“Each second we live is a new and unique moment of the universe a moment that never was before and never will be again” ― Pablo Casals

Good evening, 

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. 

Lee has seasonality on his side: since 1950, when the S&P 500 was up by at least 10% in the first half of the year (the S&P 500 was up ~14% for 1H2024), stocks have advanced in December 83% of the time, with median gains of 2.9%. If we narrow our historical analysis down to election years, that win ratio rises to 100% of the time, with median gains of 3.4%.  At current levels, this would imply ^SPX -1.67%  at around 6,250 by the end of 2024. Furthermore, in years in which the S&P 500 has gained over 25% by the end of November (at the end of November 2024 it was up 26.5% for the year), historical data suggests December sees median gains of 2.5%. 

Yet retail investor sentiment has fallen in recent weeks. Three weeks ago (the week ending November 13), the American Association of Individual Investors (AAII) Investor Sentiment Survey showed a net-bull percentage of +22% – "very bullish," in Lee's view. It then declined the next two weeks and slipped into outright bearish territory, at -2%. "To me, it is a positive sign that sentiment turned more bearish while stocks were rising – a contrarian bullish signal."

That's not to say Lee sees a straight upward path for stocks until Dec. 31. Neither does Newton. 

"When you break down the S&P 500 and you look at what's been performing over the last week, over half the sectors have been down – I'm talking about sectors like Energy, Real Estate, and Utilities," Newton noted during our weekly research huddle. "Of course, some of those are defensive sectors, but when you see Financials and Industrials are also down, that's interesting given that the market's at new all-time highs," he added. "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. The two most important, to Lee, are the November CPI report on December 11 and the Dec. 18 meeting of the Federal Open Market Committee (FOMC). The latter will come with a "dot plot" providing insight into where Fed members currently anticipate rates heading.

"Once we are through this gauntlet, we expect typical seasonals [discussed above] to support stocks into year end," Lee said, "and to support the so-called 'Santa Claus' rally. 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."   

"I do sense that this is possible between now and December expiration," Newton concurred. "We might give away three to five percent, but as Tom said, you want to buy the dips in this so-called zone of hesitation."

On Bitcoin

Bitcoin crossed the threshold of $100,000 this week. Here's what our research heads had to say about that, starting of course with:

• Sean Farrell, Head of Digital Asset Strategy – The reasons for constructiveness that we've been talking about for the past couple of months are coming together. Things are getting a bit frothy, but to me, that's not really a reason to sell. 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. My sense is that alts are where a lot of the action is happening. But 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.  

• Newton – From a technical perspective, Bitcoin crossing $100,000 wasn't really a big deal, but of course it is getting everybody's attention, including the media. To Sean's point, you can sort of feel the froth building, but I don't sense that we're yet at a point where we would see a large pullback. But to me, it's more interesting  that we've seen a very massive rotation into Ethereum lately, and I agree that some of the alt coins have shown very good outperformance of late. I think that's the way to play crypto at this point: It's not really about Bitcoin – Bitcoin has been steadily losing relative strength versus the broader crypto space for the last few weeks.  I sense that this is the way these rallies in crypto often unfold – initially we start with a Bitcoin rally, and then it gradually shifts into more of an "alt points" phase. 

• Lee – 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). 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:

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.

Elsewhere

The CEO of UnitedHealth's insurance unit was fatally shot while walking to a shareholder event at the Hilton Hotel in Manhattan's Midtown West neighborhood. NYPD Commissioner Jessica Tisch said Brian Thompson's murder was likely a "premeditated, preplanned, targeted attack." The masked gunman remained at large as of Friday afternoon. 

TikTok moved closer to being banned in the U.S., failing to convince a federal appellate court to reverse a lower court's ruling that such a ban violates neither the First nor the Fifth Amendments. In fact, the court ruled that the law requiring TikTok to either separate from its Chinese parent company ByteDance or be banned is in fact "protecting [free speech rights] from a foreign adversary nation and to limit that adversary's ability to gather data on people in the United States." Meanwhile, the EU initiated an urgent inquiry into TikTok and its possible role in Romania's ongoing presidential election. The results of the first round of the election, in which pro-Russia far-right candidate Calin Georgescu surprisingly won the most votes, were annulled on Friday after declassified Romanian intelligence files suggested that Russian intelligence had orchestrated Georgescu's social media campaign on platforms such as TikTok.

President Trump announced his choice to head up the SEC, naming Paul Atkins to lead the regulator. Atkins was a longtime veteran of the SEC, including a six-year period in which he was an SEC commissioner under President George W. Bush. Atkins is widely regarded as pro-crypto, especially when compared to the current SEC head, Gary Gensler. 

This year's Cyber Monday was the largest on record, according to Adobe Analytics numbers. Customers spent $13.3 billion, up 7.3% from 2023 levels. Result for the post-Thanksgiving period also set new highs: in the five days beginning on Thanksgiving Day (November 28), consumers spent a record $41.1 billion.

South Korean President Yoon Suk Yeol is facing impeachment proceedings after briefly and unexpectedly declaring martial law on Tuesday. Yoon, who cited alleged "anti-state" North Korean influence within the South Korean government for the draconian measure, backed down six hours later after facing widespread opposition from the public, from the opposition Democratic party, and from members of his own People Power Party. Lawmakers were forced to dodge military guards to enter the blockaded National Assembly building to vote down the martial-law order before Yoon capitulated. In the aftermath, Yoon's entire cabinet – aside from his prime minister – tendered their resignations. Korean stocks sank during the turmoil, and afterward, Financial Services Commission Chairman Kim Byung-hwan announced that the government would intervene to stabilize the market if necessary.

The EU reached a preliminary free-trade agreement with a four-member bloc of South American countries ahead of a raft of anticipated tariffs from the incoming Trump administration. If ratified, the deal with Brazil, Argentina, Paraguay, and Uruguay would become the EY's largest free-trade agreement. There is some opposition to the deal, however, notably from farmers in France and Poland. 

France's government collapsed as MPs voted to oust the centrist Prime Minister Michel Barnier. Barnier was unable to survive anger from both the left- and right-wing members of the French National Assembly, both angered by his attempt to reduce France's deficit by forcing through a controversial 2025 budget without parliamentary support. The left opposed cuts to social programs in the budget, while the right opposed the accompanying tax increases. Barnier is the shortest-serving Prime Minister in modern French history (the French Fifth Republic). 

A federal judge rejected a plea deal between Boeing and federal prosecutors that would have resolved criminal charges against the aerospace company over the fatal crashes of two Boeing 737s in 2018 and 2019. Judge Reed O'Connor threw out the settlement because it did not require Boeing to comply with the independent monitor's recommendations and gave the company a say in choosing the monitor. O'Connor also disagreed with clauses in the agreement that required racial consideration in the selection of the monitor. 

The attorney general of Washington, DC, sued Amazon for allegedly excluding customers living in low-income neighborhoods from the company's Prime high-speed, expedited delivery service. Amazon denied discrimination, but a spokesperson acknowledged a difference in delivery procedures noting that "in the zip codes in question, there have been specific and targeted acts against drivers delivering Amazon packages."

And finally: Google DeepMind announced that its GenCast AI model had successfully outperformed traditional forecast models in multiple metrics, including the forecasting of extreme weather events and daily weather forecasts up to 15 days out. Trained on four decades of data provided by the European Centre for Medium-Range Weather Forecasting (ECMWF), GenCast can generate global ensemble forecasts 15-days out in just eight minutes. Researchers tested its ability to forecast 2019 weather around the world, and GenCast forecasts were more accurate than ECMWF's forecasts (considered the gold standard in forecasting) in 1,283 out of 1,320 weather metrics such as temperature, wind speed, and humidity.