by Ivan Martchev

December 17, 2024

The rather sharp rise in Treasury yields last week pressured the broad market, resulting in a down week, even though the Nasdaq 100 index did manage a new all-time high. The rotation into value sectors has been completely missing in December, which is a bit surprising. One can say that the stock market reacted the way it typically did in the first six months of the year, when technology led and all else lagged.

TNX Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

In five trading days last week, bond yields rose every day, with the 10-year Treasury rising from 4.15% to 4.40%. The Dow Industrials, which one could use as a rough proxy for value, fell each day and were off 815 points for the week. We are due for a rebound, but bond yields need to calm down – and preferably decline – as I don’t believe the stock market would like to see trading above 4.5% on the 10-year note.

I think there is some sort of stock trading algorithm where if bond yields are up, the program sells value stocks. Below are the Dow Industrials futures after making an all-time high the week before.

Think or Swim Chart

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

The Dow has now been down for seven days in a row (through last Friday). This type of selling looks pretty mechanical to me, and there are plenty of reasons why this sort of selling should end this week, the most important of which is Jerome Powell’s Fed meeting and press conference following it.

You can see a similar picture in the Russell 2000 futures, which is another proxy for value. Both of these indexes are due for a rebound, if Jerome Powell and the bond market cooperate. The Russell 2000 has badly under-performed the S&P 500 for three years in a row and is due for a turnaround. The Russell 2000 Index is also due to outperform if we see deregulation and lower taxes – key goals of the new Trump administration – along with lower interest rates, which are not declining much at the moment

President-elect Trump wants a lower dollar, lower interest rates and stronger economic growth, but I see a contradiction here. The dollar will likely strengthen if he is successful on his trade agenda. If he manages to tackle high budget deficits, he may get lower bond yields, but that is unlikely to be an easy task.

Still, I would not bet against Elon Musk, one of his main backers, who is the richest person in the world. Musk figured out how to re-use space rockets, which made space flight dramatically cheaper. If he figures out full self-driving and offers the world cheap, fast Internet and cell phone service through StarLink, he may end up being the first person worth $1 trillion. All this is happening in plain sight as his competitors in aerospace and auto design have completely missed the boat and failed to grasp his long-term strategy.

I am surprised to see market weakness in early December, but they say that the first half of December tends to be weak, particularly in strong years for the stock market, and the second part of December is stronger. I sure hope that is the case, as this is the last full trading week before the holidays kick in.

All content above represents the opinion of Ivan Martchev of Navellier & Associates, Inc.

Please see important disclosures below.

About The Author

Ivan Martchev
INVESTMENT STRATEGIST

Ivan Martchev is an investment strategist with Navellier.  Previously, Ivan served as editorial director at InvestorPlace Media. Ivan was editor of Louis Rukeyser’s Mutual Funds and associate editor of Personal Finance. Ivan is also co-author of The Silk Road to Riches (Financial Times Press). The book provided analysis of geopolitical issues and investment strategy in natural resources and emerging markets with an emphasis on Asia. The book also correctly predicted the collapse in the U.S. real estate market, the rise of precious metals, and the resulting increased investor interest in emerging markets. Ivan’s commentaries have been published by MSNBC, The Motley Fool, MarketWatch, and others. All content of “Global Mail” represents the opinion of Ivan Martchev

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