A daily market update from FS Insight — what you need to know ahead of opening bell.
“Be not afraid of greatness. Some are born great, some achieve greatness, and others have greatness thrust upon them.” — William Shakespeare
Over the weekend
Unemployed Office Workers Are Having a Harder Time Finding New Jobs WSJ
Investment banks prepare for crunch year in 2025 FT
Canadian PM Justin Trudeau may quit within days, say media reports BBC
Biden bans new offshore drilling along most of the U.S. coastline CNBC
New York becomes first US city to introduce congestion charging FT
How Uber and Lyft Are Gearing Up for the Robotaxi Revolution WSJ
Nippon Steel and US Steel file lawsuits over blocked takeover SEM
How the sports media world is undergoing a seismic shift CNBC
The Challenge for Made-in-America Bikes? Made-in-China Parts WSJ
US Yields Hit 14-Month High Before $119 Billion of Debt Sales BBG
No Santa Claus Rally, No Problem for the Stock Market BR
Congress to Certify Trump’s Election Win as Storm Hits Washington WSJ
House and Senate Split on How to Deliver for Trump WSJ
U.S. faces worst storm in decade SEM
Chart of the Day
| Overnight |
| S&P Futures +44
point(s) (+0.7%
) overnight range: -9 to +45 point(s) |
| APAC |
| Nikkei -1.47%
Topix -1.02% China SHCOMP -0.14% Hang Seng -0.36% Korea +1.91% Singapore +0.53% Australia +0.08% India -1.62% Taiwan +2.79% |
| Europe |
| Stoxx 50 +1.98%
Stoxx 600 +0.83% FTSE 100 +0.08% DAX +1.30% CAC 40 +2.12% Italy +1.55% IBEX +0.78% |
| FX |
| Dollar Index (DXY) -0.84%
to 108.04 EUR/USD +0.88% to 1.0399 GBP/USD +0.85% to 1.2529 USD/JPY +0.29% to 156.80 USD/CNY +0.03% to 7.3192 USD/CNH +0.46% to 7.3246 USD/CHF +0.66% to 0.9025 USD/CAD +0.87% to 1.4323 AUD/USD +1.08% to 0.6283 |
| UST Term Structure |
| 2Y-3
M Spread narrowed -2.8bps
to -5.7bps
10Y-2 Y Spread widened 1.5bps to 33.0bps 30Y-10 Y Spread widened 0.7bps to 21.8bps |
| Yesterday's Recap |
| SPX +1.26%
SPX Eq Wt +0.92% NASDAQ 100 +1.67% NASDAQ Comp +1.77% Russell Midcap +1.30% R2k +1.65% R1k Value +0.92% R1k Growth +1.61% R2k Value +1.21% R2k Growth +2.06% FANG+ +1.44% Semis +2.90% Software +1.56% Biotech +0.96% Regional Banks +1.46% SPX GICS1 Sorted: Materials +0.03% Cons Staples +0.10% Fin +0.79% Comm Srvcs +0.79% Energy +0.90% Healthcare +0.99% Utes +1.10% Indu +1.11% SPX +1.26% REITs +1.36% Tech +1.62% Cons Disc +2.42% |
| USD HY OaS |
| All Sectors +0.2bps
to 311bps All Sectors ex-Energy +0.1bps 292bps Cons Disc -4.3bps 254bps Indu -3.1bps 235bps Tech -7.8bps 304bps Comm Srvcs +1.3bps 504bps Materials +2.9bps 291bps Energy +5.6bps 296bps Fin Snr -0.1bps 274bps Fin Sub -2.9bps 192bps Cons Staples -0.6bps 272bps Healthcare +4.5bps 374bps Utes +4.9bps 222bps * |
| Date | Time | Description | Estimate | Last |
|---|---|---|---|---|
| 1/6 | 9:45 AM | Dec F S&P Srvcs PMI | 58.5 | 58.5 |
| 1/6 | 10:00 AM | Nov F Durable Gds Orders | -0.4 | -1.1 |
| 1/7 | 8:30 AM | Nov Trade Balance | -78.2 | -73.836 |
| 1/7 | 10:00 AM | Dec ISM Srvcs PMI | 53.5 | 52.1 |
| 1/7 | 10:00 AM | Nov JOLTS | 7750 | 7744 |
| 1/8 | 2:00 PM | Dec 18 FOMC Minutes | n/a | 0 |
| 1/8 | 2:00 PM | Dec 18 FOMC Minutes | n/a | 0 |
| 1/10 | 8:30 AM | Dec AHE m/m | 0.3 | 0.4 |
| 1/10 | 8:30 AM | Dec Unemployment Rate | 4.2 | 4.2 |
| 1/10 | 8:30 AM | Dec Non-farm Payrolls | 160 | 227 |
| 1/10 | 10:00 AM | Jan P UMich 1yr Inf Exp | 2.8 | 2.8 |
| 1/10 | 10:00 AM | Jan P UMich Sentiment | 73.9 | 74 |
MORNING INSIGHT
Good morning!
The “rule of 1st 5 days” is invoked by Jan 8th (Wednesday) and S&P 500 closing above 5,881.63 will be something we are watching. We have long written about how we watch this metric, as it often directionally signals how stocks will do for the full year.
Click HERE for more.
TECHNICAL
Fundstrat Head of Technical Strategy Mark Newton was on vacation last week. He is scheduled to resume publishing Monday, Jan. 6, 2025.
CRYPTO
We explore the implications of the latest PMI data for crypto, highlight the standout assets and sectors in the first three trading days of the year, and share our thoughts on positioning ahead of next week’s key events.
Click HERE for more.
First News
Stocks have rarely looked this expensive. Investors say, “So what?”
Just about every popular metric used to determine if stocks are expensive or cheap shows that the market has been driven up too much. In typical market conditions, that matters because stocks trading at nosebleed valuations raises questions about whether the actual fundamentals can justify those numbers. Prolonged high valuations seen during previous market scares have left a bad taste in investors’ mouths, such as during the dot-com bubble.
Currently, companies in the S&P 500 are trading at about 22 times their projected earnings over the next 12 months, above the 25-year average multiple of roughly 17. That high number would usually make investors too nervous to invest due to fear of losing tons of money. But this time around, most investors don’t seem to be minding it too much, even as some are still sounding the alarm.
We know investors are growing complacent to high valuations because allocations to U.S. equities surged to a net 36% overweight, marking the highest level on record, according to Bank of America Global Fund Manager Survey for December.
So what’s changed for investors? The enthusiasm can largely be explained by understanding “FOMO,” aka fear of missing out on the artificial intelligence-driven rally. For the most part, investors are so afraid of not being a part of this revolution that they would rather buy at what they deem to be skyhigh and even potentially unsustainable prices.
It makes sense when considering that the consequences of wrongly calling this rally a bubble seem significantly greater than being right (at least for now). You could miss out on gains as lucrative as 340% for Palantir in 2024, 170% for Nvidia, and 110% for Broadcom.
Proponents of this rally say that the thirst is justified because if you didn’t own Nvidia in your portfolio this year, you would be answering to some very upset clients. For instance, take the case of Richard Toh, the chief executive and investment officer for Singapore-based hedge-fund firm Kenrich Partners, whose fund has significantly underperformed relative to the S&P 500 last year, according to the Wall Street Journal. Toh wrote a four-page letter to investors in his fund to apologize for not investing in Nvidia. He told the story of how he questioned one of his young software engineers’ personal holdings and why he owned a single stock.
“After consulting him for his reasons, which were not much, I told him that we did not invest in the U.S. markets and that Nvidia did not fit any of the criterion based on our value way of looking at companies,” Toh wrote.
He added that, “I learned from that episode that sometimes the best investments are precisely the ones you cannot explain and probably made no sense.”
That is precisely the dilemma that has struck investors recently. This is the first time there are large-scale investments in AI, and its uses are still being discovered. So they’ve thrown the traditional valuation methods out the window, because they’re worried those are not the right fit to capture all of AI’s potential excellence.
Maybe that’s why they’re not so worried about higher valuations. Besides, there’s a joke in the markets community that there will always be some bear calling for a crash that is yet to appear. Since the “Big Short” investor Michael Burry tweeted just the word, “sell” at the end of January 2023, the S&P 500 has rallied over 44%.
At the same time, the risks of a market crash cannot be underestimated. The question then becomes: Does FOMO justify potential irrational exuberance?
For now, investors seem to be saying, “No matter.”
