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December 24, 2024

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The Fed Is The New Waffle House

4 Mins Read

I had no idea the Fed could be such expert wafflers. But, as each month passes, it’s becoming clearer. The overall stock market trend, despite all the back-and-forth, yo-yo Fed decisions over the past 6 months, remains to the upside. Need proof? Check out this weekly S&P 500 chart for the past year:

Now, if you weren’t aware of any news, would you think any differently about this pullback to the 20-week EMA than prior tests to the same level? There was a volume spike, but keep in mind it was December monthly options expiration week. Quad-witching months (March, June, September, and December) typically are accompanied by heavier volume. The Friday market recovery occurred before any significant breakdown on this chart, which I find bullish. I view the stock market action from December 21st through December 31st to be the period where we normally see a “Santa Claus rally” – more on that below.

The Fed has made it clear in the past that they’ve been “data-dependent.” In the latest FOMC policy decision and subsequent press conference, however, Fed Chief Powell indicated that they’ve cut the number of anticipated rate cuts in 2025 from 4 to 2, because committee members feel that core inflation could be higher than they previously thought back in September, when the first rate cut was announced.

Here’s a problem I have, though. On Thursday, November 14th, the Associated Press reported the following:

The Fed acknowledged in this article that inflation remained persistent and above the Fed’s target 2% level. That day, Powell suggested that inflation may remain stuck somewhat above the Fed’s target level in coming months. But he reiterated that inflation should eventually decline. Given those November 14th remarks, if the Fed was concerned about inflation remaining elevated, then why not change their tune on 2025 interest rate cuts at the November 6-7 Fed meeting. If they’re truly “data dependent”, then what data changed from November 14th until the next Fed meeting on December 17-18 to prompt 2025 interest rate policy change?

Can I have a waffle, please?

Odds of a Santa Claus Rally

Again, I consider the Santa Claus rally to be from December 21st through December 31st, so let’s look at how many times this period has actually moved higher:

  • S&P 500: 58 of the last 74 years since 1950 (annualized return: +40.50%)
  • NASDAQ: 43 of the last 53 years since 1971 (annualized return: +61.80%)
  • Russell 2000: 31 of the last 37 years since 1987 (annualized return: +64.57%)

Based upon history, the odds of a Santa Claus rally is 78.4%, 81.1%, and 83.8% on the S&P 500, NASDAQ, and Russell 2000, respectively. And you can see the annualized return for this period in the parenthesis above. I’d say there’s a ton of historical performance to suggest the odds that we’ll rally from here until year end are rather strong.

Nothing is ever a guarantee, however.

Max Pain

In my opinion, the media is promoting the idea that inflation is re-igniting and that the Fed is becoming more hawkish. I believe last week’s selling is due to EXACTLY what I talked about with our EarningsBeats.com members during our December Max Pain event on Tuesday. There was a TON of net in-the-money call premium and the big Wall Street firms aided their market-making units by telling us how bad the Fed’s actions and words are for the stock market. That Wednesday drop saved market makers an absolute FORTUNE. We pointed out to our members the downside market risk that existed, because of max pain. A day later, VOILA! It’s magic! The crazy afternoon selling was panicked selling at its finest, with the Volatility Index (VIX) soaring an astounding 74% in 2 hours! On Thursday and Friday, the VIX retreated back into the 18s (from 28) as if nothing ever happened.

There’s a reason why I preach every single month about options expiration and this was just another example of legalized thievery by the market makers. Let’s give them another golf clap.

MarketVision 2025

It’s almost time for my 2025 forecast, which will be a big part of our Saturday, January 4, 2025, 10:00am ET event. This year’s MV event, “The Year of Diverging Returns”, will feature myself and David Keller, President and Chief Strategist, Sierra Alpha Research. Many of you know Dave from StockCharts and also from his Market Misbehavior podcast. I’m looking forward to having Dave join me as we dissect what we believe is likely to transpire in 2025. For more information on the event and to register, CLICK HERE!

Happy holidays and I hope to see you there!

Tom

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In World news

Driver who plowed into school crowd in southern China given suspended death sentence

3 Mins Read

A Chinese court has issued a suspended death sentence to a man who rammed his car into crowds outside a primary school in southern China last month, injuring more than two dozen people in one of several violent attacks that has recently rattled the country and prompted officials to ramp up security measures.

The driver, named as Huang Wen, was sentenced to death with a two-year reprieve by a court in Changde city in Hunan province, state news agency Xinhua reported Monday.

Under Chinese law, the reprieve means Huang’s penalty can be commuted to life imprisonment, subject to his conduct during the two-year period.

Huang was arrested on site after injuring 30 people, including 18 students, on the morning of November 19, according to the court.

The court said Huang launched the attack to vent his frustration after suffering investment losses and conflicts with family members.

Huang got out of his vehicle after crashing it into people and attacked bystanders with a weapon before being apprehended, according to the court.

Another video showed multiple people, including adults, lying on the road, apparently injured. Police could be seen handcuffing a man in front of a vehicle.

Images circulating online of the incident were quickly wiped from social media platforms, while comment sections on posts related to the incidents were disabled.

“Huang Wen chose an unspecified large number of innocent primary school students as his main targets, demonstrating a despicable motive and extreme malice,” the court said in a statement.

Spate of attacks

The incident in Changde came just over a week after China saw its deadliest known attack in a decade, when 35 people were killed after a man plowed his car into crowds exercising at an outdoor sports center in the southern city of Zhuhai.

The suspect, a 62-year-old man, was apprehended while trying to flee the scene. An initial investigation suggested he was unhappy with the outcome of a divorce settlement, according to police.

Eight people were also killed and 17 others injured in a mass stabbing on a college campus in eastern China on November 16.

Sudden episodes of violence targeting random members of the public – including children – have surged across China in recent months as economic growth stutters, unnerving a public long accustomed to low violent crime rates and ubiquitous surveillance.

Some social media users have taken to warning each other to be cautious of people becoming more desperate and unstable, calling the recent attacks an act of “revenge against society.”

Public discontent has been mounting in China over the country’s flailing economy, which is grappling with numerous woes from an ailing property sector to low consumer confidence and high youth unemployment.

Authorities have rolled out some stimulus measures, but many experts say they are not enough to boost much-needed domestic demand and revive the economy.

The recent outbursts of violence have unnerved China’s top officials.

In response to the Zhuhai attack, Chinese leader Xi Jinping urged officials to “prevent risks at the source” and “promptly resolve conflicts and disputes” to prevent such incidents from happening again.

Last month, China’s top judge called on court officials to hand out swift and severe punishment for violent attacks on the public.

The country’s top prosecutor also pledged last month to “resolve conflicts, manage risks and maintain social stability” and maintain “zero tolerance” on crimes that endanger the safety of students.

This post appeared first on cnn.com

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