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Stocks finished up across the board, and rallied to new all-time highs with the Nasdaq leading the way. The tech-heavy index finished 2.31% higher, while the Dow Jones Industrial Average followed by closing up 2.20%. The S&P 500 closed 1.92% higher. We finally got a pullback in metals and it looks like the market is going through a profound rotation from high-beta speculative names into high-quality growth names. The rotation is healthy rather than sign of defense precautions being taken. Crypto is trying to hammer out a low before the rate cut this week, which could send risk appetite soaring again.
We're in the middle of earnings season, and the results so far have been a mixed bag. Netflix had a terrible response to its earnings, but Tesla held up okay. But I think the bigger story right now is the fact that the next rate cut is coming this week.
This is going to help ease some of the liquidity concerns brewing in the market, but the big question is whether it's too little and too late? I'm not expecting anything more than a 25-basis point cut this week, but I'm most curious to see what they signal in terms of future cuts.
This rate cut has the potential to restore some confidence back into the marketplace, especially after some recent volatility. The fact that we're not seeing stocks explode higher per se during this earnings season suggests that the market wants more from the central bank.
The federal government has been shut down for over three weeks now, and we'll actually be entering the fourth week in just a few days. Markets continue to brush this off, even as major trade negotiations continue with China.
Could the government reopening be a "buy the rumor, sell the news" situation for markets? Perhaps, but I think the bigger news would come from a trade deal with China. Remember, President Trump is set to meet Xi Jinping this week, just days before tariffs are set to go into full effect.
I think a bigger catalyst for a breakout higher in stocks would be for a lasting trade deal to be struck with China. It's amazing how we've come full circle in so many ways on tariffs and trade, but here we are. Markets love to take its participants for a loop.
Since we're in the final week of the first month of the fourth quarter, I wanted to tighten up the timeframe to measure the sector performance rankings. We're now looking at the various market sectors going back to the start of the third quarter.
The good news is that we still see technology (XLK) as the top-performer by a long-shot. This is key to maintaining the integrity of the bullish market internals. But we do have utilities (XLU) in second-place, which places a bit of caution on the rally.
I'm glad to see consumer staples (XLP) in last place, although I am paying close attention to the rallies in energy (XLE) and healthcare (XLV). There's more risk creeping into the tape now over the past couple of months compared to the low from April.
| 1 week | 3 Weeks | 13 Weeks | 26 Weeks |
| Energy | Consumer Staples | Technology | Technology |
Editor's Note: Energy and staples creeping onto the board is cautionary, but tech making reinforcing itself simultaneously. Looks like a healthy rotation right now.
This may be the most important breakout for the stock market over the past couple of months. We finally saw the ratio between technology (XLK) and the S&P 500 (SPY) breakout to the upside after a multi-year consolidation.
The consequences of this breakout cannot be understated – the tech sector accounts for roughly 30% of the S&P 500, and if anything, this breakout suggests that the number is going grow substantially in the coming years.
The wedge formation points to an acceleration in upside momentum in this ratio. It looks to be gathering its bearings after realizing what just happened. This is bullish for the overall market, and as long as this is the case, dips should continue to be bought.
While crypto is struggling to find its rhythm again, I'm keeping a close watch on two of the big DeFi coins – Solana (SOL) and Ethereum (ETH). There's been a lot of talk about Solana being a better alternative to Ethereum, especially when it comes to gas fees.
Now, let's see if that's being reflected in the money flows into each of these coins. As you can see, the ratio has maintained a generally upward trajectory over the past couple of years, but since April, Ethereum has had the edge.
This could be on the verge of changing, however, if we are in the process of completing a higher-low with respect to the trend. If it holds above the trendline, then we could be looking at Solana flipping Ethereum in time.
The moment is here! Another rate cut is coming this week, which means the printing presses are already running for more money. It's a great time to check back on my favorite ratio to measure the bond market's expectations for inflation.
I'm looking at the ratio between Treasury Inflation Protected Securities (TIP) and 7-10 Year Treasuries (IEF). When TIP outperforms, it means that inflation expectations are rising, but when IEF outperforms, it means that inflation is contained.
This ratio suggests that inflation will eventually return, but the question is when? If we breakout from the symmetrical triangle, it would send a powerful signal that inflation is making a comeback, but as long as we remain range bound, there's no need to worry.
The trillion dollar question is – where is all the new money going to go? At first, it's going to funnel into stocks and probably even bonds, but at some point, it's going to find its way to commodities, and that's when the danger begins.
As long as commodity prices remain subdued, the goldilocks market environment can continue. I would expect commodity prices to continue trending in a positively correlated manner with this ratio.
This week, my attention is on Solana, which is starting to show some notable relative strength against both Bitcoin and Ethereum. This cryptocurrency held wonderfully in key technical support in the 185.00-190.00 zone, and is trying to form a higher-low.
If this holds, it will further reinforce the uptrend that's been in effect since April. It's been in a corrective pullback since September, but the longer-term trend remains in favor of the bulls. We'll have to exceed that high from September to fully confirm the uptrend.
But my bigger focus is on the multi-month saucer formation on the daily chart. This is pointing to a monster rally as high as 500.00 in time. The big resistance zone to watch is in the 250.00-260.00 zone, so if that clears, look out above.
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