“How much or how little money changes hands doesn’t make it philanthropy. Intention and effort make it philanthropy. If we acknowledge what it all has in common, there will be more of it.” — MacKenzie Scott

Good evening, 

The exuberant stock-market rally that has sent major indexes to records in recent weeks and months came under pressure this week.

Worries about rates staying "higher for longer" dragged down markets, but Fundstrat Head of Research Tom Lee believes the declines mark what he calls a "buy the dip moment," because in his view, the long-term fundamental trends are still intact. 

From a technical perspective, it wasn’t a great week for market breadth. Head of Technical Strategy Mark Newton pointed out that the percentage of stocks moving above their 20-day, 50-day and 200-day moving averages tumbled even more. But he still expects markets to bounce back next week. 

“This is all in the context of a larger bull market, so this is just a corrective-type pattern,” Newton said. “I don’t sense that it’s right to make too much of this, but it is something that is ongoing.” 

The declines this week were driven by the conclusion of the Federal Reserve’s meeting Wednesday. As widely expected, the central bank cut the benchmark interest rates by a quarter-percentage-point despite a pickup in inflation. What spooked the markets was that the Fed penciled in just two cuts next year after previously indicating four, suggesting that the era of ultralow rates will take longer to arrive than many had previously anticipated. 

In response, all three major indexes tumbled Wednesday and struggled to bounce back Thursday. 

Friday brought along some good news. The major indexes staged a big comeback after the Fed’s preferred inflation gauge, the PCE index, came in lower than expected. The S&P 500 finished the day up 1.2%, with all 11 sectors higher. 

But that turnaround wasn’t enough to end the week higher. The S&P 500 ended the week down about 2% to 5,930.85 points.

Lee said the prospect of fewer rate cuts next year doesn’t bother him, because in his view, the Fed is still showing signs of dovishness. During the press conference after the meeting, Fed Chair Jerome Powell noted  "inflation has once again underperformed relative to expectations."

As Lee and his team have previously noted, the two biggest reasons for core inflation underperformance have been shelter and auto insurance. (Powell himself acknowledged that labor-market pressures were not to blame.) "We know [improvements to] shelter inflation are a matter of time, due to the lags of market prices impacting CPI," Lee reminded us. "And auto insurance is already cooling from elevated levels and does not require further Fed intervention." 

Plus, Lee flagged that the Fed made a minor change to its expectations for long-term interest rates, bringing it down to 2.9% from 3%. 

“The S&P 500 has been very strong this year,” Lee said. “It’s avoided many opportunities for weakness, and there’s no reason to believe that what happened [mid-week] has changed any of that.”

Lee also quelled worries about Wednesday’s spike in the VIX, widely considered Wall Street’s fear gauge. The index rose 74%, the second highest jump since February 2018 when it shot up 116%, according to data going back to 1990. Lee said that isn’t a concerning sign because nine days after the 116% move, the S&P 500 had recovered all of its losses. 

Historically, if one looks at the four biggest VIX spikes in the last 35 years, "what's notable is how quickly markets recovered from these sell offs," Lee pointed out. The market ended up higher three months later in all cases. Our Chart of the Week shows more details:

“Bottom line, I’d be buying this dip,” he told us. 

Elsewhere

There’s a reason for your delayed package this Christmas season. Thousands of Amazon workers are striking over higher wages, better benefits and safer conditions at work and also over Amazon’s refusal to recognize the International Brotherhood of Teamsters, the union that represents its employees. The strike came after Amazon ignored a Sunday deadline for contract negotiations, the union said.

Japanese rivals Nissan and Honda are hoping to lean on each other in a flailing auto industry. The move to merge companies signals just how much China’s rise in the auto industry has threatened other players. Some news outlets reported that talks could begin as early as next week. It’s unclear if the merger would actually go through because of the potential impact to jobs in Japan and also the complexities of unwinding Nissan’s close alliance with Renault. 

Luigi Mangione arrived in New York on Thursday after he was extradited from Pennsylvania. In addition to facing multiple state charges, he faces four new federal charges, including murder, opening the door for the death penalty. He is currently being held at the same federal prison in Brooklyn as Sean “Diddy” Combs. 

Members of the Congress are racing against the clock to keep the government funded, which could shut down tonight at after midnight if an agreement is not reached. Trump weighed in Wednesday to tank a bipartisan deal on the continuing resolution that both chambers were set to vote on or pass a stopgap bill that would have kept the government open through March 14.

Russian President Vladimir Putin admitted Thursday that his economy is struggling. He said that inflation, mostly driven by rising food prices, a weaker ruble and labor shortages, have led to overheating of the economy. Despite that, the central bank on Friday kept interest rates steady, surprising market participants who had expected a hike of 200 basis points. The central bank said it will assess the need for a key rate increase at its February meeting.

The Dow Jones Industrial Average is stuck in a rut. The popular blue-chip index was down for 10 straight days on Wednesday, which marked its longest losing streak since 1974. But investors aren’t too worried about the declines for the most part because the biggest contributor to the decline has been shares of UnitedHealth Group. The healthcare company has been in a slump since the killing of its insurance unit's Chief Executive Brian Thompson.

The drone saga ramped up this week. A string of unexplained drone sightings sent Northeast, particularly New Jersey, residents over the edge. Behind it are worries that the drones are unfriendly foreign actors who are surveilling or looking to hurt Americans. Another popular theory asserts that drones represent the beginning of an alien invasion. But perhaps the most likely reason is that the drones are being operated by hobbyists. For that reason, the Federal Aviation Administration has issued a monthslong ban on flying drones in parts of New Jersey.  

Wall Street has a new favorite: FedEx. The delivery giant unveiled plans to create a standalone freight company that could provide better shareholder value. The separation, which could be a spinoff or initial public offering, could take about 18 months to complete, according to the company. 

Most private-equity firms signal who will inherit the firm years in advance. Not in the case of Apollo Global Management though. Its Chief Executive Marc Rowan has no successors planned to his $700 billion private-equity firm. After his current-five year stint ends in the coming months, he is expected to sign on for another five years. That’s out of the ordinary for PE firms: they typically want to broadcast their heirs to smoothen transitions to new leadership and reduce staff turnover. 

And finally: Billionaire philanthropist MacKenzie Scott said she donated another $2 billion on Wednesday. Since 2019, she has donated $19.2 billion, but she still has a long way to go. Her current wealth stands at $31.7 billion even after giving for years. What makes Scott a unique philanthropist is that she has made repeat gifts to several organizations.

[Editor's Note: Your Weekly Roadmap a will return on Jan. 3, 2025. We wish all of our readers a joyous holiday season and a prosperous 2025.]