December 2024 Monthly Asset Class Report

Happy New Year!

I hope 2025 becomes the most successful and rewarding year of your life. You deserve it.

While I don’t want to start the year on a sour note, December was disastrous for the markets and portends a darker future.

Of course, equities didn’t feel the brunt of it. Like the spouse cheated on, they’re the last to find out. Meanwhile, the whole town knew the entire time. Our town includes rates, rentals, and real estate.

As the feckless Jay Powell cut the Fed Funds rate, the market demanded a higher risk premium. In plain English, while the Fed cut rates by 100 basis points (1%) this autumn, the 10-year yield increased by 100 bps.

The knock-on effects are as follows: assets are now valued using a higher discount rate, lowering their values.

This month, the dollar has increased another two points, bringing the index to a 108 handle. If anything keeps The Donald up at night, this is it.

That stronger dollar weighs on publicly traded assets, as you need fewer dollars to buy them.

By cutting the Fed Funds rate, Jay Powell has increased inflation expectations, and the increase in the risk premium has buried bonds. Everything from TLT to HYG has suffered.

Real estate was crushed as the VNQ fell out of bed. My last chart from X, courtesy of The Kobeissi Letter, shows a record delinquency rate in office CMBSs. 

Gold and silver have been hurt but are stabilizing at significant support levels.

The “Bitcoin is a tech play” crowd is outpacing the “Bitcoin is a safe haven currency” crowd, as cryptos have been smashed this month.

Ironically, the only thing that did well this month was oil. Let’s look at the charts.

S&P 500

After a record-setting close last month, the SPX retreated. It’s now trading below the 50-day moving average, which means it’s in a short-term bear market.

I don’t know how long that will last. It may turn back around today.

Although I still see a bullish price objective of nearly 7,500, that will surely be rescinded over the next month.

Nasdaq Composite

We’re still in a big uptrend, though that may be changing. The upside target is now 22,400, slightly down from last month. I’d be cautious about the upside at the moment. Let’s see if this most recent wobble passes.

Russell 2000 (Small caps)

December was ugly for the IWM after hitting a new monthly high last month. Like the SPX, we’re in a short-term bear market, though that may turn around any second.

Unlike the SPX and the Nazzie, the IWM already has a downside target for 192. It may be the canary in the coal mine.

The US 10-Year Yield

This is why we draw lines on charts. Last month, I wrote that the 10-year was in a clear downtrend and that the next target would be around 3.55%.

Thanks to the lines, we can see I wasn’t correct. It’s not that it wasn’t a decent guess; it’s that the next month of trading action disproved my hypothesis. Fair enough.

Now, we’re looking at an upside target of 4.64%, which should be easy to hit. The Fed is officially behind the curve, as market rates have increased over 100 bps since the Fed cut its base rate by 100 bps.

Dollar Index

Okay, my short-term prediction that the dollar would fall if the 10-year yield continued to fall has already been moot. Since last month, we have jumped almost two full points. 

The technicals still point north, all the way above 120. I still don’t think that will happen anytime soon.

USG Bonds

Investors have fled bonds since December. We finished November at 93.87. We’re down to 87.33 right now.

Investment Grade Bonds

From 110.34 to 106.84 in a month. Not great. Because it couldn’t get above 112,50, we’re seeing a 106 handle like I said we would in last month’s report.

Though the long-term technicals still haven’t turned bearish (targeting 132.30), I think this will change soon. My next target is 101.50.

High Yield Bonds

Junk bonds only lost a point in December. But since we hit the upside target of 78.65, there may be only one way to go.

This may be a good time for a bearish bet.

Real Estate

After a month of making new highs, VNQ was crushed. From 96.73 to 89.08, it recorded a 7.9% loss.

While it’s struggling to recover, we’ve got a new downside target of 76.75.

Energy: West Texas Intermediate (Oil)

Base Metals: Copper

Copper only fell 10 cents this month, but I’m still looking for 3.90.

Precious Metals: Gold

We didn’t recover back to $2,750. But the good news is that the $2,600 level has been holding. If we build a nice base here, we’ll get up to $3,000 quickly.

2024 was a year of bases. We had a base built around $2,000 before we definitively left that level behind. Later, gold built a base around $2,350 before leaving that level behind.

For now, the third base looks more like a top. But let’s see what happens over the next few weeks. I’m still bullish, as I think Trump’s fiscal plans are inflationary. If not, look for the $2,400 level for our next support.

Precious Metals: Silver

Mr. Slammy's spanking silver every NYC open is getting boring. So,, I expect silver to hit $26.50 before staging a massive recovery. The next upside target is $30.50, followed by $35.00. Once that happens, we can talk about the moonshot to $50—but not before.

Cryptos: Bitcoin

Like the rest of our assets, Bitcoin has taken a rest that suspiciously looks like a top.

The downside target is now $75,800. I wouldn’t be surprised to see a pullback here. The rise has been meteoric.

Cryptos: Ether

After a big recovery, Ether was smashed to bits. We’re looking at a $2,050 downside target for now.

Trad Asset Class Summary

Now that the specter of inflation has returned, commodities took off for the month, up 4.28%. However, the dollar was up 1.76% on EUR and JPY weakness. Bonds, as one would expect, were down 4.78%. But the SPX finally had a bad time, down 2.74%.

Crypto Class Summary

Except for Monero, which climbed almost 20% last month, the crypto space had a bad time. While Bitcoin only fell 4% and Ripple fell nearly 10%, Ether, Litecoin, and Dogecoin suffered double-digit losses. Doge screwed the pooch with a 28.42% loss.

Wrap Up

There you have it. We’re either at the beginning of a significant correction, or this is a blip. The former seems more likely than the latter.

DJT will have much to wrestle with after he gets sworn in. Not all of those things can be controlled.

Finally, let’s take a moment, courtesy of the X-verse:

Credit: @KobeissiLetter

Usually, I have a meme for you, but this chart was too important to ignore.

Have a wonderful day!