SignalPlus Macro Analysis Special Edition: Be Like Mike

With NASDAQs announcement that MSTR will be officially included in the iconic technology stock index on December 23, Microstrategy has finally ended its long and bumpy transformation journey, successfully transforming from an Internet-era software company to a leveraged Bitcoin financial company. The decision to include the index marks the first time that the controversial Michael Saylor has been officially accepted by TradFi. MSTR will also become the only کرپٹوcurrency concept stock that benefits from the stable and large-scale passive capital inflows of QQQ (index ETF), which means that all index investors and passive investors will indirectly become long-term investors in Bitcoin, and the participation of the mainstream group is accelerating!

Encouraged by the news of MSTR, investors started the FOMO buying mode over the weekend, and BTC easily broke through the historical high to 106,000, driving the cryptocurrency market up. MSTRs stock price rose 8% after the market, but the real test will come in todays New York trading session.

It is worth noting that futures short liquidations have been relatively mild during this rally, suggesting that cryptocurrency investors may have been prepared for this move, or are still underweight (or were forced out as early as early December). Is there a chance that prices will break through $110,000 before the end of the year? Current market sentiment clearly supports this possibility.

On the macro side, the last major event of the year will be the FOMC meeting on Wednesday. The market currently expects a rate cut probability of nearly 100% (~ 95%) on Wednesday, followed by a pause in rate cuts in January (with a rate cut probability of about 15%). With recent major data showing weak job growth but inflation still above the Feds target, Chairman Powell naturally wants to keep all options open, neither completely ruling out nor fully confirming the possibility of a rate cut in January.

Core PCE inflation is expected to be around 2.9% by the end of the year, higher than the Feds forecast of 2.6%, but some economists believe that economic momentum has slowed further in the fourth quarter. Similarly, even with recent job growth close to a cycle low, the unemployment rate is expected to be 4.4%, higher than the Feds forecast of 4.2%.

As Fed officials are currently in a silent period, the focus of this meeting will be on Powells press conference to observe his position on economic balance and risks. Any attention to the upward adjustment of the dot plot may be seen by the market as a hawkish signal, which is unfavorable to risk sentiment; if soft language such as confidence of the committee and giving trust to the Fed is emphasized, it will be conducive to the continuation of market risk sentiment. We tend to favor the latter, but the confidence is not high.

With markets heading into holiday mode early (see how assets perform in 2024!), options-implied FOMC meeting day market volatility is at all-year lows, while forward implied volatility on the SPX index also suggests December will be a quiet month.

The only fly in the ointment is that long-term U.S. Treasury yields have surged 20 basis points in the past 1.5 weeks, reflecting fixed income investors concerns about an overly loose Federal Reserve and the upcoming Trump 2.0 policy. However, all this happened against the backdrop of bond volatility (MOVE index) being at a multi-year low, meaning that investors viewed this as a controlled bond sell-off and an ordinary repricing, allowing the risk sentiment carnival to continue.

Finally, we conclude with a few charts of record capital inflows into US equities. December鈥檚 inflows have broken recent records again, with nearly $150 billion of new money pouring into US equities since the beginning of the month, while consumer confidence has surged to a 4-year high, boosted by Trump鈥檚 policy expectations and economic performance. It鈥檚 hard to remember the last time optimism in risk assets was so high and widespread, across all asset classes.

It is difficult to short such a strong market, so should we continue to keep the music going and keep dancing? After all, we are in a joyous season, and I sincerely wish you all a happy holiday!

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