on the U.S. dollar and safeguard against potential sanctions. Nations such as China and Russia have been at the forefront of this trend, reinforcing gold's importance in global monetary policy and pushing demand higher.
4. Interest Rate Expectations
Interest rates play a pivotal role in shaping gold prices. As the Federal Reserve signals potential rate cuts, the opportunity cost of holding gold diminishes, making it more attractive. Market anticipations of an easing monetary policy have fueled recent price gains, with investors flocking to the metal amid expectations of a dovish Fed stance.
5. Stock Market Volatility
Stock market turbulence often sends investors seeking refuge in gold. The unpredictability of equity markets, fueled by concerns over inflation, geopolitical instability, and economic stagnation, has reinforced gold's status as a crisis hedge. For instance, significant market corrections in recent months have coincided with gold's price surge, highlighting its role as a stabilizing asset.
Projections for Gold Prices: End-of-Year Outlook
Gold's price trajectory has sparked debate among analysts, with many projecting bullish outcomes driven by macroeconomic factors. Below are key forecasts from industry experts:
1. Goldman Sachs
Goldman Sachs projects gold prices to reach $2,700 per ounce by early 2025. This optimism is rooted in anticipated Federal Reserve rate cuts and increased central bank purchases. The firm sees gold benefiting from a weaker U.S. dollar and heightened demand from emerging markets.
2. J.P. Morgan
J.P. Morgan expects gold to climb to $2,500 per ounce by the end of 2024, contingent on the Federal Reserve commencing a rate-cutting cycle. The forecast emphasizes the interplay between monetary policy and gold's attractiveness as a hedge against inflation and economic uncertainty.
3. Société Générale (SocGen)
SocGen has revised its Q4 2024 gold price projection upward, forecasting an average price of $2,700 per ounce. The bank cites sustained central bank purchases and heightened geopolitical risks as critical drivers.
4. ANZ Research
ANZ Research anticipates fresh record highs for gold, potentially surpassing $2,900 in the near term. Central bank diversification and global economic instability are seen as primary factors underpinning this outlook.
5. Citigroup
Citi projects that gold could reach $3,000 per ounce within the next 6 to 18 months. The bank attributes this bullish stance to persistent geopolitical tensions and ongoing concerns over inflation and monetary policy.
These projections highlight the widespread optimism surrounding gold, underscoring its resilience amid challenging market conditions.
Bear Cases for Gold Prices
Despite gold's impressive performance and bullish outlook, several factors could undermine its upward trajectory:
1. Strengthening U.S. Dollar
A strong U.S. dollar often acts as a headwind for gold prices, making the metal more expensive for international buyers. Recent trends in currency markets have shown instances of dollar appreciation, which could suppress global demand for gold and cap its price gains.
2. Rising Interest Rates
Higher interest rates increase the opportunity cost of holding gold, as investors may favor yield-bearing assets like bonds. If inflation cools and central banks adopt a more hawkish stance, gold could face downward pressure. For instance, a surprise uptick in U.S. Treasury yields in early 2024 temporarily weighed on gold prices.
3. Reduced Geopolitical Tensions
Gold's safe-haven appeal could diminish if geopolitical risks abate. A resolution to major conflicts or diplomatic breakthroughs in global hotspots could shift investor focus away from gold toward riskier assets such as equities and corporate bonds.
4. Improving Economic Conditions
A stabilizing global economy may encourage a shift in investor sentiment, reducing demand for gold. Robust GDP growth, falling unemployment rates, and improving corporate earnings could spark renewed interest in growth-oriented investments, sidelining gold as a wealth-preservation tool.
5. Technological Disruptions and Digital Currencies
The rise of digital currencies and technological advancements could challenge gold's traditional role as a store of value. Cryptocurrencies like Bitcoin have increasingly been viewed as alternatives to gold, particularly among younger investors. While gold remains dominant, its appeal could face long-term erosion as digital assets gain traction.