Stocks, Gold, Bitcoin Tumble Ahead of Fed Meeting - MKT Call: Macro

MKT CALL: MACRO OVERVIEW:

• While seasonal tendencies across asset classes typically cater to a ‘risk on’ attitude, the famed Santa Claus rally is nowhere to be seen thus far.
• US stocks have dropped meaningfully over the past few days, even as the US S&P 500 tagged a fresh all-time closing high just last week.
• As the Fed signals a more aggressive stance, rate hike odds have been dragged forward, depressing longer-term growth and inflation expectations.

Ho-Ho-Hold Your Horses

In this week’s edition of MKT Call: Macro (formerly The Macro Setup), we discussed how different corners of financial markets are readying themselves for the December Fed meeting, the final rate decision of 2021. While seasonal tendencies across asset classes typically cater to a ‘risk on’ attitude, the famed Santa Claus rally is nowhere to be seen thus far.

US stocks have dropped meaningfully over the past few days, even as the US S&P 500 tagged a fresh all-time closing high just last week. Disruptive, growth stocks in the tech sector have been hit hardest, as the prospect of accelerated tapering has sapped investor appetite for assets that don’t produce significant revenues or return capital to shareholders. That includes cryptocurrency, as Bitcoin and Ethereum have technically entered bear markets (down over -20% from their all-time highs).

For gold prices, even as US inflation rates have hit their highest level since the early-1980s, bids have been scant as rising US real yields – 10-year real yields are up by 20-bps over the past month – have taken the shine off of precious metals. As the Fed signals a more aggressive stance, rate hike odds have been dragged forward, depressing longer-term growth and inflation expectations. Markets are still of the mindset that the inflation story is transitory, even if Fed Chair Jerome Powell has officially retired the phrase from the Fed’s lexicon.

*For commentary from Dan Nathan, Guy Adami, and myself on the US Dollar (via the DXY Index), the US S&P 500, gold prices, Bitcoin, among others, please watch the video embedded at the top of this article.

CHARTS OF THE WEEK

Eurodollar Futures Contract Spread (DECEMBER 2021-DECEMBER 2023) [ORANGE], US 2s5s10s Butterfly [BLUE], DXY Index [WHITE]: DAILY TIMEFRAME(JANUARY 2021 to DECEMBER 2021) (Chart 1)

GOLD PRICE TECHNICAL ANALYSIS: DAILY TIMEFRAME (MAY 2020 TO DECEMBER 2021) (CHART 2)

DXY INDEX PRICE TECHNICAL ANALYSIS: DAILY TIMEFRAME (SEPTEMBER 2020 TO DECMEBER 2021) (CHART 3)

--- Written by Christopher Vecchio, CFA, Senior Strategist