Weekly Market Bites

end of week markets update

The last week has been a positive, although choppy week for the stock market. Equities got a tiny spook mid-week as the US authorized Ukraine to carry out limited missile strikes inside Russia for the first time and Putin made nuclear threats.

But the main market action was around Bitcoin as it climbs toward $100k and bonds - as both the 2-year and 10-year Treasury yields continue to ominously climb.

Here’s a summary of the week:

1) As December approaches and we look back, it’s been a great year for financial markets.

If anything everything feels too good to be true. Surely it’s time for caution?

And yet.

You have seasoned Wall Street guys putting out forecasts calling for a Roaring 2020s scenario 😆 

Of course the 1920s ended with the 1929 market crash - followed by the great depression.

2) Lessons for Today’s Investors: The Best Macro Investments of the Last 50 Years 

Every market cycle is marked by a macro investment that defined the era:

• International stocks over US stocks (1967–1988): US Stocks did terribly during the stagflation of the 1970s, while international stocks had a great run, led by Japan (Chart 1).

• US stocks over cash (1987–2000): After the 1987 crash, US stocks rose, fueled by tech and telecom throughout the1990s, while interest rates declined (Chart 2).

• Energy stocks over the broad market (2000–2008): The dotcom bubble burst, but booming emerging markets drove up energy demand, and with it energy stocks (Chart 3).

• US stocks over cash (2009–2023): Post-financial crisis, US stocks powered higher, helped by ultra-low interest rates (Chart 4).

And of course, over the last 15 years, US stocks - particularly big tech - have totally dominated (Chart 5).

Many of these periods were marked by the rise of American exceptionalism. From the Nifty 50 stocks (IBM, Coca-Cola, Polaroid) in the ‘50s and ‘60s, to the Tech and Telecom bubble of the ‘90s, and now the Magnificent 7 leading today’s markets.

In all of these cases US companies became so dominant they were seen as the only game in town. Interestingly, whenever that mindset took over, eventually the party ended.

Could we be close to a major inflection point in macro fundamentals and market leadership?

3) In the past 2 months, the Fed cut rates by 75 basis points, but the 10-year Treasury yield jumped 79 points.

Suggesting the market seems to be expecting stronger economic growth, higher inflation, or more government debt—or maybe all three.

Why does this matter?

It could mean lower stock prices, less spending, and higher borrowing costs.

Mortgage rates are tied to 10 or 20-year treasury yields (not the Fed’s short-term rate), and rates are back at 7%.

4) Bitcoin Dominance.

BTC’s performance is outpacing most of the major coins.

Back in November 2021, at the peak of the previous cycle, BTC was at $69k, and ETH nearly hit $5k.

Today: BTC is above $90k, but ETH hasn’t even been able to hold $3.5k.

What’s next? Many crypto traders are waiting for Bitcoin dominance to decline. That shift usually signals the start of an "altcoin season"—when more speculative tokens lead.

5) Although major alt-coins like ETH are struggling there is a boom building up in the meme-coin space.

Why?

They’re cheap, fun, and tied to cultural moments, sparking wild speculation.

Oh, like playing lottery tickets. FOMO baby.

Case in point: They guy that turned a $16 into 3 million dollars—in less than two week 🤯 

Another the big winner of the meme-coin boom is SOL, the chain on top which most of these meme-coins are coming out.

charts

Generative AI (ChatGPT, Perplexity, etc) are transforming how we work and live.

As of August 2024, nearly 40% of U.S. adults (18–64) have used generative AI, with about 1 in 3 using it at least weekly. Interestingly more people use it at home (32.6%) than at work (28.1%).

How does AI adoption compare to previous technological developments? 

Even as risk assets, stocks, crypto, etc., are ripping people are still parking cash on money market accounts to earn 5%.

And finally, some parting wisdom