Weekly Benchmarks - @Koyfin
Weekly Factors vs. S&P 500 - @Koyfin
Weekly Performance - @Koyfin
<aside> <img src="/icons/light-bulb_gray.svg" alt="/icons/light-bulb_gray.svg" width="40px" /> The market stands at a critical technical and fundamental crossroads, with tension between strong economic data and deteriorating market internals. The Fed's hawkish December stance—with upward revisions to their inflation outlook and fewer expected 2025 cuts—has created notable dissonance between policy expectations and market positioning. This is especially evident in the bond market, where yields have risen 100bps in three months despite easing financial conditions, suggesting "Bond Vigilantes" are actively resisting monetary and fiscal accommodation. Market structure shows worrying deterioration beneath the surface: the value-to-growth ratio has hit a 23-year low after an 8% three-week decline (among the worst stretches since the 1940s), while over 7.75% of S&P 500 stocks are hitting new 52-week lows despite the index near all-time highs. Historical analysis indicates such breadth divergences typically precede 6-9 months of pressure before meaningful mean reversion.
Wednesday's VIX spike to 27.6 triggered a tactical buy signal (one standard deviation above mean), with previous 2024 setups resolving higher within 4-6 weeks. Key technicals under watch include the 10-year Treasury yield's 4.40-4.55% range and the percentage of stocks above their 50-day moving average (now below 50%). The yield curve has steepened to +26bps (2s10s), its widest level this cycle, reflecting stronger growth and rising term premium.
The fundamental question is whether current conditions reflect benign sector rotation or early warning signs of broader market stress. While defensive sectors and commodities show significant technical weakness, the financial sector has avoided new lows—potentially signaling that current breadth weakness is tactical rather than systemic. However, the mix of extreme sentiment, concentrated leadership, and hawkish Fed guidance points to increased risk of mean reversion in early 2025.
The left tail risk lies in potential market stress from sharply rising real rates, especially given extreme bullish sentiment (exceeded only in 1995 and 1999) and concentrated leadership pre-FOMC. The combination of hawkish Fed guidance, weakening breadth, and technical resistance could spark a meaningful correction. The right tail scenario sees a "goldilocks" outcome: continued disinflation with robust growth, allowing Fed easing while maintaining economic momentum. This could broaden market participation beyond mega-cap tech leadership.
Key near-term catalysts include Consumer Confidence (Monday), Durable Goods/New Home Sales (Tuesday), and year-end rebalancing flows. While December historically favors small-cap and value stocks (93% win rate), current dynamics favor large-cap growth. January brings crucial tests of the economic resilience narrative through the ISM Manufacturing report (Jan 3) and Q4 earnings season.
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Macro Dashboard
Cross-Asset Volatility — CBOE
Cross-Asset Correlation — CBOE
<aside> <img src="/icons/playback-pause_gray.svg" alt="/icons/playback-pause_gray.svg" width="40px" /> March E-mini S&P 500 futures settled at 6001.75 Friday, up 67.75, or 1.14%. Overall volume was a heavy 2,386,403, with March seeing 2,340,873 traded. Total open interest finished at a one month high of 2,640,418, gaining 23,768, or 0.91%. March open interest gained 14,307 (0.68%), to 2,117,321.
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<aside> <img src="/icons/judicial-scales_gray.svg" alt="/icons/judicial-scales_gray.svg" width="40px" /> Option volumes were highest for the Dec EW4 6100 call (15,387) and the Dec E4B 4950 put (42,822). For Jan options, the 100 calls had the high volume with 3,842 done, and the most active put was the 4650 strike with 7,652 contracts traded. Option open interest is greatest for the Jan EW3 100 calls at 24,670, and the Dec E4B 4950 puts at 44,063.
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<aside> <img src="/icons/swap-vertically_gray.svg" alt="/icons/swap-vertically_gray.svg" width="40px" /> As measured by the 30-day at-the-money, implied volatility ended the session sharply lower, down by 3.04% to finish the day at 13.82%. Adding 0.42% to a one week high, historical volatility (as measured by the 30-day) finished at 13.18%.
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