Is the Stock Market Screaming POLICY ERROR or Just a Big Mistake?

The stock market experienced a wild day with little net movement, influenced by factors including post-holiday reaction, rate cut odds, and the inverted yield curve, which suggests a potential policy error. The speaker discusses market themes like the S&P 7, S&P 493, and the Trump trade, highlighting the importance of data releases this week and the potential for opportunities in the bond market due to the inverted yield curve.

Inverted Yield Curve

• 00:00:05 The inverted yield curve, where short-term bond yields are higher than long-term yields, is a significant concern, potentially indicating a policy error or that the initial rate cuts were ineffective. The bond market's reversion to an inverted state after a brief period of uninversion is a strong signal, and it could create opportunities for bond plays. The speaker notes that the 2-year bond is now a safer play given the possibility of further rate cuts and its lower risk of being blown out.

Market Themes

• 00:06:04 The market is experiencing a few dominant themes in the run-up to the inauguration: The S&P 7, where mega-cap tech stocks lead the market, the S&P 493, where broader market sectors including value and dividend stocks perform well, and days when everything moves in tandem, either up or down. The speaker suggests this will be the dominant structure of the market until the new year and more data becomes available, influencing market moves.

Data Releases

• 00:04:07 The upcoming data releases are crucial for determining the future course of the market, especially regarding the probability of rate cuts. Fed speakers are becoming more dovish, and the data, including JOLTS, ISM services, and non-farm payrolls, will likely move the odds of further rate cuts. This week's data will play a major role in influencing market movements until the inauguration.

Cryptocurrency

• 00:07:20 Ripple experienced a significant surge in price, with gains of 40-80%, for reasons that are not entirely clear. The speaker mentions potential contributing factors such as news about US-based crypto companies and the government moving Bitcoin to Coinbase. The speaker compares this situation to the 2018 crypto market, cautioning investors to remain skeptical and suggesting that the crypto story is still unfolding.

Europe

• 00:09:11 France is facing a budget crisis similar to the one that occurred in the UK under Liz Truss, where a budget caused a significant reaction in the bond market. There's a no-confidence vote, and concerns are mounting about France's risk profile potentially exceeding that of Greece. This situation, along with recent news regarding Germany, has a somewhat negative impact on the EU and is a factor influencing the broader market.