Crypto Rebounds: Bitcoin Surpasses $40,000 Mark, its Highest Since Spring 2022

After five straight weeks, the market appears ready to continue its ascent

• Market indices rose marginally with optimism on the Fed's pause but were at their weakest in the recent uptrend.
• Falling bond yields signal Fed policy support as the focus shifts to upcoming economic reports.
• Bitcoin’s resurgence over $40,000 suggests a crypto rebound, and key earnings and acquisitions take the spotlight.

The markets sustained a fifth consecutive week of gains, with both the S&P 500 and Nasdaq Composite marking a 0.6% surge on Friday. While the S&P experienced an overall 0.8% increase for the week, reaching its highest peak since March 2022, the Nasdaq eked out a modest 0.4% gain. Despite the positive trend, it was notably the week of the slightest upward momentum in this recent bullish streak.

The ascent in stock values followed a week where the S&P 500 exhibited average daily fluctuations of 0.3% in either direction, marking the smallest movement in six months, as reported by Bloomberg. This lower volatility contributed to maintaining the VIX (Chicago Board Options Exchange volatility index) at its lowest levels for the year.

The impetus behind this upward market shift can be largely attributed to the release of economic data. The previous week's personal consumption expenditures (PCE) report, aligning with expectations, revealed sustained economic growth, albeit at a moderated pace. Federal Reserve Chair Jerome Powell's comments on Friday reinforced optimism that the Fed might halt rate hikes.

Consequently, the yield on the two-year note fell, concluding its most substantial weekly decline since March and closing at 4.48%. Similarly, the benchmark 10-year yield also decreased, finishing the week at 4.20%. The intriguing aspect of declining yields lies in how the bond market pre-empted the Fed's actions earlier this year, steering clear of rate hikes in recent months. This development raises the question of whether the market will once again push rates lower, a query that might find answers in Powell's upcoming statements during the Fed meeting next week.

The week ahead

This upcoming week boasts significant economic data releases. Today brings the recent durable goods report, followed by the JOLTs (job openings and labor turnover survey) report tomorrow, and culminating in the monthly jobs report on Friday. Economists project the creation of 180,000 new jobs and an unchanged unemployment rate of 3.9% from the previous month.

While market gains decelerated last week, optimistic data hints at a potentially positive year-end. Historical data from the Stock Trader's Almanac, citing December as the third-best month since 1950, indicates an average gain of 1.4%. Additionally, previous observations suggest a strong correlation between a robust November and a promising December. Although market movements might seem random, these insights could serve as intriguing conversation starters at holiday gatherings.

Anticipating an uptick in market volume this week due to the employment report and economic data, I'm also closely monitoring developments from Washington regarding the looming prospect of a government shutdown after the new year begins. Despite the countdown, significant discourse may not occur immediately, given Congress's tendency to delay confrontation.

Specific companies

On the corporate front, the Alaska Air Group (ALK) acquisition of Hawaiian Airlines (HA) for $1.9 billion made headlines over the weekend. Additionally, the GameStop (GME) post-close earnings report is scheduled on Wednesday, and the Lululemon Athletica (LULU) post-close announcement is slated for Thursday. The Spotify (SPOT) announcement of a 17% reduction in its workforce, about 1500 jobs, is also a notable development. Lastly, the Bitcoin resurgence above $40,000 is a remarkable milestone, marking its highest trade value since the spring of 2022.

Amid these fluctuations, adhering to your investment strategy and long-term plans is advisable.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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