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In the aftermath of yesterday’s Federal Reserve-induced market chaos, where virtually every stock was plunged into a sea of red, the S&P 500 managed to stage a comeback, initially surging as much as 1.1% before ultimately securing modest gains of 0.3%. This ephemeral rally highlights the market’s resilience, yet savvy traders remain vigilant, steering the ship carefully through the turbulent year-end financial seas. The recent whirlwind of events has dimmed the usual holiday stock market exuberance. Given the season, it’s not the time for audacious dives into the equity depths. However, prudent, tactical engagements—small nibbles, if you will—might be the savvy move in this stripped-down festive atmosphere.Recent economic indicators have consistently surpassed expectations, and the latest data maintains this positive trend. Overnight, we observed a significant decrease in jobless claims and a bullish revision in GDP figures, emphasizing the ongoing strength and resilience of the economic landscape.These data points paint a picture of a robust, service-dominated U.S. economy powered by vigorous consumer spending. This backdrop of resilient consumers and a solid labour market supports a narrative where the Fed might slow down or even pause rate cuts come 2025. This sentiment was subtly prepped by Powell’s remarks and the latest Summary of Economic Projections, hinting at a conservative path forward. With the swaps market now pricing in fewer than two quarter-point reductions for all of 2025, the likelihood of a minimal adjustment scenario gains traction, amplifying the chances of a one-cut or no-cut scenario as risk hedging intensifies.Given these dynamics, we noted yesterday that 10-year Treasury yields, currently at 4.574% ( +074), were too cheap. Considering the muted outlook for rate cuts, they are still too cheap.In the forex sphere, the dollar reigns supreme, with the yen becoming the G-10’s prime target, reeling under the pressure of rising U.S. Treasury yields and growing skepticism about a January rate hike from a hesitant Bank of Japan.We’re closely watching the USDJPY pair, projecting a potential surge toward the 158/160 zone. In this territory, the BoJ has previously intervened with hefty interventions to stabilize the yen, an action likely to be endorsed by the incoming U.S. Treasury amid efforts to bolster the Japanese currency.Looking ahead, I take a somewhat solitary stance on the yen once again. My strategy leans bullish on the yen in 2025, though we haven’t yet positioned ourselves to capitalize on this view. Given Governor Ueda’s dovish comments yesterday, there’s an expectation that the yen might continue to weaken. However, this weakening could prompt more aggressive rate hikes in the new year.More By This Author:Post-FOMC Carnage: A Stark Shift In Monetary Policy Outlook Signals A Turbulent New Reality
Will The Fed Confirm A “ Hawkish Cut”
US Markets Sizzle, While Global Markets Fizzle