Powerful Market Momentum Is Slowing as Economic Worries Increase
Will economic news will be the catalyst for more profit-taking?
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Market timers are intently focused on trying to predict when the post-election market surge will come to an end. The big move since early November has been fueled by increased economic optimism and hope that inflation is under control and will not rebound. It has been a Goldilocks economic scenario on steroids.
The positive market action has also benefited from a parabolic move in Bitcoin and aggressive rotation in and out of the Russell 2000 and the Magnificent Seven MAGS. Fed Chair Jerome Powell contributed to the positive vibes with some upbeat comments in an interview last week.
It has been great trading action for aggressive players, but the bears are growling loudly about how it is frothy and unsustainable and will end badly. It would be surprising if they weren’t making these arguments at this point. The bears are always trying to anticipate the exact turning point after a good run and typically do a very poor job of it.
Last week, conditions were ripe for an intraday reversal, and we did have signs of one on Friday. It was mild, but it indicated that there was some increased desire to take profits into strength.
The big issue this week is whether economic news will be the catalyst for more profit-taking. There is an important CPI report on Wednesday, followed by the Fed interest rate decision the following week.
After data last week, the odds of a quarter-point cut at the next Fed meeting have jumped to 87% from 62% a week ago. There is little doubt now that there will be cut, but the main focus will be additional cuts in 2025. The odds of such cuts are falling fast, and the issue that is front and center is whether Trump will cause inflationary pressures to jump when he takes office on January 20.
There was news this morning that China is ramping up economic stimulus programs, which are boosting China-related names. However, Nvidia NVDA is under pressure due to Chinese anti-trust issues. meanwhile, quantum computing stocks such as Rigetti Computing RGTI and IonQ IONQ are attracting speculative interest.
There is increased volatility and more concern about a short-term top, but late-stage market action often produces some of the best returns.
At the time of publication, Rev Shark was long NVDA and RGTI.
