Core Markets Overview:
- We remain technically bullish on the weekly trends for the S&P 500 index (SPX) and the Nasdaq 100 index (NDX).
- The indices traded in wide ranges last week, with a 2.05% weekly range for SPX and a 2.68% range for NDX.
- We view the last two weeks as traditional holiday weeks and expect to get a better read on any potential sector rotations this week.
- The Energy sector ETF (XLE) led all SPX sectors last week, +3.44%. If this rotation continues or not remains to be seen, but is of note.
- Focus on leadership stocks and sectors this week.
- Current technical leaders are technology and communication services. Semiconductors, the energy sector and renewable power/nuclear were leaders last week.
- 10-year US Treasury yields (TNX) closed at 4.596, -2.3 bps for the week.
- The U.S. Dollar index (DXY/USD) closed at 108.798, +1.006 points for the week.
– If either of these markets breaks out sharply to the upside, that would be expected to create headwinds for equities and/or heightened stock market volatility.
- The December monthly payrolls report (NFP) is this Friday at 8:30 AM ET.
- Major quarterly corporate earnings reporting starts on January 15, with J.P. Morgan Chase.
———————————————– - Equities: Investors should pay attention to market leaders over the first 5-10 trading days of the year, as a strong start can indicate a potential rotation.
- US Treasury Market/Bonds: TNX yields remain cautionary here, as noted above. All 4 key weekly moving averages are rising.
– We believe that investors should be prepared for TNX in the 4.25-5.00% range, at least for the first quarter of 2025.
– Higher yields are generally a headwind for equities. If TNX yields flatten or pullback, this should be a positive for equities. - Commodities: Gold, silver, copper and crude oil are all ranked as neutral.
– The 10-week moving average for Gold has started to turn down.
– WTI crude oil was +4.76% on the week. This could test higher, but there is no clear weekly trend at this time.
– Natural gas is a high volatility chart, rated “speculative buy”, if it stays over the rising 50-day moving average. - FOMC: The Fed funds futures market is currently pricing in one 25-basis point rate cut in 2025. This data can and does change often.
- Our top-ranked S&P 500 sectors: Current technical leaders are technology and communication services. Semiconductors, the energy sector and renewable power/nuclear were leaders last week.
- Top ranked higher-volatility or speculative sectors: Current technical leaders are quantum computing, Bitcoin, and autonomous vehicle technology.
- Bitcoin: Bitcoin remains buy rated if over 90,000.
- Underweight sectors/markets: Consumer staples and US Treasury bonds.
- Seasonality: Over the past 20 years, the S&P 500 ETF (SPY) is higher 50% of the time in January. There is no statistical relevance here.
– Over the past 20 years, the Nasdaq 100 ETF (QQQ) is higher 60% of the time in January, with an average gain of 0.6%.
– The first quarter of the first year of the U.S. Presidential cycle is often weak, but higher, below. Not all stocks and sectors will follow the index. - Economic data: Most relevant economic data continues to come in either inline or slightly above forecast.
Inflation expectations: As noted here often over the last few months, investors should be prepared for rising or at least firm inflation readings.
Have a great week,
Larry Tentarelli
Chief Technical Strategist and Founder
