Stocks extended their gains for another week, with the S&P 500 and Nasdaq both notching fresh records. That was in line with Fundstrat Head of Research Tom Lee’s and Head of Technical Strategy Mark Newton’s expectations for a December rally. However, that’s not to say Lee sees a straight upward path for stocks until Dec. 31. He doesn’t, and neither does Newton.
“When you break down the S&P 500 into sectors and see that Financials and Industrials are down, that’s interesting given that the market’s at new all-time highs,” Newton observed. “That doesn’t mean we should be bearish per se, but we should stay vigilant instead of just concluding, ‘Oh, the market’s great.'”
Lee explained his view that we could see some bumpy weeks in mid-December: “We believe a few near-term headwinds could combine to create a fundamental ‘zone of hesitation,'” he warned. These primarily revolve around market uncertainty around upcoming macro events, arguably the two most important of which are the November CPI report on December 11 and the Dec. 18 meeting of the Federal Open Market Committee (FOMC). “Once we are through this gauntlet, we expect the usual strong December seasonals to support stocks into year end,” Lee said. “I think 6,300 is very doable,” he suggested, “and I would suggest buying any dips that might occur before the end of the year.”
Bitcoin crossed the threshold of $100,000 this week. Sean Farrell, Head of Digital Asset Strategy noted that “the reasons for constructiveness that we’ve been talking about for the past couple of months are coming together.” Furthermore, in his view, “metrics like breadth, funding rates, and the amount of leverage in the ecosystem all suggest to me that this ‘fruit’ has a little more ‘juice’ to it – my base case is probably a couple more weeks. Stable coin creations are still solid. ETF flows are still solid. And we still have a Coinbase premium. So I’m not rushing to take off too much risk here.”
Sector Allocation Strategy
These are the latest strategic sector ratings from Head of Research Tom Lee and Head of Technical Strategy Mark Newton – part of the December 2024 update to the FSI Sector Allocation Strategy. FS Insight Macro and Pro subscribers can click here for ETF recommendations, precise guidance on strategic and tactical weightings, detailed commentary, and methodology.
Chart of the Week
Fundstrat Head of Research Tom Lee was one of the first “traditional finance” strategists to see the potential in Bitcoin. He had this to say about BTC breaking through the $100,000 barrier this week: “I don’t think 100,000 is the ceiling for Bitcoin. Looking at the value of the world’s gold, Bitcoin is already now worth 10% of gold –or maybe more, depending on how worldwide gold quantities and values are calculated. Yet if we look at what it would take for aggregate Bitcoin value to reach parity with gold, that leaves a lot of room for additional upside.” This is shown in our Chart of the Week.
Recent UPTICKS addition CRM 0.28% Salesforce.com (11/22/24) gapped higher this morning after strong 3Q results that exceeded analyst’s estimates and Agentforce (CRM’s AI agent product) closed more than 200 deals during the quarter. As can be seen here, not only did CRM break out above the early November highs, but has followed through aggressively after exceeding February 2024 highs which was thought to represent the “neckline” of a large four-year Reverse Head and Shoulders technical formation. My original upside resistance listed was $372, and then $403, but this week’s follow-through is quite encouraging technically.
Third straight day of muted to negative breadth despite QQQ surging another 1% on big-cap Tech strength while 9 of 11 sectors are down. Notable that the breadth bounce we saw in late Nov is now facing challenges this week, though the AAPL -0.22% breakout and NVDA bounce are important and powerful forces within ^SPX 0.15% – While the sliding VIX despite cross-asset volatility could be seen as complacent to some, and they’re not wrong… when HIGH PERCENTAGE SPX names like AAPL breakout that represent 7% of SPX and 12% of QQQ, you pay attention
Bond yields have given up all of earlier bounce as the notoriously volatile ISM Services survey showed a sharp drop to 52.1, well below the lowest forecasts. New orders and employment both sagged, while prices paid were resilient- This reading is completely opposite to what we’ve seen from manufacturing and underscores Fed gov Wallers recent point lately that interest rate sensitive parts of the economy have not rebounded as well. Thus, chances for a Dec rate cut are continuing to surge and now Swaps pricing is showing Rate cut probabilities up to 76% (recall this was nearly half this amount a few weeks ago ahead of Waller’s speech)- TNX looks likely to turn back down and undercut its most recent 4.165% low from yesterday. This was a direct hit to the 38.2% Fibonacci level of the prior Sept-Nov rally in bond yields, but TNX is headed lower in my view and likely gets down to 4.06% before a possible bounce. Ultimately, bond yields are headed lower into 2025 and i expect a test and undercut of Sept lows at 3.60%
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