I hope everyone had a great holiday season and New Year’s celebration and a thank you for reading this blog – I hope it keeps you informed on the capital markets! I made an appearance on the Schwab Network on Friday to discuss two headline stocks – Nvidia and Palantir. It is more of a technical discussion but it does demonstrate how one analyzes a chart, you watch the clip by clicking HERE.
Checking In On the S&P 500
The last couple of weeks have had little to discuss regarding earnings reports or economic data but there has been some downside price action since a new high was made on December 6th. There are a few things to see in the chart below.
For one, the 161.8% FIB extension (yellow line at the top of the chart) has been a level of resistance since November. The S&P failed to breakout in early December and the Fed policy action caused stocks to drop sharply as the market needed to recalibrate the number of expected rate cuts for 2025. This fall pushed the S&P through the bottom of its trend channel (white lines) that formed over the summer – a warning sign that a larger pullback could be starting.
Since then, the S&P re-tested $600 only to fail at this resistance level and fall to where we traded last week. The momentum indicators at the bottom of the chart have not shown much in the way of recovery so we will have to wait until the first full week of trading that begins on Monday to see if this trend break continues.
The Shape of the Yield Curve
One big change over the past few months is the shape of the US Treasury Yield curve. The Fed has cut rates 100bps since September which caused the curve to flip from inverted (yellow line) to steep (blue line). This is considered a ‘normal’ yield curve as financial institutions can lend at a positive spread. However, the sharp rise in longer tenors could lead to headwinds in the mortgage markets and when companies re-finance at higher interest rates. If the 10Yr bond approaches 5% in the next few months that will likely put pressure on any equity market advances.
Next week we get the minutes from the last Fed meeting so that may add some color around what the Fed is thinking about for policy changes in 2025.
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President, Kisco Capital
