2024.12.30 Weekly
Hope you had an excellent Christmas break and ready to take on the new year.
For the last weekly journal note of the year, I’ll be taking a step back from the charts to reflect on how my thematic views have evolved through what has been an incredible 2024 — a year in which I truly felt the most in-sync with the swings of the market than any other over my 8yr career of trading full-time!
2024 Review
2023 4th Quarter
I had given significant weight to Equities bouncing back to new all-time-highs through the months of October and November which would prove correct. Into December however, I became uncomfortable with that view due to rates pricing and fincon being at dovish extremes, thus posing risks of reversing that would hinder SPX and bonds extending the rally through Christmas. That had proved wrong in the face of year-end flows riding on strong momentum despite rates remaining severely mispriced, earnings expectations extremely strong, while risks from fresh supply-chain disruptions and expanding US bond supply were under-appreciated.
2024 1st Quarter
I hadn’t given up on those December views and started Q1 bearish on risk and bullish on USD but SPX finished January on a strong note and bond yields slid back lower — wrong again and for 2-months running. But what I’m particularly proud of, and the start of why I earlier concluded to be an ‘incredible’ year, was to recognise that risk would not give way until it’s given a reason to do so even as the various risks I flagged in prior months were coming through as well as the long-expected rates repricing was underway. “Equities simply do not care until they have to, and for now, I can’t see what upsets the robust risk sentiment” as I wrote on Feb-5th. Yet at the back of mind, I couldn’t shake the idea that equities would continue to ignore the risks of bond yields rebounding sharply and would, take both long and short sometimes concurrent exposures while accepting that the drift would be higher until there was a significant enough reason for risk to pullback. That flexible trading view proved useful for the rest of a choppy Q1 and, eventually carrying that through Q2 and Q3.
2024 2nd Quarter
The narrative that “[Markets] simply don’t care about when and how many rate cuts is coming, but that it just is” (as I wrote for the Apr-1st weekly) was at the core of my medium-term trading view. That had me picking up risk on the April pullback and continuing to run core longs for the remainder of the Q2 until the end of June where I assessed ‘reflexivity risks’ as being very high (Jun-24th) and reined in my bullish risk view — i.e. the strong run up in risk during Q2 against the already very dovish expectations was at serious risk of reverting.
2024 3rd Quarter
SPX reverted almost -5% in July before making it a near -10% pullback into August. That set up another constructive quarter of trading taking advantage of some downside in July and the excellent dip buying opportunity on the wildly misplaced ‘sahm-rule’ panic at the beginning of August. Not only did buying dips in equities pay dearly, the even bigger set of trades for me was position trading around USD longs off the August and September lows, most especially USDJPY ripping +10% off the 140 handle being the best of the lot, and quite possibly of my career.
2024 4th Quarter
I turned neutral on risk at the end of October and by this point, my book amassed NDX longs as a collection of runners left from the April, August and September dips. Along came US elections to give equities another thrust, and I was out of equities fully by mid-November as I assessed market narratives were too one-sided, when in reality — Trump’s policies would likely generate some negative externalities to Global trade and by extension to US consumers, the risks of which appeared to have been wholly ignored.
Core view into 2025
I head into 2025 maintaining a bullish stance on the US Dollar, and bearish on rate-sensitive assets.
Growth
Much of the reason for the Q4 risk rally was Trump’s presidential odds improving through October, and then the eventual red-sweep victory which was a positive surprise for markets that had expected a much tighter contest, and an outcome that offers the best prospects for US growth expectations. And while recent data trends have turned weaker, it is still far from suggesting that US growth will deteriorate.
The same cannot be said for the other major economies however who are already experiencing slowing growth and whose recession risks will likely increase as Trump focuses on balancing the US trade deficit.
Inflation
Inflation seems challenging to assess at the moment — the long-awaited easing of US Services inflation has begun, but Goods inflation (which has been the main disinflationary driver over the past 18months or so) is beginning to come back. To further complicate the progress on inflation in the eyes of the FED, Trump’s use of tariffs is likely to support the recent reacceleration in goods inflation, than not.
While Canada Australia and New Zealand are seeing rapid disinflation, Europe (who are in Trump’s crosshairs) and the UK are seeing inflation creep back higher in recent months.
US stays exceptional in 2025
To condense the above, it’s difficult to see anything other than US exceptionalism continuing well into 2025. Growth in the US exhibits robust momentum while other major economies are flailing; and whether it be from Trump’s Trade war 2.0 or further military escalations, the US is able to withstand geopolitical escalations and its potential impacts far better than most, thus making the US appearing to win in all the big-picture scenarios.
That’s all for now. Let’s aim for solid start to the new trading year! 💪
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