TNC Daily Open: Markets Seek Certainty, Find Volatility

TNC Daily Open: Predicting Markets Is Futile

This report is from today’s TNC’s Daily Open, our international markets update.

TNC Daily Open keeps investors informed on everything they need to know, no matter where they are.

What To Note Today

Fed May Push The Hand Of Global Banks

The U.S. Federal Reserve’s signal on Wednesday that it anticipates fewer rate cuts in 2025 than initially anticipated sent markets into a tailspin and strengthened the currency. Global central banks maintain that the Fed has no influence over their monetary policy, but such currency fluctuations may compel them to take action.

Markets Dip, But Dow Ends Losing Run

The Dow Jones Industrial Average managed a small gain to end its losing run on Thursday, but the S&P 500 and Nasdaq Composite saw slight declines.

On Friday, Asia-Pacific markets fell. Before recovering some of its losses, Australia’s S&P/ASX 200 fell 1.24% to an intraday low that had not been seen in three months. Following the release of independent economic statistics from the respective agencies of China and Japan, the markets in both countries experienced a decline.

Inflation And Interest Rate Updates

The prime rates for one- and five-year loans were maintained at 3.1% and 3.6%, respectively, by the People’s Bank of China on Friday. In the meantime, Japan’s “core-core” inflation rate, which is monitored by the Bank of Japan and does not include fresh food and energy, increased to 2.4% in November. It’s the highest number since April.

US Government Closed In Part?

On Thursday night, a Republican-sponsored bill in the House that would have suspended the debt ceiling for two years and provided three months of government funding was not approved. The U.S. President-elect Donald Trump supported the agreement, but thirty-eight Republicans voted against it together with the majority of Democrats. A partial shutdown of the U.S. government is scheduled to start late Friday night if no agreement is reached and legislation is passed.

A “Back Up The Truck” Situation

After plunging on Wednesday, the S&P 500 continued to decline somewhat on Thursday. However, according to Tom Lee, head of research at Fundstrat Global Advisors, this is a “back up the truck” moment. This implies that, on the other hand, this is a favorable moment to purchase stocks. These are the patterns Lee is examining that lend credence to his theory.

Bottom Line

When viewed objectively, Thursday’s trading session saw minimal movement in the main U.S. benchmarks.

The Dow Jones Industrial Average increased 0.04%, while the S&P 500 fell 0.09% and the Nasdaq Composite fell 0.10%.

However, the direction of those changes also provides a hint, if a slight one, of the story driving the markets when seen in the context of Wednesday’s market meltdown.

To put it another way, the stock market on Thursday saw the Dow finally end its 10-day losing run, but stocks largely kept declining after the Fed released its estimates.

You know, it’s a mixed bag. Given the declining trend, should investors continue to exercise caution? Or should they view the Dow’s discovery as a sign that things are getting better?

There are no definitive solutions, as is the case with everything in the marketplace. The only thing that is more certain is that data points will influence the markets more strongly than they have in the past, such as today’s November U.S. personal consumption expenditures price index.

In reference to the Fed’s prediction that PCE will exceed the central bank’s 2% target, Mike Dickson, head of research and quantitative strategies at Horizon Investments, stated, “Whatever the reaction is going to be, it’s probably going to be more severe one way or the other than it would have been before seeing the Fed really increase those expectations.”

In fact, Wall Street’s fear index saw its second-largest surge in history on Wednesday, rising 74% to 27.62. Additionally, the VIX closed above 20 on Thursday while cooling by 12.8%, indicating that market anxiety was high.

Ironically, perhaps the only thing that is more certain at this time is volatility.

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