Retail Hasn’t Capitulated
Chart of the Week:
U.S. Volatility Rises as Retail Investors Hold Firm
U.S. equities set fresh highs in late October, but the optimism didn’t carry into November. The market pulled back, with investors attributing the move to a lack of post-earnings catalysts, rich valuations prompting profit-taking, and uncertainty over a potential December cut by the Fed. Sentiment turned negative, though no major risk factors emerged.
Market Recap 1:
Rate-Cut Expectations Rebound as Investors Re-Enter, but Buying Is More Diffuse
New York Fed President Williams noted that monetary policy still has room for adjustment, pushing the probability of a 25 bps December cut from 40% a week earlier to nearly 90%. As expectations for a December cut by the Fed climbed again, investor sentiment improved noticeably. Buyers returned, lifting most major global markets, though gains across the three U.S. indexes were similar, indicating more dispersed buying.
Market Recap 2:
Rate-Cut Expectations and Slowing Growth Support Bonds
Rate-cut expectations and softer economic momentum helped drive broad gains in global bonds this week.
What’s Trending:
Gold Shines in 2024 While U.S. Equities Deliver Mid-Pack Returns
Reviewing major global indexes, most risk assets posted solid gains this year. Key takeaways:
- U.S. Equities Solid but P 500’s gain exceeded both its 5-yr annualized and long-term averages. Still, among major developed markets, U.S. equities ranked only mid-pack, reinforcing the importance of global diversification.
- Gold Outperforms: Supported by rate-cut expectations, trade tensions, and ongoing monetary expansion, gold has surged over 55% YTD—its strongest annual gain since the 1980s.
- Bitcoin Spikes Then Reverses: Following Trump’s inauguration, the administration’s supportive stance toward crypto pushed Bitcoin to repeated highs, with YTD gains nearing 33% at one point. However, momentum faded into year-end, wiping out the advance and turning negative.
- China/Hong Kong Rebound: The Hang Seng Index outperformed the three major U.S. indexes this year. Early-year DeepSeek momentum and developments in tech and robotics contributed, while a softer dollar also supported broader EM performance.
In Focus:
Where to Allocate? Blended Defensive Equity Strategies
U.S. broad-market ETFs continue to see net inflows, though sentiment has turned more defensive. Sector rotation has emerged in recent months. While 3Q results were broadly solid and AI demand persists, earnings growth for the Magnificent 7 reached 23% YoY versus 12% for the remaining 493 stocks, narrowing the gap and driving rotation. Styles opposite to the Magnificent 7 have rebounded, and rate-cut expectations are also supporting small caps.
