What We're Talking About This Week!

• Weekly Market Reset

• Key Economic Reports This Week

• Dividend Landscape

• Market Outlook

Weekly Market Reset

Despite the 0.8% gain in the Nasdaq 100, most of the equity market really struggled. Even though inflation came in about as expected and central banks cut rates on schedule (although the Swiss central bank’s half-point move was a bit of a surprise), the markets appear to be growing a little more nervous about the potential for higher inflation in 2025. The market reaction coupled with another rise in gold prices and a significant increase in long-term yields would suggest that this is likelier to become a bigger theme in the near future, especially as the implementation of tariffs is going to add to the pressure.

A quarter-point rate cut by the Fed this coming week is probably a done deal, but I think there are some real questions surrounding how much support they’ll be able to provide beyond that. The U.S. inflation rate is at a four-month high and the services & rent inflation rates are still way above where the Fed is comfortable with them being. The Fed simply doesn’t have much flexibility to ease with a global trade war on the horizon and virtually no evidence that pricing pressures are easing. Equities may be willing to ignore this for a while longer, but the fact that Treasury yields and gold prices are rising here suggests that the bond market is getting it right.

With cyclicals backing off in recent weeks, equities are searching for a new sector to drive them higher, but it’s pretty clear that crypto and Tesla are still benefiting from the Trump trade. Tesla was the reason why the consumer discretionary sector was up more than 1% last week and is up more than 70% since election day. Bitcoin is up around 50% (although it’s also been pretty flat over the past few weeks). I suspect that conditions will remain favorable for crypto well into 2025, especially if Trump decides to implement a national crypto reserve. As the push for deregulation continues into next year, this may be one of the few areas of the market that gets consistent support.

Key Economic Reports This Week

Lots of data for the market to consider this week. In the United States, we’ll get retail sales, personal spending, personal income, PCE inflation and the final read on Q3 GDP (and the Fed meeting, of course). PCE will get the most consideration since this is what the Fed will base its rate policy decisions on. If it ticks higher again, which is expected, core PCE could hit an 8-month high. It’s going to become awfully tough for Powell to sound dovish on policy given that almost every measure is re-accelerating. The price cut may be priced in, but I’m going to be really interested to hear how he talks about conditions heading into 2025.

The other headline event is the Bank of Japan interest rate decision. The market is saying it’s more likely than not that the BoJ will hold rates steady, but I think there’s a very reasonable chance that they’ll hike, something the markets may not be expecting. If that happens, I think volatility moves higher and U.S. equities are likely to decline. I wouldn’t say it’s a probability at this point, but don’t be surprised if the central bank pulls the trigger.

Dividend Landscape

Defensive strategies are very much in the background for now and it seems likely that will continue until we turn the calendar. Utilities had been the one conservative sector that was holding up, but that’s no longer the case. Low volatility and value have been lagging substantially and that’s left little opportunity for dividend payers to gain ground.

As long as bitcoin is the headline asset class, it’s probably going to keep riskier asset classes in favor. Tech & growth tend to correlate highly with crypto and I believe there’s a good chance that growthier areas of the market will carry the market higher until we hit 2025. The only real chance for dividend stocks to flip into favor quickly would be if the BoJ unexpectedly hikes this week. As I mentioned earlier, I think there’s less than a 50% chance that’ll happen, which means dividend investors might need to be patient.

Market Outlook

The range of potential outcomes for equities is high and heavily dependent on the BoJ. If they hold steady, I think the S&P 500 sets up nicely for a winning week. If they hike, look for risk-off assets to lead. Given the uncertainty surrounding the rate decision, this week feels like a bit of a gamble, so I’m not sure I’m betting heavily in either direction.

The two steadiest assets have been gold and bitcoin. I think there’s a good chance that this trend continues since they will reflect both the political environment and inflation outlook. I’d definitely be approaching this week with caution.

Looking better for: bitcoin, gold, quantum computing (QTUM)

Looking worse for: small-caps, Treasuries, value