The trading year for 2025 is under way. Markets have worked their way through the so-called Santa Clause Rally. For those less familiar – this refers to a period of trading between the last five trading days of December and the first two trading days of January. This year Santa delivered a fat lump of coal. The market lost ground. So what does that mean for 2025? Absolutely nothing! Don’t read anything into it! What’s more important is Q4 earnings season… and how company’s perform.
"Currencies"
End of 20-Year Cheap Money Era
Equities were seemingly caught off balance with the Fed’s ‘surprise hawkish shift’. From mine – there was very little surprising about it – you only needed to look at the data. However, what I was more interested in was how Powell would explain why they were cutting rates. As it turns out he struggled – leading to a small sell off in stocks. The irony was Powell did a better job of explaining why rates should not be lowered (which is obviously at odds with their decision to cut).
What Just Happened?
Only two weeks ago Fed Chair Powell said “the FOMC are not thinking about rate cuts”. And it was premature to conclude with confidence they are at a sufficiently restrictive level. Well forget all that. Powell performed one of the more remarkable pivots ever seen from the Fed. He pivoted 180 degrees from his sentiment barely 14 days ago. Powell is now talking three rate cuts next year and the Fed have essentially “won the battle” over inflation. My take is the Fed is now more concerned about the business cycle; i.e., recession. There is a reason the Fed will cut – and that is the risk of dislocation in the economy (i.e., recession)
Ignore the Debt Ceiling Noise
Mainstream media remain fixated on ‘debt ceiling’ negotiations – warning of a “financial catastrophe” if this doesn’t get done. This is the 78th time we have hit the so-called debt ceiling. And how many defaults has there been? Zero. A deal will get done. And if we are presented with a sell-off in markets – then it represents an opportunity.
For a full list of posts from 2017…