As I prepare for my traditional New Year’s culinary festivities – there’s something deeply satisfying about following tradition with a pork roast for Eve and brisket for Day – I find myself contemplating the intricate dance of market forces we’re witnessing at the close of 2024. To understand where we are, we need to examine how the momentum trade, which has been the market’s faithful companion throughout the year, is now showing signs of transformation.
Think of market momentum like a slow-cooked brisket – the long-term trend, much like the cooking process, remains fundamentally sound, but you need to pay attention to the subtle changes in temperature and timing. Right now, we’re seeing the market approach its 50-day moving average, a critical technical indicator that acts like a thermometer for market health. To put this in perspective, think of moving averages as layers of support: the 50-day is your first warning sign, the 100-day is your second, and the 200-day is your last line of defense. Breaking through these levels is similar to watching your cooking temperature drop – each level breach suggests a potentially deeper problem.
Let’s talk about the Trump trade effect, because it illustrates a fundamental market principle: markets initially react to expectations, then adjust to reality. The initial euphoria was like the excitement of getting a new smoker – everything seems possible. But now we’re dealing with the practical challenges, particularly inflation, which is proving as persistent as smoke in your clothes after a day of barbecuing.
The tariff situation deserves special attention because it demonstrates how economic policies interconnect. Historical data shows us an undeniable relationship between tariff rates and inflation – it’s not opinion, it’s mathematics. When average tariff rates rise, inflation typically follows, creating a relationship as reliable as the correlation between cooking time and meat tenderness. This matters because inflation influences everything from consumer spending to Federal Reserve policy.
The bond market’s behavior is particularly instructive right now. When we see bonds trading below their 200-day moving average with no signs of an oversold bounce, it’s telling us something important about market sentiment. The relationship between stocks and bonds is like the balance between heat and smoke in barbecue – when they’re moving in opposite directions for too long, something usually has to adjust.
Looking at our portfolio holdings, we’re seeing a perfect example of market psychology in action with Zeta Global Holdings. Despite solid fundamentals and positive analyst coverage, short sellers are creating pressure. This illustrates an important lesson: short-term market movements don’t always reflect fundamental value, just as the temperature spike in your smoker doesn’t necessarily mean your meat is cooking too fast.
As we approach earnings season, we’re positioned with stocks showing strong fundamental momentum. To understand what this means, consider these key metrics: they’re exceeding analyst estimates, showing margin improvement, and demonstrating growing returns on assets and equity. These factors are like the key ingredients in a perfect barbecue – each element contributes to the final result.
The time-tested rules of momentum trading – “don’t fight the tape” and “don’t fight the Fed” – remain our guiding principles. These aren’t just catchy phrases; they’re distillations of market wisdom that recognize the power of prevailing trends and monetary policy. Right now, both indicators are technically positive, though the Fed’s approach to rate cuts is measured and deliberate.
What makes this moment particularly interesting is the market’s search for certainty across multiple fronts – tariffs, taxes, regulations, and geopolitics. This uncertainty creates a learning opportunity: markets often navigate multiple challenges simultaneously, and understanding how these factors interact is crucial for successful investing.
As we enter 2025, our portfolio strategy reflects a deep understanding of these market dynamics. We’re positioned with quality stocks showing strong fundamentals, waiting for earnings season much like a pitmaster waiting for the perfect moment to serve. The key is understanding that sometimes, the most profitable approach is having the patience to let your strategy work, just as the best barbecue can’t be rushed.
While I turn my attention to perfecting that New Year’s brisket, I encourage you to reflect on these market dynamics. Understanding the interplay between technical indicators, fundamental factors, and market psychology is crucial for navigating whatever 2025 brings our way. The market, like a well-tended fire, requires attention, understanding, and sometimes the wisdom to let it work its magic.
Stay curious, stay patient, and have a wonderful New Year’s celebration. We’ll reconvene next week to explore new opportunities and continue our market education journey together.