FED rate cuts, SP500 tanking

MOTIVATION
QUOTE OF THE WEEK

"Success is not the absence of failure; it's the persistence through failure."

Aisha Tyler

WEEK 16/12/2024 to 20/12/2024
🚨What you need to know this week🚨

• Nasdaq 100 Changes: MicroStrategy, led by Michael Saylor, will join the Nasdaq 100 on December 23 during the annual reconstitution, while Super Micro Computer, Moderna, and Illumina will be removed.

• Central Bank Actions: Within 24 hours, the Federal Reserve, Bank of Japan, and Bank of England will announce interest rate decisions, marking the end of a challenging year for global inflation.

• Consumer Strain: Dollar General and Walmart report rising financial pressures among lower-income consumers, highlighting increasing economic strain.

• Boeing's Decline: Boeing’s stock is down 35% year-to-date, ranking it among the S&P 500’s worst performers.

• Bitcoin as Reserve: El Salvador, Paraguay, and the Central African Republic are considering adding Bitcoin to their national reserves.

• Bond Market Shift: A U.S. bond market selloff pushed 10-year Treasury yields above 3-month yields for the first time since 2022.

• Tesla’s Growth Projection: Tesla's market cap could reach $2 trillion by 2025, up from its current $1.44 trillion.

• MicroStrategy Bitcoin Purchase: Acquired 15,350 bitcoins for $1.5 billion.

• SoftBank's AI Investment: SoftBank revealed a $100 billion investment in U.S. AI infrastructure over the next four years, demonstrating confidence in the sector's growth under the Trump administration.

• Inflation Rise: November CPI rose to 2.7% YoY (a five-month high), aligning with market expectations despite continued inflation concerns.

• Brazil Selloff: Brazil’s markets are experiencing significant selloffs across equities, bonds, and currency.

• Federal Reserve Rate Cut: The Fed announced a 0.25% rate cut to 4.25%-4.50%, aligning with expectations, but signaled only two rate cuts in 2025, down from four previously projected.

• Hawkish Inflation Outlook: Inflation is not expected to reach the 2% target until 2027, reflecting a prolonged higher-rate environment and surprising markets despite the rate cut.

• FOMC Inflation Concerns: More policymakers highlighted upside risks to inflation, emphasizing concerns over its persistence.

• Powell on Bitcoin: Jerome Powell reiterated the Federal Reserve's policy of not holding Bitcoin.

• S&P 500 Slide: The index fell 3%, marking its largest decline since August.

• UK Gilt Yields Rise: UK 10-year gilt yields surged to 4.55%, raising stagflation concerns.

• Jobless Claims: Initial jobless claims fell to 220,000, a week-over-week decrease of 22,000.

20/12/2024
🔎 Insights on the market 🔎

Nearly a 3% drop in a single day for the S&P 500. It broke below the 50-day EMA and closed the gap from November 20th. On the same day, it found support at $585, a level where the price previously reacted (marked by the white line on the chart).

There are still gaps to be closed if the price continues to fall, so it's not time to celebrate just yet. However, this is the first support zone to watch closely and see how the price reacts.

Tesla, which had been climbing strongly, also corrected, though its drop was much milder compared to the averages. It found support at the 9-day EMA, while SPY plummeted past the 50-day EMA.

📜 Historical Perspective 📜

• This week's focus on central bank rate decisions echoes December 2015, when the Federal Reserve raised rates for the first time in nearly a decade. The move marked the beginning of a tightening cycle that significantly impacted market dynamics over the following years. Similarly, today’s rate decisions are shaping the narrative for 2025, with implications for both risk assets and fixed-income markets.

20/12/2024
✍️Market Lessons ✍️

Sudden policy shifts, like the Fed’s cautious approach despite rate cuts, reinforce the importance of monitoring central bank guidance closely. Markets tend to misprice prolonged inflation risks, making it crucial for traders to maintain realistic expectations.

💸 Common Mistakes 💸

Chasing trends in highly volatile markets, such as Brazil’s selloff or Bitcoin-related news, without understanding underlying fundamentals often leads to significant losses. Emotional trading during downturns amplifies mistakes.

📅Next Week’s Economic Calendar (23/12 to 27/12):📅

Monday, December 23, 2024

Tuesday, December 24, 2024

Wednesday, December 25, 2024

Thursday, December 26, 2024

Friday, December 27, 2024