In This Edition

(1) This Week’s Action

(2) Overview: The US Market Map

(3) The State

(4) The Outlook

(5) What May Lie Ahead: Macro Setup

(6) What May Lie Ahead: Technical Setup

(7) The AI Build-Out Portfolio: What We Did

(8) The AI Build-Out Portfolio: What We Plan To Do

(9) Knowledge Corner

(10) Upcoming Transactions: Be Informed

(11) What May Go Wrong: Risk & Change Triggers

(12) Final Words

(1) This Week’s Action

Every major US gauge closed higher, and on the surface, the rally looked wide. The leadership tells a narrower story.

The Nasdaq-100 technology sub-index (QTEC) led by a distance, up 6.6% on the week, with the Next-Gen Nasdaq (QQQJ) at +5.7% behind it. The next tier was high-beta and small-cap growth — small-cap growth (VBK +3.5%, IWO +3.5%), the equal-weight Nasdaq (QQQE +3.3%), the ex-top-30 Nasdaq cohort (QNXT +3.4%), and micro-caps (IWC +3.1%) — all of which outran QQQ (+3.3%) and, tellingly, the Magnificent-Seven basket (MAGS +1.7%), which sat mid-pack alongside the S&P 500 (SPY +1.9%).

The only red on the board was the ex-technology complex: the S&P 500 ex-Tech (SPXT −0.1%) and the Nasdaq-100 ex-Tech (QQXT −0.3%) went nowhere. A high-beta week, then — wide on the surface. Whether that is genuine broadening or a bounce against a still-narrow tape is the next section’s question.

US index & factor proxies, sorted by 5-day change. Barchart, 29 May 2026.

(2) Overview: The US Market Map

Read the eleven S&P sectors and the market reduces to two words: tech, then desert.

On the relative-strength map, one sector is Leading — Technology, +27.3% relative, and the Improving quadrant, where tomorrow’s leaders would first appear, is empty. Energy alone is weakening (−9.3%), and the remaining nine sectors are all lagging, from Consumer Discretionary (−6.9%) down to Consumer Staples (−17.9%). Technology is doing the lifting for every cap-weighted index; strip it out, and there is no advance underneath. The headline green is one sector-wide.

SPDR sector relative strength, by RRG quadrant. closelook.net Pattern Lab, 29 May 2026.

(3) The State

Risk-on — but the leadership is both stretched and persistent, and the only broadening is inside technology, not across the market.

How narrow

Over a full year, the spread is the widest of the cycle. Technology carries a relative-strength reading of 127.6 and a one-year relative gain of +36.0%; Financials sit at the bottom on 79.5 and −26.7%. Only Technology and Energy show positive one-year readings, and Energy’s is fading. The leader’s z-score is +2.31 — statistically stretched, not merely strong.

SPDR sector relative strength, 252-day (1-year) lens, sorted by 1Y. Pattern Lab, 29 May 2026.

How persistent

Shorten the len,s and nothing changes. Over three months, HS Technology (+27.3%) is the only sector in the green; the other ten run from −6.9% to −17.9%. Over one month, nth it is the same picture — Technology +13.7%, every other sector negative, Energy worst at −11.0%.

A real rotation announces itself when a laggard begins leading on the short horizon while still trailing on the long one. No such name exists here: Technology tops all three horizons at once, and the Improving quadrant stays empty.

63-day (3-month) lens, sorted by 63D.

21-day (1-month) lens, sorted by 21D. Same eleven sectors, three independent sorts.

The earnings backing

The price desert is an earnings desert too. Street estimates put 2026 S&P 500 earnings growth near +24% — but Information Technology alone, growing close to +29%, is set to supply roughly half of it. Strip technology out, and the rest of the market grows in the high single digits, around +6 to +8%. The driver is the hyperscaler AI capex cycle landing on technology’s own revenue line. Concentration of price is being earned by concentration of earnings, as the Street consensus (Goldman, FactSet, Deutsche Bank) frames it; estimates vary, but the shape does not.

The frame — within-tech, not out of tech

What broadening exists is happening inside the complex, not beyond it — capital rotating between technology layers as software stabilizes and the silicon leg cools, not money leaving technology for the rest of the market. The week’s small-cap pop sits on top of that, but the three sector tables above show it has not yet reached the relative leadership.

Seasonality

The calendar leans supportive into summer, and the picture is unchanged from last week: on the Nasdaq-100’s seasonal record, May through July is the strongest three-month stretch of the year, with July the single best month, positive in roughly 94% of years.

Nasdaq-100 seasonal returns by month ($IUXX). May–July is the strongest stretch; July is the best month, positive ~94% of years. Barchart.

(4) The Outlook

One sector has clean directional flow — and it is overbought.

On the sector flow terminal, Technology (XLK) shows the strongest reading — Directional Flow at 65 and rising — but its 14-day RSI sits at 79.7, firmly overbought. The contrast underneath is the point: Communication Services (XLC) sits at an RSI of 48 and a flow of 53; Industrials (XLI) at 53 and 63; and Financials (XLF) at 51, with flow at 47 and rolling over. The leader is strong but extended; the rest are neither leading nor flowing. The forward edge stays with the Nasdaq relative to the broad market, but the asymmetry from here lies in whether the laggards turn, not in chasing the leader.

12 SPDR sectors + SPY — price, RSI(14) and Directional Flow. closelook.net, 29 May 2026.

(5) What May Lie Ahead: Macro Setup

The macro swing factor is the long end of the curve.

The constructive case for the build-out leans on rates having peaked. In the monthly Elliott read — unchanged from prior editions — the decline in long-bond prices from the 2020 high appears to be a completed five-wave structure, with multi-year support around the 83 line on TLT. Hold that line and the read is peak yields: a tailwind for duration and a multiple-expansion tailwind for the AI-infrastructure trade. A decisive monthly close below 83 is the mirror image — a stickier, higher-for-longer regime. That single line is what settles the debate, and it is the macro level we watch into June.

On the policy side, the Fed’s next framing on the rate path and disinflation is the tell, while soft inflation prints abroad keep the major foreign central banks patient — supportive of risk at the margin. Our editorial read is that the 2026 inflation impulse is cresting rather than entrenching, which tilts the rates debate toward the peak-yields scenario.

(6) What May Lie Ahead: Technical Setup

The long-term wave count is intact — but the whole Nasdaq complex is riding the top of its channels.

On the monthly chart, QQQ closed at 738, up 10.6% on the month, in the final stages of a very long third wave — the advance running since the dot-com low — and pressed against the top of the multi-decade ascending channel off the 2009 bottom. There is no sign of a long-term top; the trend is intact, mature, and extended.

QQQ monthly — wave 3 off the dot-com low, riding the upper channel. Barchart, May 2026.

The split inside the index is the combination of two pictures. The technology sub-index (QTEC) has broken out to fresh highs at 319, above the top of its own channel — an impulsive third wave. The ex-technology sub-index (QQXT) closed at 98, pinned under the same ceiling it has failed to clear for roughly 18 months. One is trending; the other has gone nowhere since late 2024.

Nasdaq-100 Technology (QTEC) — wave-3 breakout to new highs. Barchart, 29 May 2026.

Nasdaq-100 Ex-Technology (QQXT) — capped near 98 for ~18 months. Barchart, 29 May 2026.

Breadth within the Nasdaq is participating, but the index as a whole is extended. The ex-top-30 cohort (QNXT, 31.09) and the top-30 mega-caps (QTOP, 39.04) are both pressing or poking above the upper band of their 360-day linear-regression channels. The next-70 and the mega-caps are stretched alike — this is not a narrow mega-cap melt-up, but an extended advance from top to bottom.

Nasdaq-100 ex-Top-30 (QNXT) — upper regression band, 360-day channel. Barchart, 29 May 2026.

Nasdaq Top-30 (QTOP) — upper regression band, 360-day channel. Barchart, 29 May 2026.

Read together, the pillars line up constructively — wave 3 intact, the rates pivot favorably while 83 holds, and a seasonal tailwind into July. The risk-off trigger is a decisive weekly close back below the channel, or a break of 83 on the long bond.

(7) The AI Build-Out Portfolio: What We Did

The reference book sits broadly green; the upstream tilt is unchanged.

At the 29 May snapshot, the AI Build-Out reference portfolio carried an unrealized gain of +38.5% across its 33 positions, with every currency sleeve in profit — the USD book +42.7%, the EUR book +56.3%, and the CHF book +17.0%.

The leadership inside the book mirrors the index’s own message: the upstream memory and storage names are out front — SanDisk (+170%), Nebius (+136%), STMicro (+107%), Rocket Lab (+103%), Western Digital (+89%) and Samsung (+73% on the London line) — while the laggards are the non-silicon holdings (Intuitive Surgical −13%, Corning −5%).

AI Build-Out reference portfolio — composition by currency sleeve, 29 May 2026. Full per-position cost basis and P&L is a C+ subscriber-only.

Thesis

The AI Build-Out Reference Portfolio implements Closelook’s Rubin Build-Out thesis in concrete positions. The structural bet: the next decade of technology growth runs on a capital cycle that starts at the lithography layer (ASML, Applied Materials), runs through memory (Samsung, Micron, SK Hynix), testing (Advantest, Teradyne), and foundry (TSMC), and only then reaches the software and application layers that most investors focus on. Skin-in-the-game is held across all layers — the portfolio is not an infrastructure-only fund, but it’s structurally tilted toward the upstream layers that most indices underweight.

Multi-currency exposure (USD, EUR, CHF) is deliberate — Europe has the only non-US pure-play lithography franchise, and Swiss industrials provide adjacent infrastructure plays without direct semiconductor concentration. The portfolio holds roughly 30 positions, with sector caps to keep concentration within the thesis rather than on a single name.

Rebalancing is event-driven rather than calendar-driven. Temperature regime shifts, Rubin sentinel trigger events (ASML/Advantest/Micron), and cross-asset cointegration breakdowns are the primary reasons positions move.

Structure

Equities — 33 positions. Benchmark: Nasdaq-100 (QQQ). Currencies: USD · EUR · CHF.

Reference portfolio, not investment advice. · closelook.net/portfolios/ai-buildout

(8) The AI Build-Out Portfolio: What We Plan To Do

One planned move: add to Palantir.

We plan to add to the existing Palantir position (currently +9% on cost) by scaling the agentic application layer of the build-out. Otherwise, the book stays put unless the tape hands us a dip.

(9) Knowledge Corner

The Hurst exponent — does a market remember its past?

The Hurst exponent (H) scores a series’ memory on a 0-to-1 scale. Below 0,5 the series is mean-reverting — it forgets quickly, and a spike today says nothing about tomorrow. Near 0,.5, it is a memoryless random walk. Above 0.5, it is trending — a move today makes a continuation move more likely. Trajectory matters more than level: a reading drifting from 0.45 toward 0.75 says a once-stable relationship is starting to trend away from equilibrium.

This week’s tape is that one number, twice over. QTEC’s breakout to fresh highs is high-Hurst behavior — a persistent trend in which momentum begets momentum. QQXT, pinned under its 98 ceiling for some eighteen months, is the mirror image: low-Hurst, mean-reverting chop with no directional memory. The divergence in Section 6 is exactly what a Hurst split looks like.

We use Hurst as a qualifier, not a standalone signal. A two-sigma stretch in a cross-asset pair with H near 0.3 is a tradeable mean-reversion; the same stretch at H near 0.7 is a relationship breaking, not reverting. And when Hurst rises together across many pairs, historical relationships stop anchoring prices — a setup that has historically preceded major regime changes. The full note and the 60-ETF Hurst grid live in the Lab (closelook.net/101/hurst-exponent).

(10) Upcoming Transactions: Be Informed

The Palantir add is the only flagged move into next week; everything else stays as-is, absent a dip or a regime trigger.

(11) What May Go Wrong: Risk & Change Triggers

The standing triggers, plus one added watch: the semis.

Four things would flip the constructive read. A Money Temperature breakout of the transition band into risk-off. A decisive weekly close back below the Nasdaq-100 ascending channel — that alone puts the wave-3 count in question. A decisive monthly close below 83 on TLT — higher-for-longer, and the multiple-expansion tailwind for the build-out is gone. And the one-week broadening pulse fizzling while ex-tech (QQXT, SPXT) cuts fresh relative lows and the leader extends — the narrow-to-an-extreme, then-crack path.

The sharper question this week is whether the engine itself rolls. Semis are the build-out’s drivetrain, and a single sector leading the index is statistically stretched at a z-score above +2.3 — little room for disappointment, with XLK’s RSI already near 80. The tells: SMH and SOXX losing their up-channels; the Semicap/Test and Memory/HBM pulses turning down; Directional Flow going negative on the semis basket; or a sharp negative reaction to a bellwether print (NVDA, AVGO, ASML, Micron). If the silicon complex starts to roll, QTEC’s breakout and the Rubin thesis are both on the line — and on the evidence of the sector tables, the laggards are in no shape to take the baton. That is the change-trigger we watch most closely in June.

(12) Final Words

A wide tape riding on a stretched engine. The long-term count is intact — the final stages of a very long advance since the dot-com crash, with no sign of a top in place — but at these levels it is price doing the heavy lifting, not breadth.

“Price is all that matters. At some price, an asset is a buy, at another it’s a hold, and at another it’s a sell.” — Seth Klarman.

At a z-score above+2.3,3 the leader is priced for a great deal; the laggards are priced for almost nothing. Nothing here calls a top. But price is what settles buy, hold, and sell — and the leader’s price now asks more of the laggards turning up than of the leader stretching further. That is the asymmetry we carry into next week.

Klarman quote via quotefancy.com. The next edition is published on Sunday, 7 June.

Thank you for reading this week's edition of Closelook@US Stock Markets, dated November 24, 2024 👋. The next edition will be published on December 01, 2024.

A Closelook At This Edition

1. This Week's Action: Bull Awakening

2. US Economy: No Sign Of Long And Variable Lags Materializing

3. US Stock Market Seasonality: Riding the Bull in November, December, and January

4. Long-Term Analysis: Nasdaq 100, Semiconductors, Nvidia And More

5. This Week's Spotlight: My Favorite Cloud And Software Stocks

6. Knowledge Corner: How Do Long And Variable Lags Affect The Economy?

7. The Derivatives Portfolios: More Transactions

8. Final Words: Buffett Cash vs. Market Cycles

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(1) This Week's Action: The Fading Trump Rally

Last week was the opposite of the week before. The weekly performance of all US stock markets was outstanding.

Weekly Performance Summary

1. Stock Market Indices:

   • The S&P 500, Nasdaq, and Dow saw moderate weekly gains of +1.7%, +1.7%, and +2.0%, respectively.

   • Year-to-date (YTD), the Nasdaq is leading with +26.6%, followed by the S&P 500 (+25.1%) and the Dow (+17.5%).

2. Small-Cap Stocks:

   • The Russell 2000 exhibited the largest weekly gain at +4.5%, signaling strong performance in smaller-cap stocks.

   • Its YTD performance stands at +18.7%.

3. Bonds:

   • The 10-year US Treasury yield remained unchanged at 4.41% for the week, with a modest YTD increase of +0.5%.

4. Commodities:

   • Oil prices rose by +6.3% over the week, now at $71.26, but show a slight YTD decline of -0.5%.

5. Cryptocurrency:

   • Bitcoin surged by +10.3% this week, bringing its YTD increase to an extraordinary +134.4%.

The data highlights a broadly positive week for equities, particularly small-cap stocks, alongside notable gains in Bitcoin and oil. Treasury yields remain stable, reflecting minimal volatility in fixed-income markets.

The dollar continued its advance, too. Since the lows around the GFC, the currency has appreciated by nearly fifty percent.

I expect the US Dollar Index to rise to the 115 level shortly.

The bullish channel of the SP 500 is still intact. The same is true for the Nasdaq 100 index.

The Nasdaq 100 found support at the short-term bull market trendline and moved back to the summer 2024 highs.

The Nasdaq 100 qual Weight Index outperformed the Nasdaq 100 Index. Mag-7 weakness negatively impacted the latter.

The Nasdaq 100 Technology Index is still lagging the overall index. It is still considerably lower than the summer 2024 highs.

The Nasdaq 100 EX Tech Sector has outperformed the tech sector since the summer of 2024. It is very close to its ATH.

The Nasdaq 100 TOP 30 index has been among the worst performers of the various Nasdaq 100 subindices.

This shows that the weakness is not confined to the Mag 7 stocks but encompasses the top 30 Nasdaq 100 stocks.

The Nasdaq 100 ex Top 30 Index, which covers the other 70 stocks of the index, has outperformed the Nasdaq 100 and the Nasdaq Top 30 index since the summer of 2024. It is very close to its SATH, too.

The megacap tech weakness can also be seen in the performance of the US Top 20 index.

Once highflying, VanEck Semiconductor ETF reached a top in early July 2024. Since then, it has moved sideways.

The recently introduced fabless VanEck Semiconductor ETF (SMHX) has outperformed the broader SMH ETH.

I expect the Russel 2000 index to reach new ATHs shortly.

The same applies to the Dow Jones Industrial Average.

The Dow Jones Transportation Index was up 0,84 % for the week. It looks like it will soon reach new ATHs - way above the 2021 levels.

This would be quite a bullish divergence, which may signal a more than short-term continuation of the bull market.

Software and services have been among the strongest sectors in the past weeks. The chart above shows the performance of an ETF that tracks the S&P Software & Services Select Industry Index.

The index represents the software and services segment of the S&P Total Market Index ("S&P TMI").

The same applies to the cloud sector. The Wisdom Tree Cloud Computing ETF has moved from a low of 28 USD in the summer of 2024 to 38 USD. The Wisdom Tree Cybersecurity ETF shows a similar performance.

The SP 500 Info Tech sector has moved up considerably and is now very close to its ATH (see ETF below).

It looks like there is a particular weakness in some Mag 7 stocks, but there is no weakness in the second-tier stocks. The broadening theme can also be seen inside the tech sector.

Nvidia performed better than the bulk of semiconductor stocks. The bull trend is intact. I am a buyer of any dip. Blackwell has just started shipping. I expect an exceptional earnings print in April 2025.

Bond yields were flat on the week and stayed inside the 4.25 - 4.50 % yield range. The TLT ETF closed around 90 USD.

I expect bond vigilantes to stage another attempt to move the bond yield firmly above 4.50 % in the weeks ahead.

Ten-year US Treasury yield changes since September lows:

• Total increase: 78 basis points

• Composition:

  • Real rates: 68% of the increase

  • Inflation expectations: 32% of the increase

Equity market reaction:

• Largely unaffected by the yield increase

The rise in yields, primarily driven by higher real rates, reflects ongoing economic strength rather than inflation concerns. This explains the resilient equity market performance despite the yield increase. Last week’s statement stays valid.

US presidents come and go, but this election may matter more than other ones. Why? Because there will be structural credit and deficit troubles ahead in the US, and how they are addressed will significantly impact whether we will have mediocre stock market returns in the next 10 years (the Goldman Sachs view) or (close to) double-digit annual returns (Ed Yardeni’s roaring 20s concept).

I anticipated a top in the TLT based on better-than-expected economic indicators rather than the beginning of another debt crisis like the one that occurred from August to October 2023.

I firmly believe that when the bond markets start to worry deeply about the federal deficit and debt and bond vigilantes push them south, moving prices of the TLT ETF to the bottom or even below its multi-month trading range, the stock market bull will end abruptly.

Like in 2016, gold declined on the Trump victory news. The uptrend in pace since the summer of 2024 was broken. Gold staged a recovery last week. I doubt it will reach new ATHs unless there is a substantial geopolitical escalation.

Silver exhibited similar price action and also moved lower. The trend in place since early 2024 has not yet been violated.

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(2) US Economy: No Sign Of Long And Variable Lags Materializing

Entitlements have become a large share of total government spending. Previous budget agreements will cut non-defense discretionary spending to the lowest share of GDP on record.

As for DOGE, good luck with that endeavor.

The latest jobless claims data presented a mixed picture of the U.S. labor market:

Initial Claims

• Current Level: 213,000

• Change: Decreased by 6,000

• Comparison to Estimates: Lower than the expected 220,000

• Significance: Reached the lowest level since April

This unexpected drop in initial claims suggests continued resilience in the job market, with fewer people filing for unemployment benefits than anticipated.

Continuing Claims

• Trend: Rose to a 3-year high

• Caveat: Seasonal adjustments may have influenced this increase

The rise in continuing claims representing ongoing unemployment benefit recipients could indicate challenges for job seekers in finding new employment. However, the impact of seasonal adjustments on this figure should be considered when interpreting its significance.

The Philadelphia Fed Manufacturing Index for November:

• Headline index: Unexpectedly fell into contraction

• Future expectations: Rose to highest level since June 2021

This divergence suggests current manufacturing challenges but improved optimism for future growth.

No Lagged Effects

The Federal Reserve's rate cut approach may stem from concerns about the "long and variable lags" of their monetary tightening from March 2022 to August 2024. However, the economy continues to show resilience, with no clear evidence of these lagged effects materializing.

Economic Indicators

The Index of Leading Economic Indicators (LEI) declined again in October, but its reliability as a recession predictor has been questionable since its peak in December 2021. While it may be useful for forecasting manufacturing sector recessions, it appears less suited for the service-oriented U.S. economy.

Stock Market Performance

The S&P 500, one of the LEI's most accurate components, has reached new record highs since early 2024, indicating positive economic sentiment.

Coincident Economic Indicators

The Index of Coincident Economic Indicators has consistently risen to new record highs, contrasting with the LEI's downward trend and suggesting ongoing economic strength.

Interest Rates and Economic Surprises

The increase in U.S. Treasury yields since the Fed began lowering the federal funds rate (FFR) on September 18 correlates with the upturn in the Citigroup Economic Surprise Index. This suggests that the neutral FFR might be closer to the 5.25%-5.50% range than the current 4.50%-4.75% range.

Diverging Views

• Market Perspective: The current FFR may provide additional economic stimulus, as it could be below the neutral rate.

• Fed's Stance: Federal Reserve officials maintain that the FFR remains restrictive and should be gradually lowered to around 2.90%.

This divergence in views highlights the ongoing debate about the appropriate monetary policy stance in the face of conflicting economic signals.

The Index of Leading Economic Indicators (LEI)

The Index of Leading Economic Indicators (LEI) may be misleading for the US economy due to several factors:

Manufacturing Bias

The LEI tends to give heavier weight to the economy's manufacturing sector without adequately recognizing the increasing importance of services. This bias can lead to a skewed representation of the overall economic health, especially considering that services drive approximately 70% of the U.S. economy.

Post-Pandemic Anomalies

The unusual impact of COVID-19 on the economy has likely resulted in data inconsistencies, policy distortions, and cycle anomalies, which have affected the LEI components. These unique circumstances make it challenging for the LEI to predict economic trends in the post-pandemic environment accurately.

Divergence from Other Indicators

While the LEI has been signaling a potential recession, other economic indicators paint a different picture:

1. The S&P 500 has been reaching new record highs since early 2024

2. The Index of Coincident Economic Indicators (CEI) has consistently risen to new record highs, contradicting the LEI's downward trend.

Historical Reliability vs. Current Performance

Although the LEI has historically been a reliable predictor of recessions, its recent performance has been questionable:

• The LEI has decreased for 23 consecutive months through January 2024, yet the U.S. economy has delivered impressive economic growth over the past 12 months

• The average lead time between the LEI falling 5% and the start of a recession has historically been around three months, but the Index dropped 5% in November 2022 without a recession materializing.

Composition and Weighting Issues

The LEI's composition may not adequately reflect the current structure of the U.S. economy:

• It may need to be adjusted to give more weight to the services sector, which plays a dominant role in the modern U.S. economy

• The index's components and their weightings may not have been updated to reflect recent economic shifts and trends

In conclusion, while the LEI remains a valuable tool for economic forecasting, its current methodology and composition may lead to misleading signals about the U.S. economy's health and direction. As the economy evolves, particularly in the wake of the pandemic, the LEI may require recalibration to maintain its predictive power.

(3) US Stock Market Seasonality: Riding the Bull in November, December, and January

The final quarter of the calendar year has historically been the best quarter of the SP 500. December, April, and November are traditionally the three best months of a calendar year.

On average, the 2-monthly period from November until December is also the best bi-monthly period of a calendar year.

Except for 2016, when Donald Trump won the presidential elections for the first time, price action has been positive since 2013.

Over the past ten years, the average performance of the S&P 500 during November and December was approximately 4.41%.

Data shows that during election years, the S&P 500 has historically underperformed in the September-to-early-November period compared to non-election years.

The table above is from Carson Investment Research.

I like to remember the final two months of 2023, which saw the underperformance of the Mag-7 stocks reversing in early 2024.

Right now, mutual funds are drastically underweight the Mag 7. TheMag-7 have become the index Drag-7.

While it’s been predominantly a cost-cutting and efficiency gains story to date, more companies are participating in the earnings recovery as ~60% of S&P 500 companies have positive EPS growth today versus ~50% in 1Q 2023.

I expect the broadening trend in earnings growth to continue. The market may have anticipated this, which may continue until the end of January 2025.

After that period, I see a return of Mag 7/ megacap tech market leadership.

(4) Long-Term Analysis: Nasdaq 100, Semiconductors, Nvidia And More

Please turn to section one for the analysis.

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Thank you for reading this week's edition of Closelook@US Stock Markets, dated November 17, 2024 👋. The next edition will be published on November 24, 2024.

A Closelook At This Edition

1. This Week's Action: The Fading Trump Rally

2. US Economy: Another Fed Pivot

3. US Stock Market Seasonality: Riding the Bull in November, December, and January

4. Long-Term Analysis: Bitcoin, Ethereum and Solana

5. This Week's Spotlight: My Favorite Crypto Stocks

6. Knowledge Corner: The Coin50 Index

7. The Derivatives Portfolios: More Transactions

8. Final Words: Asset Watch Update

(1) This Week's Action: The Fading Trump Rally

Last week was the opposite of the week before. The weekly performance of all US stock markets was miserable.

Weekly Performance Summary

• S&P 500

  • Close: 5,871

  • Weekly Change: -2.1%

  • Year-to-Date (YTD) Change: 23.1%

• Nasdaq

  • Close: 18,680

  • Weekly Change: -3.1%

  • YTD Change: 24.4%

• Dow

  • Close: 43,445

  • Weekly Change: -1.2%

  • YTD Change: 15.3%

• Russell 2000

  • Close: 2,304

  • Weekly Change: -4%

  • YTD Change: 13.7%

• 10-yr US Treasury

  • Close: 4.44%

  • Weekly Change: 0.1%

  • YTD Change: 0.6%

• Oil

  • Close: $67.03

  • Weekly Change: -4.8%

  • YTD Change: -6.4%

• Bitcoin

  • Close: 91,214

  • Weekly Change: 13.3%

  • YTD Change: 115.8%

The R2K index was the worst-performing index, losing four percent. The Nasdaq lost about three percent. Losses for the SP 500 and the DJIA were more modest.

Selling pressure increased when Chair Powell indicated that the Fed was in no hurry to lower rates. Options expiration on Friday added to the increased volatility.

The bullish channel of the SP 500 is still intact. The same is true for the Nasdaq 100 index.

While the Nasdaq 100 did make a new high during the Trump election week, the Nasdaq 100 Tech index did not.

The same applies to the various semiconductor indices. These non-confirmations are bearish signs.

The R2K touched the ATHs seen in 2021 and gave back part of the gains. It may try again during the seasonally strongest 3-month calendar year period - November, December, and January.

The Dow Jones Industrial Average also made a new high, which the Dow Jones Transportation Index did not confirm.

If not confirmed quickly, this would be quite a bearish divergence, which may signal a more than short-term top.

Equity volatility stayed at normal levels. I expect the VIX to mostly trade between 10 and 20 until the end of the year.

Bond yields increased in the week but stayed inside the 4.25 - 4.50 % yield range. The TLT ETF closed around 90 USD.

Bond volatility moved up. I expect bond volatility to stay elevated for the time being.

I also expect bond vigilantes to stage another attempt to move the bond yield firmly above 4.50 % in the weeks ahead. Last week’s statement stays valid.

US presidents come and go, but this election may matter more than other ones. Why? Because there will be structural credit and deficit troubles ahead in the US, and how they are addressed will significantly impact whether we will have mediocre stock market returns in the next 10 years (the Goldman Sachs view) or (close to) double-digit annual returns (Ed Yardeni’s roaring 20s concept).

I anticipated a top in the TLT based on better-than-expected economic indicators rather than the beginning of another debt crisis like the one that occurred from August to October 2023.

I firmly believe that when the bond markets start to worry deeply about the federal deficit and debt and bond vigilantes push them south, moving prices of the TLT ETF to the bottom or even below its multi-month trading range, the stock market bull will end abruptly.

Like in 2016, gold fell on the Trump victory news. The uptrend in pace since early 2024 was broken.

Silver exhibited similar price action and also moved lower. The trend in place since early 2024 has not yet been violated.

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(2) US Economy: Another Fed Pivot

Federal Reserve Chair Jerome Powell is not known for his dancing skills, but he has once again demonstrated his ability to adjust monetary policy with precision.

In his prepared remarks for a speech to business leaders in Dallas on Friday, Powell stated that "the economy is not sending any signals that we need to be in a hurry to lower rates."

This stance aligns with the Fed's recent actions, which began on September 18 when they reduced the federal funds rate (FFR) by 50 basis points, a move that some considered too aggressive at the time.

The Fed continued this trend on November 7, cutting the FFR by another 25 basis points. However, Powell is now cautioning against expectations of immediate further rate cuts.

Last Thursday, during his press conference, he indicated that the FFR was still somewhat restrictive and needed to be adjusted to the neutral rate. While many Fed officials may agree with this assessment, they seem less urgent about making these adjustments.

This could mean that there might not be another rate cut at the upcoming Federal Open Market Committee (FOMC) meeting on December 17-18.

The latest analysis from Ed Yardeni's "Nirvana Model" suggests that the unemployment and inflation rates indicate the current FFR is already at or near the neutral rate.

In the meantime, there are expectations of a potential "Santa Claus rally" in the S&P 500, which could push the index to 6100 by the end of the year.

Ed Yardeni's "Nirvana Scenario"

Ed Yardeni's "Nirvana Scenario" or "Nirvana Model" is a conceptual framework that describes an ideal economic state where several favorable conditions converge. Here are the key elements of this scenario:

Low Inflation

The model predicts a slowdown in inflation, a critical component for economic stability. This slowdown is expected to occur without the economy entering a recession, a scenario often seen as a trade-off in economic policy.

Economic Growth

The Nirvana Scenario involves continued economic growth. This growth is sustained without high inflation pressures, creating a balanced economic environment.

Moderate Interest Rates

The model implies that interest rates, particularly risk-free rates like those on 10-year Treasury notes, remain at levels that support economic growth without fueling inflation. This balance is crucial for maintaining investor confidence and stable financial markets.

Low Unemployment

A vital feature of the Nirvana Scenario is low unemployment rates. This condition is bullish for the stock market, as it indicates a strong labor market and overall economic health, provided it is not accompanied by rising inflation.

Investor Optimism

Yardeni's Nirvana Scenario suggests a period of investor optimism, where the combination of low inflation, economic growth, and stable interest rates creates a favorable environment for investments, particularly in the stock market.

In summary, the Nirvana Model represents an ideal economic state where inflation is under control, the economy is growing, unemployment is low, and interest rates are moderate, all contributing to a stable and favorable investment climate.

Fed Model

The Fed Model, also known as the Fed's Stock Valuation Model, is a valuation tool that compares the forward earnings yield of the stock market (typically the S&P 500 Index) to the yield on 10-year U.S. Treasury bonds. Here are its key points:

• It posits that the earnings yield on stocks should equal the yield on 10-year Treasury bonds or at least be highly correlated

• Based on this comparison, the model is used to determine if the stock market is fairly valued, overvalued, or undervalued.

• It has been criticized for its theoretical flaws, lack of predictive power, and failure to account for differences between nominal and real returns.

Key Differences

• Purpose: The Fed Model is a specific tool for evaluating stock market valuations by comparing earnings yields to bond yields. In contrast, the Nirvana Model is a broader conceptual framework describing optimal economic conditions.

• Scope: The Fed Model focuses narrowly on the relationship between stock and bond yields, while the Nirvana Model encompasses a range of macroeconomic indicators.

• Application: The Fed Model is used for market timing and valuation, whereas the Nirvana Model is more of a descriptive model highlighting ideal economic conditions rather than a predictive or valuation tool.

While both concepts are associated with Dr. Ed Yardeni, they serve different purposes and operate within various contexts.

(3) US Stock Market Seasonality: Riding the Bull in November, December, and January

The final quarter of the calendar year has historically been the best quarter of the SP 500. December, April, and November have been the three best months of a calendar year.

On average, the 2-monthly period from November until December is also the best bi-monthly period of a calendar year.

Except for 2016, when Donald Trump won the presidential elections for the first time, price action has been positive since 2013.

Over the past ten years, the average performance of the S&P 500 during November and December was approximately 4.41%.

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Data shows that during election years, the S&P 500 has historically underperformed in the September-to-early-November period compared to non-election years.

The best day of a calendar year has historically been October 28. The final ten days of November have been the best ten-day streak of the calendary year historically.

Nvidia is scheduled to report earnings on 20 November 2024 after market close. The report will be for the fiscal quarter ending Oct 2024.

The table above is from Carson Investment Research.

(4) Long-Term Analysis: Bitcoin, Ethereum and Solana

The Trump crypto narrative is more than one story; it is at least four. Trump’s election does change the prospects of (1) the Bitcoin narrative, (2) the Gensler and Defi narratives, (3) the manosphere narrative, and some Meme Coin narratives, such as AI, RWAs, and Murad meme coins and (4) the end of QT.

Trump wants the US to begin forming a strategic reserve of BTC. This is positive as it removes a BTC selling overhang, namely that the US might sell extensive holdings confiscated from various nefarious agents. It adds buying pressure on BTC and cements its status within the global financial system. The gain from removing a selling-pressure overhang is real. The strategic reserve of BTC is a long way off.

Gary Gensler, the current chair of the SEC, is the crypto industry’s most hated person. Elizabeth Warren is a distant second.

Trump’s repeatedly said he would “fire” Gensler “on day one.” It is customary for SEC chairs to step down when a new president takes office. Trump has to do nothing to keep his promise.

Given this, it is unlikely that the various SEC suits will go forward at all until a clear regulatory framework is in place. UNI and AAVE may be fine. POL did a bump (it’s also being sued), and even Cardano (ADA) jumped. Synthetix (SNX) cannot go back to posting oil and stock derivative coins. 

DeFi won’t be back where it once was. The most obvious winner is likely ETH (and Solanda) since DeFi is ETH’s killer app. It has a long way to go in catching up to BTC this cycle, and now its future looks more promising.

The manosphere is a loose association of public personalities, vloggers, and podcasters ranging from Joe Rogan and Jordan Peterson to Andrew Tate and Nick Fuentes, who have been Trump’s ardent supporters.

Meme coins represent various features of this cultural space. Based on the model Ernst Khalimov, the Giga Chad coin is a masculine ideal. SIGMA is a Gen Z phrase that crosses into the manosphere realm to indicate “the best man.”

The post-Trump manosphere narrative will boost these well-known coins and continue supporting them or similar coins. The ending of QT - likely in December 2024 - may boost the whole coin sphere.

Solana

Solana is firmly in bull territory, exhibiting impulse wave properties. It crossed the spring 2024 highs and reached close to 240 USD. It may soon get the ATH. It may be in the final wave before completing five waves.

It may well go into extension mode, reaching much higher. The chart below shows Solana vs. Bitcoin. I expect Solana to reach the 2021 ratio during an extended bull move.

Ethereum

Ether has lagged behind Bitcoin and Solana. It has not reached the spring 2024 highs.

The market cap dominance of Ether has declined considerably since 2020. It is only about 12 % of all cryptos.

Bitcoin

Bitcoin is about to reach 100,000 USD. This may be a more substantial top.

I expect the other coins to start catch-up trades after the big three reach topping zones. The total market cap of all coins ex, Bitcoin and Ether, is well below the peak seen during the last crypto bull market.

This may change in 2025 depending on whether the Trump administration will implement its crypto-friendly policy measures 2025.

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Thank you for reading this week's edition of Closelook@US Stock Markets, dated November 10, 2024 👋. The next edition will be published on November 17, 2024, at 2:00 p.m. ET.

A Closelook At This Edition

1. This Week's Action: The Trump Rally

2. US Economy: Trumponomics

3. US Stock Markets: Trump Winners and Losers

4. US Stock Market Seasonality: Riding the Bull in November, December, and January

5. Long-Term Analysis: Elliott Waves - Nasdaq 100

6. This Week's Spotlight: Nvidia Earnings Ante Portas

7. Knowledge Corner: Nvidia Investment Ratios

8. The Derivatives Portfolios: Gains in November And More Transactions

9. Final Words: Asset Watch Update

(1) This Week's Action: The Trump Rally

Last week, the stock market experienced a rollercoaster ride driven by political developments and monetary policy decisions. The S&P 500 surged an impressive 4.7%, briefly surpassing the 6000 mark on Friday, capping off a week of intense market action.

Donald Trump's victory on Tuesday set the stage for a dramatic shift in market sentiment. The quick and decisive election result alleviated concerns about a potential hung outcome, releasing pent-up tension among investors.

The prospect of a Republican sweep in Congress reignited the "Trump Trade" playbook from 2016, with investors flocking to cyclical, small-cap, and financial stocks.

The Federal Reserve's decision to cut short-term rates by a quarter-point and Chair Jay Powell's dovish stance further fueled the bullish sentiment. This monetary easing came despite recent economic data surprising to the upside and inflation readings hovering slightly above the Fed's 2% target.

Even potential headwinds seemed to lose their bite. The 10-year Treasury yield briefly spiked above 4.4% on Wednesday but remained below springtime highs. Similarly, the dollar index showed strength but stayed below mid-year peaks.

This confluence of factors created a potent mix of bullish catalysts, presenting a challenging environment for bearish investors to navigate in the short term.

Weekly Performance Summary

• S&P 500: Closed at 5,996, up 4.7% for the week, with a year-to-date (YTD) gain of 25.7%.

• Nasdaq: Closed at 19,287, rising 5.7% for the week and up 28.5% YTD.

• Dow: Finished at 43,989, gaining 4.6% over the week, with a YTD increase of 16.7%.

• Russell 2000: Closed at 2,400, showing an impressive weekly gain of 8.6% and up 18.4% YTD.

• 10-year US Treasury: Yield ended at 4.30%, down slightly by -0.1% for the week and up just 0.4% YTD.

• Oil: Priced at $70.41 per barrel, up by 1.3% for the week but down -1.7% YTD.

• Bitcoin: Surged to $76,411 (above 81,000 USD on Monday morning), posting an impressive weekly gain of 11.1%, with a massive YTD increase of 80.8%.

This highlights strong performances across equities and cryptocurrencies, while bonds and oil showed more modest movements, and gold lost its luster.

The SP 500 moved into unchartered territory, firmly reigniting the bull. The bullish trend channel is intact.

The Nasdaq 100 finally made a new ATH, wiping out most of the negative bearish divergences that developed in the past months.

While the chart looked like a double-top formation last week, it now seems another bull market leg is unfolding during the seasonally strongest 3-month period of the calendar year - November, December, and January.

The R2K was the most robust equity index last week. The index failed to break above the multi-year resistance zone, where it could not move higher in the summer of 2024 and 2021. This may happen this week, depending on the outcome of the inflation numbers on Wednesday and Thursday.

The bullish trend of the Dow Jones was confirmed last week. The ATH confirmation by the Dow Jones Transportation index is still missing, but the index broke above the 2022 and 2023 highs and is in striking distance to a new ATH.

Equity volatility declined to normal levels. I expect the VIX to mostly trade between 10 and 20 until the end of the year.

Bond yields moved up initially only to recover and trade inside the 4.25 - 4.50 % yield range. The TLT ETF closed around 92.50 USD.

Bond volatility also declined. I expect bond volatility to stay elevated for the time being. I also expect bond vigilantes to stage another attempt to move the bond yield firmly above 4.50 % in the weeks ahead. Last week’s statement stays valid.

US presidents come and go, but this election may matter more than other ones. Why? Because there will be structural credit and deficit troubles ahead in the US, and how they are addressed will significantly impact whether we will have mediocre stock market returns in the next 10 years (the Goldman Sachs view) or (close to) double-digit annual returns (Ed Yardeni’s roaring 20s concept).

I anticipated a top in the TLT based on better-than-expected economic indicators rather than the beginning of another debt crisis like the one that occurred from August to October 2023.

I firmly believe that when the bond markets start to worry deeply about the federal deficit and debt and bond vigilantes push them south, moving prices of the TLT ETF to the bottom or even below its multi-month trading range, the stock market bull will end abruptly.

This trendline was broken to the downside in the last trading days of the previous week and confirmed by a weekly close on Friday, 1 November 2024!

Like in 2016, gold fell on the Trump victory news. The uptrend in pace since the summer of 2024 was broken. The longer-term uptrend is still intact. I believe that the lower trend line of the trend in place since spring 2024 will soon be tested.

It may well be broken to the downside as the momentum-based speculative funds may favor digital assets over precious metals in the months ahead.

Silver exhibited similar price action and also moved lower. The same as with gold applies to silver.

Bitcoin finally made a new ATH. It now trades above 80,000 USD and may soon reach 100,000 USD.

Solana advanced up to the resistance level at around 210 USD. It is on its way to reach the old highs north of 250 USD.

Ether is the digital laggard. It has moved up in the past week but has not been able to reach past the spring 2024 highs. It looks weaker technically than Bitcoin and Solana.

I still have no idea why Microstrategy has performed so much better than Bitcoin. I expect the shares to perform worse than the coins as the stock is overvalued based on the value of the SaaS part and the bitcoin holdings.

Meme-type speculation, insider knowledge, a reason to go short? I hold shares of Microstrategy as a leveraged Bitcoin proxy but do not trade them. I will continue to keep them.

(2) US Economy: Trumponomics

In his 2024 presidential campaign, Donald Trump outlined several initiatives to increase efficiency and reform the U.S. administration.

Government Efficiency Commission

Trump has pledged to establish a "government efficiency commission" to be led by Elon Musk. This commission is intended to conduct a thorough federal government audit and recommend significant reforms to eradicate fraud and improper payments. Trump claims this commission could achieve its goals, including eliminating fraud, within six months of its inception.

Reduction in Government Expenditures

Trump plans to drastically reduce government expenditures as part of his broader economic strategy. He has emphasized the need to cut unnecessary spending and streamline government operations to make them more efficient.

Regulatory Rollbacks

Trump has consistently advocated reducing regulations across various energy, finance, and infrastructure sectors. He believes that fewer regulations will lead to greater efficiency and economic growth. In his second term, he is expected to continue and expand his deregulatory efforts, including rolling back environmental and other regulations implemented during the Biden administration.

Streamlining Federal Agencies

Trump has proposed reclassifying a significant segment of the federal workforce, a plan known as 'Schedule F,' to facilitate the dismissal of civil servants he considers "rogue bureaucrats" or "corrupt actors." He also plans to relocate some federal agencies from Washington, D.C., to other parts of the country, aiming to reduce bureaucratic inefficiencies.

Presidential Power Over Spending

Trump has suggested reviving the practice of "impoundment," which would allow the president to reject congressional spending directives and redirect taxpayer funds. This move is part of his broader effort to reclaim presidential power over government spending from Congress.

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Economic and Tax Policies

• Tax Cuts and Extensions: Trump plans to extend the expiring provisions of the Tax Cuts and Jobs Act (TCJA), including making individual income and estate tax cuts permanent. He also proposes to lower the corporate tax rate to 15% for domestic production and reinstate the Domestic Production Activities Deduction.

• Tariffs and Trade: Trump intends to impose tariffs of 10% to 60% on imports, particularly from China, and on products from companies relocating manufacturing out of the U.S.

• Energy and Deregulation: He aims to reduce environmental regulations, increase fossil fuel production, and roll back fuel and emissions standards mandates to lower energy costs.

Immigration and Border Control

• Mass Deportations: Trump has vowed to undertake the largest deportation of undocumented immigrants in U.S. history, using expedited removal processes and potentially deploying the military to assist. He also plans to end "catch and release" policies and restore migrant family separations to deter illegal immigration.

• Border Wall and Citizenship: Trump intends to complete the border wall with Mexico and end "birthright" citizenship for children born in the U.S. to undocumented parents.

Health Care

• Overhauling Health Systems: While details are vague, Trump has mentioned overhauling health and food systems with input from Robert F. Kennedy Jr. However, he has not prioritized health care as he did during his first term, and his plans for replacing Obamacare remain unclear.

Education

• Cutting Federal Funding for Certain Schools: Trump has proposed cutting federal funding for schools that teach "critical race theory" and "transgender" matters. However, federal funding accounts for only about 8% of public school funding.

Environmental and Climate Policies

• Rolling Back Climate Regulations: Trump plans to reduce environmental regulations, including those focused on emissions reductions from power plants, vehicles, and energy production. He opposes the Paris Climate Agreement and the Inflation Reduction Act, aiming to increase fossil fuel production and lower energy costs.

Government Reformation and Spending

• Reclaiming Presidential Power Over Spending: Trump intends to revive the practice of "impoundment," allowing the president to reject congressional spending directives and redirect taxpayer funds. This move is part of his broader effort to reclaim presidential power over government spending from Congress.

• Government Efficiency Commission: Trump has proposed establishing a government efficiency commission, led by Elon Musk, to audit the federal government and recommend significant reforms to eliminate fraud and improper payments.

Other Initiatives

• Ending the Ukraine Conflict: Trump has promised to resolve the Ukraine conflict through negotiations within 24 hours, although specifics on his approach are lacking.

• Pardoning January 6 Participants: Trump has committed to pardoning some individuals convicted for their roles in the January 6, 2021, Capitol riot.

• Dismissing Special Counsel Jack Smith: Trump plans to dismiss Special Counsel Jack Smith, who is investigating Trump's alleged attempts to overturn the 2020 election and mishandling classified documents.

(3) US Stock Markets: Trump Winners and Losers

After President-elect Donald Trump's White House victory, some stocks may be poised for more upside. Apparent choices are banks and other financial stocks, fossil fuel and energy stocks, and defense.

Small-cap stocks may benefit from lower taxes and broad-based deregulation. I want to highlight four sectors that I think will particularly benefit from the Trump administration:

Public sector digitization and efficiency stocks

Donald Trump has pledged to establish a "government efficiency commission" to be led by Elon Musk. AI has the potential to enhance efficiency in government operations significantly.

The use of Artificial Intelligence (AI) in the context of enhancing efficiency in the U.S. government is a significant area of discussion and potential implementation. Here are some key points:

Potential Savings and Efficiency

Deloitte's research indicates that cognitive technologies, including AI, could free up hundreds of millions of public sector worker hours and save billions of dollars annually by automating specific tasks and allowing managers to shift employees to tasks requiring human judgment

Specific Applications

AI can be applied in various government functions to improve efficiency:

• Immigration Processing: AI can help reduce backlogs and streamline the processing of immigration applications

• Climate Change Mitigation: AI can be used to analyze data and develop more effective policies to address climate change

• Tax Policies: AI algorithms can help design tax policies that enhance economic efficiency and equity

• Government Services: AI can improve communication within federal government agencies and enhance the delivery of government services

Challenges and Barriers

• Antiquated Infrastructures: Many government agencies lack the modern infrastructure necessary to support AI technologies

• Workforce Preparation: The existing workforce may not be adequately prepared for the transition to AI-driven processes

Trump's Proposals

While Donald Trump's proposal for a government efficiency commission led by Elon Musk does not explicitly focus on AI, it does aim at broader efficiency reforms. However, there is no explicit mention of how AI would be integrated into this commission's work.

Given Musk's involvement and his background in innovative technologies, it is plausible that AI could be a part of the commission's strategy, but this remains speculative without further details.

A significant beneficiary could be ServiceNow. Trump's administration has emphasized the need for technological modernization within the federal government. ServiceNow's AI capabilities, including generative AI (GenAI) features, can support this modernization by enabling faster development of low-code apps, improving agent productivity, and enhancing citizen experiences. These advancements could be complementary to Trump's initiatives to modernize government operations.

The ServiceNow platform is positioned as a central tool for AI-driven transformation in government. The platform includes AI features such as:

• Automated responses to citizen queries

• Personalized citizen communication

• Improved service delivery

• Enhanced compliance and risk management

• Integration with other systems to streamline complex workflows

Clean food stocks

Donald Trump's stance on clean food, ultra-processed food, and the packaged food industry is complex and often contradictory, especially when comparing his past actions with his recent rhetoric.

In his current campaign, Trump has adopted a new rhetoric, influenced by his alliance with Robert F. Kennedy Jr., which seems to contradict his past actions:

• "Make America Healthy Again" (MAHA) Campaign: Trump has started talking about removing toxic chemicals from the food supply, ensuring safe food, and addressing chronic diseases. However, given his track record, this message is seen as a departure from his previous policies and is met with skepticism.

• Proposed Reforms: The MAHA agenda, as outlined by Kennedy, includes radical reforms such as banning sugary drinks and processed foods from the Supplemental Nutrition Assistance Program (SNAP), reforming farm subsidies to focus on healthier foods, and revamping pesticide regulations. However, given his past actions, these proposals are not officially part of Trump's campaign doctrine and are viewed as unlikely to be implemented.

The "Make America Healthy Again" (MAHA) initiative, as associated with Donald Trump's recent campaign rhetoric and his alliance with Robert F. Kennedy Jr., is a complex and multifaceted proposal that aims to address various aspects of public health, mainly focusing on food safety, nutrition, and the reduction of toxic substances in the environment and food supply. Here are some key details and proposed reforms:

Key Proposals and Objectives

1. Food Safety and Nutrition

• Ban on Sugary Drinks and Processed Foods from SNAP: One of the proposed reforms is to ban sugary drinks and highly processed foods from the Supplemental Nutrition Assistance Program (SNAP). This aims to encourage healthier eating habits among low-income families.

• Reform of School Nutrition Standards: There is a call to revert to or enhance the Obama-era school nutrition standards, rolled back during Trump's first term. This includes increasing the availability of whole grains, fruits, and vegetables in school meals.

• Labeling and Transparency: Advocating for clearer labeling on food products to help consumers make informed choices about the ingredients and nutritional content of the foods they buy.

2. Toxic Substances and Pesticides

• Banning Toxic Chemicals: The MAHA initiative proposes banning or strictly regulating toxic chemicals in food, water, and the environment. This includes pesticides like glyphosate (Roundup) and other substances linked to health issues.

• Reform of Pesticide Regulations: Kennedy and allies have called for a complete overhaul of pesticide regulations, arguing that current standards are inadequate and fail to protect public health.

3. Farm Subsidies and Agricultural Practices

• Reform of Farm Subsidies: The proposal includes changing farm subsidy programs to incentivize the production of healthier foods, such as organic produce and whole grains, rather than primarily supporting corn and soybean production for processed foods.

• Support for Small and Organic Farmers: There is a push to support small, local, and organic farmers through policy changes and financial incentives, aiming to promote more sustainable and healthier agricultural practices.

4. Environmental Health

• Clean Water Initiatives: Ensuring clean drinking water by strengthening regulations on water pollutants and enforcing stricter standards for water quality.

• Air Quality Improvements: Reducing air pollution by implementing stricter emissions standards and promoting cleaner energy sources.

Sprouts Farmers Market and similar companies focusing on healthier nutrition and foods may benefit from these policy changes.

Housing

Affordable Housing: Trump aims to make housing more affordable by reducing regulations, opening federal land for construction, and preventing undocumented immigrants from getting mortgages. He also proposes a home-building program on federal land.

Manufacturing Revitalization: Trump wants to cut the corporate tax rate to 15% for U.S.-made products and impose tariffs on companies moving production overseas. He aims to revitalize the manufacturing sector by reducing costs for U.S. manufacturers.

The current housing problem in the US is both an availability problem and an affordability problem. The Trump policy measures may benefit the housing industry if, on the other hand, interest rates do not rise because of rising fiscal and budgetary deficits and the bond vigilantes taking center stage.

Crypto stocks

The Trump Crypto Narrative is more than one story; it is at least four.

Trump’s election does change the prospects of (1) the Bitcoin narrative, (2) the Gensler and Defi narratives, (3) the manosphere narrative, and some Meme Coin narratives, such as AI, RWAs, and Murad meme coins and (4) the end of QT.

Trump wants the US to begin forming a strategic reserve of BTC. This is positive as it removes a BTC selling overhang, namely that the US might sell extensive holdings confiscated from various nefarious agents. It adds buying pressure on BTC and cements its status within the global financial system. The gain from removing a selling-pressure overhang is real. The strategic reserve of BTC is a long way off.

Gary Gensler, the current chair of the SEC, is the crypto industry’s most hated person. Elizabeth Warren is a distant second.

Trump’s repeatedly said he would “fire” Gensler “on day one.” It is customary for SEC chairs to step down when a new president takes office. Trump has to do nothing to keep his promise.

Given this, it is unlikely that the various SEC suits will go forward at all until a clear regulatory framework is in place. UNI and AAVE may be fine. POL did a bump (it’s also being sued), and even Cardano (ADA) jumped. Synthetix (SNX) cannot go back to posting oil and stock derivative coins. 

DeFi won’t be back where it once was. The most obvious winner is likely ETH (and Solanda) since DeFi is ETH’s killer app. It has a long way to go in catching up to BTC this cycle, and now its future looks more promising.

The manosphere is a loose association of public personalities, vloggers, and podcasters ranging from Joe Rogan and Jordan Peterson to Andrew Tate and Nick Fuentes, who have been Trump’s ardent supporters.

Meme coins represent various features of this cultural space. Based on the model Ernst Khalimov, the Giga Chad coin is a masculine ideal. SIGMA is a Gen Z phrase that crosses into the manosphere realm to indicate “the best man.”

The post-Trump manosphere narrative will boost these well-known coins and continue supporting them or similar coins.

The ending of QT - likely in December 2024 - may boost the whole coin sphere.

(4) US Stock Market Seasonality: Riding the Bull in November, December, and January

The final quarter of the calendar year has historically been the best quarter of the SP 500. December, April, and November have been the three best months of a calendar year.

On average, the 2-monthly period from November until December is also the best bi-monthly period of a calendar year.

Except for 2016, when Donald Trump won the presidential elections for the first time, price action has been positive since 2013.

Over the past ten years, the average performance of the S&P 500 during November and December was approximately 4.41%.

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Data shows that during election years, the S&P 500 has historically underperformed in the September-to-early-November period compared to non-election years.

The best day of a calendar year has historically been October 28. The final ten days of November have been the best ten-day streak of the calendary year historically.

Nvidia is scheduled to report earnings on 20 November 2024 after market close. The report will be for the fiscal quarter ending Oct 2024.

The table above is from Carson Investment Research.

(5) Long-Term Analysis: Elliott Waves - Nasdaq 100

Nasdaq 100 has been in a bull market since autumn 2022. It may be in the final wave before completing five extended waves (nine waves) up.

The current move until last week's top looked like a wave b to me. In that case, I reasoned that we would not see a year-end rally starting directly after the election but rather a wave c and a test of the August lows first.

The year-end rally would only begin on November 20, when Nvidia reported earnings. Unless we see very negative inflation figures this week, the clear-cut Trump victory made that count wrong.

Given the strong seasonality from early November until the end of January and the macro picture, we will most likely see a continuation of the bull market in the weeks ahead.

For me, this week’s price action is more important than last week's initial reaction. I like to watch how the week proceeds and give a more precise assessment of what I think will happen until the end of January next week.

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Thank you for reading this week's edition of Closelook@US Stock Markets, dated October 03, 2024 👋. The next edition will be published on November 10, 2024, at 2:00 p.m. ET.

A Closelook At This Edition

1. This Week's Action: The End Of Tax Selling

2. US Economy: A New Bond Market Massacre?

3. US Stock Markets: Mixed Earnings From the Mag-5

4. US Stock Markets: The Trend Is Your Friend Until It is No More

5. Long-Term Analysis: Elliott Waves - Nasdaq 100

6. This Week's Spotlight: Google, Amazon, Apple, Microsoft And Meta In A Nutshell

7. Knowledge Corner: The Disconnect Decoded: Why Economic Models Fall Short in Financial Markets

8. The Derivatives Portfolio: A Good October And More Transactions

9. Final Words: Mag-7 Time To Watch

(1) This Week's Action: The End Of Tax Selling Season Is Near

The headline from early October was "US Stock Market: An Illusion of Perfection or a Rare Moment of Near-Perfect Conditions? The Bears seem to be staging a comeback and trying to make 2024 their year.

The weekly performance summary from Monday, October 28, to Friday, November 1, 2024, shows the major markets heading south.

Weekly Performance Summary

1. S&P 500 Index (SPX)

   • October 28: 5,823.52

   • November 1: 5,728.80

   • Weekly Change: -94.72 points (-1.63%)

2. Dow Jones Industrial Average (DJIA)

   • October 28: 42,387.57

   • November 1: 42,052.19

   • Weekly Change: -335.38 points (-0.79%)

3. Nasdaq Composite Index

   • October 28: 18,567.19

   • November 1: 18,239.92

   • Weekly Change: -327.27 points (-1.76%)

4. Russell 2000 Index

   • October 28: 2,244.07

   • November 1: 2,210.13

   • Weekly Change: -33.94 points (-1.51%)

5. 10-Year U.S. Treasury Yield

   • October 28: 4.274%

   • November 1: 4.386%

   • Weekly Change: +0.112 percentage points

6. Bitcoin (BTC/USD)

   • October 28: Approximately $68,428.00

   • November 1: Approximately $67,249.00

   • Weekly Change: -$1,179.00 (-1.72%)

7. Gold (Spot in USD)

   • October 28: Approximately $2,800.80 per ounce

   • November 1: Approximately $2,749.30 per ounce

   • Weekly Change: -$51.50 (-1.84%)

8. Oil (WTI Crude)

   • October 28: Approximately $72.35 per barrel

   • November 1: Approximately $70.55 per barrel

   • Weekly Change: -$1.80 (-2.49%)

Last week saw the Dow Jones Industrial Average and S&P 500 second losing week in a row. The SP 500 violated its uptrend in place since the August lows on a weekly closing basis.

The Nasdaq broke its winning streak of seven straight positive weeks. It violated the uptrend in place since August 2024 on a weekly closing basis. The chart looks like a double-top formation.

The R2K finished about 1.5 % lower. The index failed to break above the multi-year resistance zone, where it could not move higher in the summer of 2024 and 2021.

As the election approaches, further elevated market volatility can be anticipated before and immediately after the election.

The VIX moved above 20 again but is far away from former peaks around 30 seen during the bear market in 2022.

As measured by the TLT Vix, the Bond Vix traded at a 52-week high last week. Bond volatility has been much higher recently than equity volatility.

Knowledge Corner

The two leading volatility indices for bonds that are similar to the VIX (which measures equity market volatility) are:

VIXTLT Index

This index is calculated using listed options on the iShares 20+ Year Treasury Bond ETF (TLT). It provides a real-time gauge of the next 30 days of expected volatility in the U.S. Treasury market, particularly for bonds with maturities exceeding 20 years.

It is expressed in basis points, which is more relevant for the bond market, where small changes can have significant implications.

• The VIXTLT Index is a real-time gauge of the expected volatility in the U.S. Treasury market over the next 30 days. It is calculated using listed options on the iShares 20+ Year Treasury Bond ETF (TLT), a highly liquid ETF composed of U.S. Treasury bonds with maturities exceeding 20 years and relatively high duration.

• This index leverages Cboe’s proprietary VIX Index methodology, adapted for the bond market. It provides a measure of volatility in basis points, which is more relevant for fixed-income markets where risk is often perceived as absolute rather than percentage changes.

• The VIXTLT Index offers insights into how the bond market reacts to different volatility regimes and can be compared with the VIX Index to understand the relationship between equity and bond market volatility.

ICE BofAML MOVE Index

This index gauges U.S. bond market volatility across different maturities. It is designed to measure the expected volatility of U.S. Treasury yields. It is often used as a broader indicator of bond market volatility compared to the VIXTLT, which focuses on longer-term Treasuries.

• The ICE BofAML MOVE Index measures the expected volatility of U.S. Treasury yields across various maturities. Unlike the VIXTLT, which focuses on longer-term Treasuries (20+ years), the MOVE Index provides a broader view of bond market volatility by covering a range of maturities.

• This index is used to gauge the overall volatility in the U.S. Treasury market, making it a valuable tool for understanding market sentiment and risk across different bond market segments.

• The MOVE Index is particularly valuable for investors seeking a comprehensive view of bond market volatility, as it captures the expected volatility across multiple maturities, providing a more holistic picture compared to the VIXTLT, which is more focused on long-term Treasuries.

The bond market volatility indices are standalone tools used to gauge market sentiment and predict potential price swings in the bond market. Still, they do not have a secondary layer of volatility measurement as the VIX of VIX does for the VIX.

US presidents come and go, but this election may matter more than other ones. Why? Because there will be structural credit and deficit troubles ahead in the US, and how they are addressed will significantly impact whether we will have mediocre stock market returns in the next 10 years (the Goldman Sachs view) or (close to) double-digit annual returns (Ed Yardeni’s roaring 20s concept).

I anticipated a top in the TLT based on better-than-expected economic indicators rather than the beginning of another debt crisis like the one that occurred from August to October 2023.

The TLT ETF cratered from highs above 100 USD before the Fed lowered rates in mid-September to the middle of the trading range of around 92 USD.

It initially found support at the lower trend line of the upward-sloping trend channel in place since late 2023.

This may indicate elevated volatility ahead, as even an employment report indicating weaker job growth did not help the bond market move north on Friday.

The second-best-performing asset class (Bitcoin has been the best performer) year-to-date has been Gold. It is up by more than 30% ytd. It fell close to two percent last week.

Silver has completed a break-out from its summer trading range and seems to be heading further north in the longer term. It has now been up more than 50 % since the spring lows. Silver also moved lower last week.

Bitcoin made another attempt to close above 70000 USD but failed again. It lost close to two percent on the week. The chart looks bullish to me. It looks like a wave 4 formation.

While the minimum a-b-c-d-e requirements have been fulfilled, a wave 4 quite often takes a more complex form than an a-b-c-d-e formation.

The current break-out would fail in such a case, and the lows of around 50,000 would be tested again (see chart below).

The formation may even become more complex, encompassing two three-wave corrective moves (see chart below), unless there are not many Bitcoin bulls left to initiate the pain trade and move the coin to new ATHs.

I have no idea why Microstrategy has performed so much better than Bitcoin. When the coins peaked in the spring of 2024 at around 70000 USD, MSTR traded a bit below 200 USD. Last week, it peaked at over 265 USD before moving to around 225 USD.

Meme-type speculation, insider knowledge, a reason to go short? I hold shares of Microstrategy as a leveraged Bitcoin proxy but do not trade them.

(2) US Economy: A New Bond Market Massacre?

Since the Federal Reserve's September 17-18 meeting, the 10-year US Treasury bond yield has surged by 77 basis points to 4.39%.

This significant increase reflects the Bond Vigilantes' concerns about Fed Chair Jerome Powell's dovish monetary policy and the potential for economic overheating.

Market Reaction and Analysis

On Monday, October 28, 2024, the Treasury announced its marketable borrowing estimates. The projected financing is $546 billion in Q4-2024 and $823 billion during Q1-2025.

This announcement comes against a staggering national debt, currently at $35.5 trillion. This includes $27.7 trillion of US Treasury marketable debt and $7.2 trillion of intragovernmental holdings.

The latter represents the government's IOUs to itself, primarily resulting from borrowing from public trust funds like Social Security and Medicare.

Alarmingly, this debt is projected to expand at an annual rate of over $1.0 trillion solely to cover the net interest outlays of the Treasury.

The Bond Vigilantes appear to be voting against the Fed's recent actions, particularly the 50 basis point rate cut on September 18. Their concern stems from the perception that the economy is already running hot and further easing could lead to overheating.

Fiscal Policy Concerns and Challenges

The Bond Vigilantes' reaction may also reflect apprehension about future fiscal policies, regardless of which party wins the upcoming elections. Some are concerned that continued expansionary budgetary policies could further inflate the substantial federal budget deficit and fuel inflation.

The next administration will face significant fiscal challenges, particularly regarding debt servicing:

The next administration will face net interest outlays of over $1 trillion on the ballooning federal debt.

This underscores the growing burden of interest payments on the federal debt, likely influencing future fiscal and monetary policy decisions.

Disinflation on Track

US September PCE core inflation came in at +0.3% vs +0.3% expected.

• Prior m/m +0.1%

• Unrounded core PCE was +0.254%

• Core PCE +2.7% y/y vs +2.6% expected

• Headline inflation PCE +2.1% y/y vs +2.1% expected (Prior +2.2, revised to +2.3%)

• Deflator +0.2% m/m vs +0.2% expected

• Unrounded +0.175% m/m vs +0.0907% prior

Consumer spending and income for August:

• Personal income +0.3% vs +0.3% expected. Prior month +0.2%

• Personal spending +0.5% vs +0.4% expected. Prior month +0.2% (revised to +0.3%)

• Real personal spending +0.4% vs +0.1% prior (revised to +0.2%)

The unrounded numbers reveal softer inflation than the headlines, particularly on core m/m, which was very close to being reported as +0.2%. Meanwhile, the consumption numbers were solid.

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The Fed should be on track to continue to lower interest rates in each of the following three meetings.

In a scenario like this, I prefer megacap stocks and related ETFs, as well as Bitcoin over government bonds.

(3) US Stock Markets: Solid Earnings From the Mag-5 Failed to Drive The Market Up

• Meta: Revenue in line, earnings above consensus, guidance consistent.

• Microsoft: Revenue slightly above, earnings in line, guidance below consensus.

• Alphabet: Revenue and earnings in line or slightly above consensus, guidance on capital spending but not detailed on revenue.

• Amazon: Revenue slightly below consensus, earnings in line or slightly below, guidance generally in line.

• Apple: Revenue and earnings in line or slightly below consensus, cautious guidance on iPhone sales.

Meta (META)

• Revenue: Reported $41 billion, approximately in line with expectations of $40.25 billion.

• Earnings: Statutory earnings per share (EPS) of $6.03, beating analyst predictions by 14%.

• Guidance: Meta raised its capital expenditure guidance 2024 to between $38 billion and $40 billion and expects significant acceleration in 2025. Revenue guidance for the fourth quarter is between $45 billion and $48 billion, consistent with analyst expectations

Microsoft (MSFT)

• Revenue: Reported $65.685 billion, slightly above consensus estimates.

• Earnings: Net income of $24.667 billion, with EPS beating some estimates but overall in line with expectations.

• Guidance: Microsoft's forecast for the next quarter fell short of analyst estimates, with anticipated revenue between $68.1 billion and $69.1 billion, compared to the expected $69.83 billion

Alphabet (GOOG, GOOGL)

• Revenue: Expected to rise over 12% year-over-year to $86.41 billion, generally in line with consensus estimates.

• Earnings: Net income expected to increase to $23.03 billion, or $1.85 per share, up from $1.55 per share in Q3 2023, meeting or slightly exceeding expectations.

• Guidance: Alphabet expects higher capital spending in 2025 compared to the current year, but specific revenue and earnings guidance for the next quarter is not detailed in the sources

Amazon (AMZN)

• Revenue: Reported revenue between $154 billion and $158 billion for Q3, aiming for approximately 9.5% growth, slightly below the double-digit growth many analysts had hoped for.

• Earnings: EPS of $1.14, which aligns with or is slightly below some analyst expectations.

• Guidance: Amazon expects to spend about $75 billion in capital expenditures for 2024 and has already spent $51.9 billion. The company's revenue guidance for the next quarter generally aligns with expectations but is slightly below some analysts’ hopes for double-digit growth.

Apple (AAPL)

• Revenue: Apple reported earnings and revenue that were generally in line with or slightly below expectations. The company gave a cautious iPhone forecast.

• Earnings: Net income declined due to a European tax-related payment, and services revenue missed estimates.

• Guidance: The company's cautious iPhone forecast suggests some caution in future growth expectations

The final quarter of the calendar year has historically been the best quarter of the SP 500. December, April, and November have been the three best months of a calendar year.

On average, the 2-monthly period from November until December is also the best bi-monthly period of a calendar year.

Except for 2016, when Donald Trump won the presidential elections for the first time, price action has been positive since 2013.

Over the past ten years, the average performance of the S&P 500 during November and December was approximately 4.41%.

Data shows that during election years, the S&P 500 has historically underperformed in the September-to-early-November period compared to non-election years.

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The best day of a calendar year has historically been October 28. The final ten days of November have been the best ten-day streak of the calendary year historically.

Nvidia is scheduled to report earnings on 20 November 2024 after market close. The report will be for the fiscal quarter ending Oct 2024.

The table above is from Carson Investment Research.

(4) US Stock Markets: The Trend Is Your Friend Until It Is No More

The trend is your friend until it is no more - until a significant trend line has been broken and a trend reversal may have occurred. We may have witnessed the beginnings of this last week.

The Nasdaq 100 long-term bullish trend is intact. The index closed the last of the three gaps (bearish break-away, continuation gap, and exhaustion gap) since the summer of 2024 and failed to reach a new ATH.

The Mag-7 index also failed to make a new ATH but performed better than the Nasdaq or Nasdaq 100.

Unless there is a bad earnings print from Nvidia, I expect the outperformance of the Mag-7 stocks to resume in a higher yield environment.

(5) Long-Term Analysis: Elliott Waves - Nasdaq 100

Nasdaq 100 has been in a bull market since autumn 2022. It may have completed nine waves up.

The current move until last week's top looks like a wave b. Contrary to popular belief, we may see no year-end rally starting directly after the election but rather a wave c and a test of the August lows first.

The year-end rally may start on November 20 when Nvidia reports earnings.

The chart below shows some Fibonacci levels that may become important again.

The chart below shows Fibonacci fans and their alignment with different trend channels.

The chart below shows my preferred Elliott wave count for the Nasdaq 100.

In this scenario, a final leg up now would lead to a larger consolidation pattern in early 2025.

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Thank you for reading this week's edition of Closelook@US Stock Markets, dated October 27, 2024 👋. The next edition will be published on November 03, 2024, at 2:00 p.m. ET.

A Closelook At This Edition

1. This Week's Action: The End Of Tax Selling Season Is Near

2. US Economy: Bond Vigilantes Have Voted Earlier

3. US Stock Markets: A Positive October Bodes Well For The Rest Of The Year

4. US Stock Markets: A New ATH For The Nasdaq, But Not For The Nasdaq 100

5. Long-Term Analysis: Elliott Waves - Nasdaq 100

6. This Week's Spotlight: ServiceNow - The AI Leader in the Enterprise Software Sector

7. Knowledge Corner: Agentic AI

8. The Derivatives Portfolio: A Good Start and More Transactions

9. Final Words: Mag-7 Earnings Ante Portas

(1) This Week's Action: The End Of Tax Selling Season Is Near

The headline from early October was "US Stock Market: An Illusion of Perfection or a Rare Moment of Near-Perfect Conditions? It seems 2024 will be another lost year for the stock market bears.

Last week saw the Dow Jones Industrial Average and S&P 500 winning streaks of six straight weekly gains end. The Nasdaq did hold positive, however, and extended its winning streak to seven straight positive weeks.

Nasdaq and Nasdaq 100 showed renewed relative strength compared with the DJIA, the SP 500, and the R2K. The breakout of the R2K index failed.

As the election approaches, some elevated market volatility can be anticipated. The election may cause investor unease, but I believe these concerns will dissipate quickly if the results show a winner.

However, prolonged uncertainty due to the need for lengthy recountings of election results in different states could negatively impact the stock and bond markets.

The Vix traded higher in October but has been far from panic readings. The Vix of Vix has been stable to date in October, indicating no elevated levels of uncertainty.

Knowledge Corner

The VIX and the VIX of VIX are two related but distinct volatility measures that provide insights into market sentiment and expected volatility.

VIX (CBOE Volatility Index)

The VIX, often called the "fear index," measures the market's expectation of 30-day forward-looking volatility for the S&P 500 Index

What VIX Measures:

• Expected volatility of the S&P 500 over the next 30 days

• Market sentiment and investor fear levels

Interpretation:

• VIX values below 20 generally indicate periods of market stability and low volatility

• VIX values between 20-30 indicate increasing market uncertainty

• VIX values above 30 suggest high volatility and significant market fear or stress

Key Points:

• The VIX is calculated using S&P 500 option prices

• It has an inverse relationship with the S&P 500 - typically rising when the market falls and vice versa

• VIX values are expressed as percentages, representing the expected annualized change in the S&P 500 at a 68% confidence interval

VIX of VIX (VVIX)

The VVIX, sometimes called the "VIX of VIX," measures the volatility of the VIX itself.

What VVIX Measures:

• Expected volatility of the VIX index over the next 30 days

• Market's expectation of volatility in volatility expectations

Interpretation:

• Higher VVIX values indicate greater uncertainty about future volatility levels

• Lower VVIX values suggest more stability in volatility expectations

Key Points:

• VVIX provides a "second-order" view of market sentiment

• It can offer insights into how stable or unstable the market's volatility expectations are

Comparing VIX and VVIX

• VIX focuses on expected market volatility

• VVIX focuses on the expected volatility of volatility itself

Both indices provide valuable information for traders and investors:

1. The VIX helps gauge overall market sentiment and expected near-term volatility.

2. The VVIX offers insights into how uncertain the market is about future volatility levels.

The TLT ETF made a double top and cratered on the back of economic data, signaling a much more robust US economy.

It is now below the middle of its year-long trading range and on the verge of breaking its bull trend to the downside.

In contrast to the stock market, the bond market's volatility has been elevated recently.

VIXTLT Index

Cboe Global Markets recently introduced the VIXTLT Index. It's designed to be a real-time gauge for the U.S. Treasury market's next 30 days of expected volatility. The VIXTLT focuses on U.S. Treasuries with maturities exceeding 20 years, using the highly liquid iShares 20+ Year Treasury Bond ETF (TLT).

Unlike the VIX, which deals with percentage changes, the VIXTLT measures volatility in basis points - a crucial distinction in the bond market. It uses a methodology similar to the VIX, leveraging listed options on the TLT ETF.

The second-best-performing asset class (Bitcoin has been the best performer) year-to-date has been Gold. It is up by more than 35% ytd. It trended sideways last week.

Silver has completed a break-out from its summer trading range and seems to be heading further north. It has now been up more than 50 % since the spring lows.

The chart above shows the price action of the iShares Silver Trust. The iShares Silver Trust ETF (SLV) is an exchange-traded fund that seeks to reflect the performance of the price of silver minus expenses.

It provides investors with a cost-effective and convenient way to invest in silver without taking physical delivery of the metal.

(2) US Economy: Bond Vigilantes Have Voted Earlier

The bond market has started to vote early, sending a clear message ahead of the November 5 US presidential and congressional elections.

Since the Federal Reserve's September 17-18 meeting, the 10-year US Treasury bond yield has surged by 64 basis points to 4.26% before settling down slightly and closing at 4.24 %.

This significant increase reflects the Bond Vigilantes' concerns about Fed Chair Jerome Powell's dovish monetary policy and the potential for economic overheating.

Market Reaction and Analysis

The Bond Vigilantes appear to be voting against the Fed's recent actions, particularly the 50 basis point rate cut on September 18. Their concern stems from the perception that the economy is already running hot and further easing could lead to overheating.

This market reaction was not entirely unexpected. On September 2, Ed Yardeni predicted that positive economic indicators might unsettle the bond market.

In his September 22 commentary, he further highlighted the possibility of diverging yields, with the 2-year yield potentially decreasing due to Fed easing while the 10-year yield might rise on concerns about economic overheating.

Fiscal Policy Concerns and Challenges

The Bond Vigilantes' reaction may also reflect apprehension about future fiscal policies, regardless of which party wins the upcoming elections. Some are concerned that continued expansionary budgetary policies could further inflate the substantial federal budget deficit and fuel inflation.

The next administration will face significant fiscal challenges, particularly regarding debt servicing:

The next administration will face net interest outlays of over $1 trillion on the ballooning federal debt.

This underscores the growing burden of interest payments on the federal debt, likely influencing future fiscal and monetary policy decisions.

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The U.S. has reached a historic milestone, with annual interest payments on the national debt surpassing $1 trillion, driven by rising interest rates and a debt load now exceeding $35 trillion.

The Congressional Budget Office highlights this cost as outpacing major budget items like defense spending. This significant increase in debt servicing pressures will influence fiscal policy decisions and budget allocations for years.

Japan, China, and the United Kingdom are the largest foreign holders of U.S. debt. As of 2024, Japan is the top foreign holder, with approximately $1.15 trillion in U.S. Treasury securities. China holds around $750 billion, while the U.K. follows closely with about $690 billion. Other countries with significant U.S. debt holdings include Luxembourg and the Cayman Islands, each owning a few hundred billion dollars in Treasuries.

In recent U.S. Treasury auctions throughout 2024, primary dealers, direct bidders, and indirect bidders have continued to play significant roles in purchasing government debt. Primary dealers, financial institutions authorized to trade directly with the Federal Reserve, have been the primary buyers in many auctions. There has also been notable participation from indirect bidders, a category that includes foreign central banks and other international investors.

In several 2024 auctions for securities such as the 20-year bonds and 28-day bills, indirect bidders accounted for substantial portions of the accepted bids, indicating robust foreign demand for U.S. Treasuries.

Recent data shows that indirect bidders—often acting through the Federal Reserve Bank of New York on behalf of foreign monetary authorities—continue to secure a large share of the bids, especially for longer-term securities. This ongoing foreign interest is consistent with historical patterns where foreign central banks use Treasuries to maintain reserves and stabilize currencies.

The bid-to-cover ratios in these auctions, frequently above 2.5, also highlight strong demand for domestic and international buyers, reinforcing Treasuries' appeal as safe-haven assets.

Currently, I see no real threat of bond vigilantes stopping to buy US bonds. But this may change anytime soon.

Allianz CEO Oliver Baete recently expressed concern over high public debt levels, describing the situation as “really scary.” He emphasized that investments in sovereign debt, commonly perceived as risk-free, are far from it and highlighted the U.S. as an example. Baete’s remarks reflect Allianz's cautious stance on sovereign bonds, especially amid ongoing market volatility. He criticized the assumption that domestic sovereign debt lacks risk, suggesting that such a view could have significant financial repercussions.​

The IMF expressed concerns in October 2024 about elevated global sovereign debt levels, projecting that total public debt will exceed $100 trillion in 2024, equivalent to around 93% of global GDP. This debt trajectory is expected to approach 100% of global GDP by 2030, partly driven by factors such as pandemic-related spending, inflation, and rising interest rates, which have increased the cost of borrowing.

The IMF’s October 2024 Fiscal Monitor emphasizes the need for countries to address these high debt levels through careful fiscal policies, aiming to balance economic growth and debt reduction.

The IMF warns that global public debt could spike to 115% of GDP by 2026 in a particularly adverse scenario. This is due to potential risks such as slower growth, continued high financing costs, and fiscal pressures from social needs and climate initiatives.

The IMF suggests a substantial fiscal adjustment (around 3-4.5% of GDP over six years) may be required to stabilize debt effectively, particularly for high-debt countries like the U.S., China, and several European nations. However, the IMF notes that delaying such adjustments could increase the risk of market instability, impacting financial resilience and economic growth globally.​

In a scenario like this, I prefer megacap stocks and related ETFs, as well as Bitcoin over government bonds.

(3) US Stock Markets: A Positive October Bodes Well For The Rest Of The Year

An October ending with monthly SP 500 gains usually bodes well for the rest of the year. The table below shows the SP 500 action after ending October with a 6-month trailing return above ten percent.

This has happened 12 times since 1950, and in each instance, the $SPX went on to finish November and December in the green with an average gain of 7.4%!

The final quarter of the calendar year has historically been the best quarter of the SP 500. December, April, and November have been the three best months of a calendar year.

On average, the 2-monthly period from November until December is also the best bi-monthly period of a calendar year.

Except for 2016, when Donald Trump won the presidential elections for the first time, price action has been positive since 2013.

Over the past ten years, the average performance of the S&P 500 during November and December was approximately 4.41%.

Data shows that during election years, the S&P 500 has historically underperformed in the September-to-early-November period compared to non-election years.

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The best day of a calendar year has historically been October 28. A day when tax selling often finishes as many mutual funds have a fiscal year-end of October 31.

The table above is from Carson Investment Research.

(4) US Stock Markets: A New ATH For The Nasdaq, But Not For The Nasdaq 100Subsectors

While the Nasdaq hit an ATH this week, the Nasdaq 100 traded below the summer peaks last week.

The Nasdaq 100 long-term bullish trend is intact. The index has just closed the last of the three gaps (bearish break-away, continuation gap, and exhaustion gap) since the summer of 2024.

The Nasdaq 100 Equal Weight Index ran into heavy resistance last week and underperformed the Nasdaq Top 30 index.

62 % of Nasdaq 100 stock traded above their 50-day moving averages, down from over 80 % a week ago.

The Nasdaq 100 Tech Index failed to move close to its ATH recorded in the summer of 2024.

The Nasdaq 100 Ex Tech Index reached a new ATH last week before moving down rather sharply. Rising yields put pressure on smaller growth stocks.

The Nasdaq 100 Top 30 Index reached above the prior September highs. Megacap tech stocks staged a comeback.

The Mag-7 stock index showed considerable relative strength, moving close to its ATH.

I expect the outperformance of the Mag-7 stocks to resume in a higher yield environment.

(5) Long-Term Analysis: Elliott Waves - Nasdaq 100

Nasdaq 100 has been in a bull market since autumn 2022. I see two possible Elliott Wave counts.

Scenario 1: The current move up is a wave b. Then, contrary to popular belief, we will see no year-end rally after the election but rather a wave c and a test of the August lows.

Or the autumn consolidation stopped before the end of the tax-selling season, and we are already in the middle of a new bull market leg.

The chart below shows some Fibonacci levels that match peaks and lows since the bull market started.

The chart below shows Fibonacci fans and their alignment with different trend channels.

The chart below shows my preferred Elliott wave count for the Nasdaq 100.

In this scenario, a final leg up now would lead to a larger consolidation pattern in early 2025.

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