The Fed, The House and a Quantum Mania for Christmas 2024
The Dow Jones Industrial Average bounced on Friday to close out a tough week that saw the index plunge 1,100 points in a single day and complete its longest losing streak since the 1970s. Some cooler-than-expected inflation data helped fuel the session’s rebound.
The 30-stock Dow gained 498.02 points, or 1.18%, to 42,840.26. The S&P 500 added 1.09% to end at 5,930.85, while the Nasdaq Composite advanced 1.03% and closed at 19,572.60.
November’s reading of the personal consumption expenditures price index — the Federal Reserve’s preferred inflation metric — increased 2.4% year over year. That was a tad less than economists expected and helped defuse some of the bearishness that arose earlier this week when the Fed said it would dial back future rate cuts in part because of stubborn inflation.
All 11 sectors of the S&P 500 ended the day higher, with real estate and information technology among the biggest gainers. Just 53 stocks in the broad market index closed lower on Friday.
Chicago Fed President Austan Goolsbee told CNBC’s Steve Liesman he was encouraged by Friday’s inflation figures and that rates could still decline next year despite the central bank’s cautious stance.
“We’re still on path to get to 2% and at least for this new month you don’t want to make too much out of any one month, but I’m hopeful that this suggests that the couple of months of firming were more of a bump than a change in path,” Goolsbee said. Major indexes jumped intraday following his comments.
It was a positive end to a tumultuous week. During Thursday’s trading session, the Dow eked out a 15-point gain and ended a 10-day losing streak, its longest since 1974. The small gain came a day after the Dow plunged 1,100 points on Wednesday. The Fed’s indication of just two cuts next year, instead of the four it originally forecast, was the catalyst for the decline.
“Today has calmed people down,” said Tom Fitzpatrick, managing director at R.J. O’Brien and Associates.
”[It’s] unlikely we get a downside catalyst now ahead of Christmas and New Year’s, so [the] moves of the last few days can get unwound a bit.”Even as the major averages jumped on Friday, all three booked losses on the week. The Dow lost nearly 2.3%, notching its third straight losing week. The S&P 500 fell almost 2% week to date, while the Nasdaq Composite was off by about 1.8%.
Elsewhere, a Trump-endorsed House Republican measure to fund the government for three months and avert a government shutdown failed on Thursday. Without a deal, a partial shutdown is slated to start late Friday night.
And Julie Hyman of Yahoo Finance reports the sharp reaction to the Fed could be an ominous sign for markets in 2025:
Fed Chair Jay Powell wasn't particularly surprising on Wednesday.
The Fed cut rates by a quarter point. The Summary of Economic Projections — the so-called “dot plot” — showed FOMC members, on average, expect two rate cuts next year, in line with market expectations. Powell talked a lot about the economy being strong, and the uncertainty surrounding potential policies of the incoming Trump administration.
Yet stocks reacted as though Powell had gone streaking through the briefing room wearing nothing but his trademark purple tie. The Dow extended a losing streak to 10 sessions, its longest string since 1974. The S&P 500 plunged by nearly 3%, its worst day in four months.
But the “higher for longer” conversation, both regarding interest rates and inflation, has been happening for months. Fed funds futures were already pricing in two cuts next year. Stocks had mostly kept rising, buoyed by the reason behind higher for longer — a still-expanding economy — and the perception that the incoming Trump administration would be bullish for stocks.
“You know, markets have a funny way of kind of talking about things and pricing them in incrementally, but not really fully pricing them in until they’re actually realized,” Piper Sandler’s Michael Kantrowitz said in an interview following Powell’s presser.
Peter Boockvar, chief investment officer of Bleakley Financial, likened the market’s reaction to the classic children’s book, “If You Give a Mouse a Cookie,” in which the titular mouse keeps wanting more and more. “The Fed gives the market some guidance on rates and the market then goes too far with pricing it,” Boockvar wrote in his “Boock Report” newsletter.
None of this is particularly unusual. An academic might say that markets price in available information efficiently, but in reality that process is messy, and sometimes seemingly illogical. Powell and co. project two cuts next year, and now suddenly the market says just one.
That messiness is set to continue, given all the uncertainty coming in the next year. Powell uttered some variation of the word “uncertain” 17 times in his press conference, up from seven in November and only a handful after the other meetings this year. A lot of that uncertainty centers on fiscal policy.
That uncertainty cuts both ways too. Even if the new Fed projections’ higher terminal rate spooked markets, that’s in 2027 — and it’s an understatement to say that a lot can happen between now and then. There’s a reason why Powell is staying “data dependent” or “reactive.” As he said, we’re “walking into a dark room full of furniture.”
Indeed, even as Powell was speaking on Wednesday, markets got a concrete reminder beyond the Fed chair’s discussion of economic modeling: Elon Musk was trying to push Congress not to pass a funding bill. He was joined by Trump, which may mean the government could shut down today, leaving thousands of government workers without paychecks before Christmas.
It was a preview. If the Fed’s relatively predictable message caused this level of market messiness, investors had better buckle up for the Trump-Musk show.
Alright, another busy week in markets so let me get to it.
First, the Fed's "hawkish rate cut" spooked markets because traders want more rate cuts and the Fed is easing up on that prospect.
2025 is shaping out to be another volatile year and the biggest problem is if inflation picks up while the economy slows down (stagflation).
That's the real reason the Fed doesn't want to commit to more rate cuts until it sees data suggesting inflation is abating and/ or the economy is slowing.
More ominously, it's that time of the year where politicians get together in Washington to discuss the debt ceiling and if they can't get a deal, a government shutdown showdown occurs.
Luckily, after the close today, the House of Representatives approved a bipartisan federal spending bill to fund the government for three months and provide disaster relief and farm aid:
The bill passed with significant Democratic support and votes from 2/3rds of the members present, a high bar that reflected the desire in both parties to avoid a costly shutdown that could jeopardize paychecks for hundreds of thousands of federal employees a few days before Christmas.
The bill has a realistic path to passing the Democratic-controlled Senate. But parliamentary procedure in the chamber gives more power to individual senators to jam up legislation.
“We will not have a government shutdown,” House Speaker Mike Johnson, R-La., told reporters in the Capitol Friday afternoon. “We will meet our obligations for our farmers who need aid, disaster victims all over the country and make sure that military and essential services and everyone that relies on the federal government for a paycheck is paid over the holidays.”
The vote capped off several days of chaos on Capitol Hill, during which Johnson tried, and failed, to meet the demands of President-elect Donald Trump.
I'd be shocked if the Senate doesn't pass it.
What else happened this week in markets?
Last Friday, I discussed whether the market is ready for a quantum leap, profiling the extraordinary returns in micro/ small cap quantum computing stocks.
On Saturday, that comment shot up to number one on my popular posts and when I looked into into thousands of hits (30,000++) came in from servers in India.
I found that strange and this week, the mania in quantum computing stocks continued and it was extraordinary and volatile to say the least.
I will give you the symbols to tracks: ARQQ, IONQ, QMCO, QUBT, QBTS and RGTI and below the weekly action in the three most popular ones:
These quantum computing stocks hit a high on Wednesday when the Fed announced, got whacked on Thursday and bounced back strongly today (but off their weekly highs).
The volume and swings in these stocks is reminiscent of the 1999-2000 tech bubble, big quant hedge funds are 1000% behind the action.
How do I know? Their servers are in India and they were all hitting my comment from last Friday which is strange (they typically couldn't care less about what I write on Pension Pulse).
It's also holiday season, a lot of people are off, so they can easily manipulate these stocks, pump and dump them as they post nonsense on stock boards (quite amazing).
I'm not complaining, trading the action (traded RGTI again this morning) and expert traders are making a killing trading going long & short the quantum mania but these stocks are all hot air, sooner or later, the volume will dry up fast and they will fall back to where they were a month ago.
Another stock that caught my attention this week was Nukkleus Inc (NUUK) which went from $2 to almost $77 in three days before falling back down to earth on Friday:
Don't ask me what they do, have no clue, not interested but it's silly season in Stock Land and the Fed isn't paying attention.
Speaking of silliness, shares of Novo Nordisk stock saw the biggest loss in more than 20 years on the company's CagriSema results:
That prompted me to post this on StockTwits earlier today:
Ok, I've seen enough nonsense here, time for some good technical analysis. While everyone is looking at short-term daily charts, wondering if the stock will cross back over $90 and make its way back over $100, I was checking out the 5-year weekly chart and low and behold, the stock hit its 200-week exponential moving avg (right under $85) and seems to be holding here. This is an important level and if the stock keeps sliding lower and lower, then we have entered a major bear market on Novo. However, if it consolidates here and earnings show good results, then this will prove the best dip on a large pharma stock in a very long time. There is no rush to buy, the weekly MACD remains negative, just keep this chart in mind and come back to me in a year to see where Novo is trading.
Happy Holidays! :)
It's not every day you see a large pharma stock with billions in revenues nosedive 20% and while the stock can go lower, end of year rebalancing will occur and it's part of international stock portfolios so I expect some consolidation will take place (not to mention, the data was pretty good if you bothered looking at it).
Whatever, my point is it's silly season in the stock market, the Fed isn't paying attention and I see this nonsense continuing next year and pretty much throughout Trump 2.0.
More volatility, more opportunity, so keep it coming!!
Below, Speaker Johnson: "We are excited about this outcome tonight. We're grateful that everyone stood together to do the right thing...We are setup for a big and important new start in January...We encourage a swift passage in the Senate now. They need to do their job."
Next, the 'Fast Money' traders discuss the Fed comments that turned markets around after this week's Fed meeting.
Third, Ed Yardeni, Yardeni Research president, joins 'Squawk on the Street' to discuss how cautious the market expert is about equities into January, the reason that Treasury yields are up, and much more.
Fourth, Michael Farr, Hightower Advisors chief market strategist, and Ron Insana, iFi AI CEO, join CNBC's 'Power Lunch' to discuss whether the market cares about a looming government shutdown, economic outlooks, and more.
Lastly, CNBC takes a look back at Tyler Mathisen's phenomenal 27-years at the network.
A true gentleman, I will miss him and wish him the very best.
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