Stocks Snap Six-Week Winning Streak, Gold Reaches Record High Amid 'Trump Trade'

Market Performance Overview

The week's market performance can be categorized into three themes: the good (macro outperformance), the bad (plummeting expectations for a dovish rate cut), and the ugly (a decline in Kamala Harris victory expectations as markets bet on Trump).

Macro Data Outperforms Expectations

The 'good' news this week was the continued outperformance of macro data against expectations. This raised further doubts about the speed of The Fed's new easing cycle as expectations for a rate cut took a tumble this week, particularly for 2025. The reasoning behind this is that Trump will be in office by then, so why would rates be cut for him?

Rate Cut Expectations Drop

Kevin Warsh, a former Federal Reserve governor, expressed his thoughts on the matter. He said, "if that's all true, maybe they're not data-dependent." He added that he didn't want to accuse them of playing politics, but without a solid theory and adherence to it, it's easy to level that accusation and harder to defend against it.

'Trump Trade' Takes Off

The 'ugly' theme of the week, at least for some, was the 'Trump Trade' taking off in stocks and prediction markets, as well as bonds, bullion, and bitcoin. While 'Trump Trade' stock baskets performed well, the broader market was lower, particularly The Dow and Small Caps. The Nasdaq experienced an epic gamma squeeze which lifted it into the green for the week, but most of that was given back by the close. The S&P 500 closed down around 1% on the week, ending a six-week winning streak.

Tech Stocks Experience Volatility

Mega-Cap tech had a turbulent week with the Mag7 basket experiencing a sharp drop and then a big squeeze higher, largely due to NVDA and TSLA. TSLA ended the week up over 20% to its highest weekly close since September 2023. NVDA continued its upward trajectory, up for 5 straight weeks to a new record high. On Friday, Nvidia briefly overtook Apple as the world's most valuable company with a $3.53 trillion valuation.

Volatility Index and Bond Market

The Volatility Index (VIX) also had a wild ride this week, ending back above 20. The bond market experienced a significant downturn this week, with the belly of the curve underperforming significantly.

Gold, Bitcoin, and Crude Prices

Gold rallied for the 6th week in the last 7, hitting a new intraday record high during the week. Bitcoin ended the week lower due to a significant drop as Tether headlines and the tech wreck weighed on the entire crypto ecosystem. Crude prices were higher this week, albeit fluctuating within a narrow band - WTI between $70 and $72.

US CDS Signals 'Sweep'

Lastly, the ultimate hedge trade on the USA (US CDS) appears to be signaling a "sweep". This implies that political gridlock is good, but a Red or Blue Sweep is bad.

Bottom Line

The week's market performance was a mixed bag, with macro data outperforming expectations but rate cut expectations dropping. The 'Trump Trade' took off, causing a stir in the markets. Tech stocks experienced volatility, and gold hit a record high. The bond market and Bitcoin took a hit, while crude prices rose. The ultimate hedge trade on the USA signals a potential political 'sweep'. What are your thoughts on these market movements? Share this article with your friends and discuss. Don't forget to sign up for the Daily Briefing, delivered every day at 6pm.