Market Recap
On Wednesday, Jerome Powell and the Federal Reserve delivered a major shock to the debt and stock markets when a 25bps rate cut resulted in the Federal Funds Rate converging with the 10-year Treasury yield, signaling extreme monetary tightening. This move quickly sent the S&P 500, NASDAQ, and Dow Jones tumbling, while the VIX surged by 74%, reaching stratospheric levels not seen since 2018.
The S&P 500 closed the week at 5,867, down 0.77%, while the NASDAQ and Dow Jones Industrial Average recorded more modest declines of 0.10% and 0.29%, respectively. However, the Dow managed to end its record-breaking streak of 11 consecutive days in the red—the longest since 1974—by rising 1.18% to close at 42,840.26. Meanwhile, the DXY edged up slightly, closing at 107.82, marking a small gain compared to the previous week. We're seeing extreme risk in the current bull market with treasuries selling off and the DXY rising.
The House passed a stopgap funding bill on Friday, narrowly avoiding a federal government shutdown. The measure extends funding into mid-March and provides disaster relief but excludes the debt ceiling increase demanded by President-elect Donald J. Trump. The vote was 366-34, with all opposing votes from Republicans. The bill now moves to the Senate, where Majority Leader Chuck Schumer expects swift approval.
Crypto Recap
Crypto markets continue to be highly volatile, with Bitcoin ending up around $97,000 from $107,000 earlier in the week, down around 8%. Ethereum and XRP didn't fare better, with both declining, ETH finishing around $3,450 and XRP at $2.26. We're seeing further volatility as we're closing in on year-end.
These assets could greatly benefit from the crypto-friendly stance of the upcoming Trump Administration. Digital assets and tokenization will take the spotlight as we move into 2025-2026.
Global Markets and Geopolitical Overview
Central bank policy played a crucial role in shaping investor sentiment. The U.S. Federal Reserve’s expected interest rate cut, coupled with cautious guidance from Fed Chair Jerome Powell, sparked uncertainty across global markets.
The STOXX Europe 600 Index fell 2.73%, closing at 502.19. Germany’s DAX slid 2.34%, while France’s CAC 40 dipped 1.46%. On December 12, the ECB cut its key deposit rate by 25 basis points to 3.0%, marking its fourth reduction this year. Revised growth and inflation forecasts suggest further easing ahead.
The UK economy contracted by 0.1% in October, signaling a slowdown after earlier growth driven by weakened production output. UK inflation for November aligned with expectations at 2.6%. London’s FTSE 100 dropped 0.26% to 8,084 points today, losing 2.6% this week—the steepest decline since August 2023. While retail sales data and a smaller-than-expected budget deficit provided some relief, concerns over potential EU tariffs and a looming U.S. government shutdown weighed heavily on sentiment.
The Shanghai Composite Index closed modestly lower at 3,368, down 0.65% this week. Policymakers face growing pressure to boost domestic demand and counteract deflationary pressures, with targeted fiscal and monetary measures anticipated. Despite setbacks, exports grew by 5.8% year-over-year, while imports fell by 4.7%, reflecting resilient trade performance but weak domestic consumption.
The Nikkei 225 Index declined by 2.15% this week, retreating from a two-month high of 40,091.55 reached earlier in December. The Japanese stock market faced a turbulent week, with declines driven by external monetary influences and corporate news. Reports of a potential merger between Nissan and Honda drew significant attention. Inflation remains a key focus for the Bank of Japan, which is monitoring wage trends and economic growth while maintaining current rates, with potential adjustments under consideration.
Canada Facing a Political Crisis
Canadian Prime Minister Justin Trudeau faces growing political uncertainty after the resignation of Chrystia Freeland, his former deputy prime minister and finance minister, over disagreements on economic policy and Canada's response to potential US tariffs under President Trump. Trudeau's leadership is under scrutiny from both opposition parties and within his Liberal Party, with calls for his resignation and declining approval ratings. His options include resigning, weathering the crisis, facing a no-confidence vote, or proroguing parliament to delay proceedings. While no-confidence motions have thus far failed, pressure continues to mount, and an election by October is inevitable, leaving voters to determine Trudeau's future.
Putin Signals Willingness to Negotiate on Ukraine with Trump
Russian President Vladimir Putin has expressed readiness to compromise over the Ukraine war in potential talks with U.S. President-elect Donald Trump. During his annual televised Q&A, Putin emphasized that Russia is open to negotiations without preconditions and is prepared for mutual compromises.
Earnings Recap: This Week’s Highlights
NIKE, Inc. (NKE): Reported a revenue decline of 8% year-over-year for Q2 of fiscal 2025, with digital sales dropping 21%. Despite a challenging quarter, Nike remains committed to revitalizing its brand focus.
Accenture (ACN): Exceeded revenue expectations with $17.7 billion, driven by strong demand for generative AI services. The company raised its annual growth forecast, reflecting optimism in its AI business expansion.
New OpenAI o3 Models
OpenAI unveiled its new O3 models earlier today, showcasing their advanced reasoning capabilities. OpenAI CEO Sam Altman highlighted the models' groundbreaking potential. The O3 models excel in deliberate internal deliberation for advanced reasoning tasks, significantly outperforming earlier iterations like the O1 model released in September 2024.
With Nvidia's Blackwell chips reportedly offering up to 30x faster performance, AI agents are poised to revolutionize a wide range of services. Experts anticipate the emergence of a new billion-dollar unicorn with 10 or fewer employees within the next six years. The current record holder in this regard is Instagram, which achieved a billion-dollar valuation in 2010 with just 13 employees.
Our Articles From This Week
Catalysts and Seasonal Tailwinds This December
We explored the dynamics of market catalysts and seasonal trends, focusing on the speed of price movements around key events such as earnings reports and Federal Reserve meetings. Additionally, we highlighted strategic opportunities in high-beta sectors and the resilience of large-cap technology stocks amid geopolitical uncertainties.
Santa Claus Rally: Why Markets Are Poised for a Strong Finish
We examined the potential for a year-end rally, driven by robust economic data and strong consumer spending. Our analysis included historical trends of the Santa Claus rally and the positive sentiment among investors, supported by solid economic indicators and the anticipated pro-business environment under the incoming U.S. administration.
Market Reaction Creates Bullish Setup for Nike
We analyzed the market's reaction to the Federal Reserve's rate decision, noting the unexpected sell-off and its implications for Nike's stock. Despite the adverse market conditions, we maintain a bullish outlook, emphasizing the potential for a Santa Claus rally and strategic opportunities in high-growth sectors.
Inflation Data and AI Earnings Lead December Turnaround
We explored the market's resilience amid a mid-week sell-off following the Federal Reserve meeting. Our analysis highlighted softer-than-expected inflation data, which spurred a market rally on Friday, reinforcing the bull market narrative.
What We’re Watching Next Week
With no significant earnings reports scheduled for next week, we'll focus on geopolitical developments and more in-depth analysis for Palantir, Amazon, and Nvidia.
Final Take
As we move into the final weeks of the year, the market remains poised for potential rallies, supported by positive economic indicators and the anticipation of a pro-business environment. While geopolitical tensions and economic uncertainties persist, the underlying bullish trends and robust earnings growth in key sectors offer a promising outlook for investors.
