In the final phase of a stellar year, the sell-off of the world's largest tech companies has impacted the stock market, with all three major US indices in the red, and Bitcoin spot ETFs also faced net outflows last week. Year-end trading volume has significantly shrunk, and market investors may be reviewing 2024's operations and strategizing for next year's investment, in short, market volatility is high, and one must pay attention to the risks of their own leveraged positions.
Year-end trading is light, contributing to increased volatility.
In the long holiday at the end of the year, trading volume has dramatically shrunk, and without any special news driving it, all three major US indices closed in the red, with the S&P 500 Index and Nasdaq Index experiencing some pullbacks this week. The 'seven giants' index fell by 2%, led down by Tesla and Nvidia. Prior to this, the stocks known as the 'seven giants' had surged significantly, contributing to more than half of the benchmark rise in the US stock market in 2024. The current 25% return rate of the S&P 500 index masks the plight of average constituent stocks lagging behind significantly.
Momentum investing is the biggest winner of 2024.
According to Bloomberg, even with a pullback this week, the Dow Jones US Thematic Market Neutral Momentum Index shows that the momentum quant trading strategy of buying last year's top stocks and selling declining stocks is still up 31% in 2024, marking the best year of data since 2002.
Note: The Dow Jones US Thematic Market Neutral Momentum Index is an index designed to measure the performance of long-short strategies between high momentum and low momentum companies. This index achieves a market and industry neutral strategy by holding long positions in high momentum companies and short positions in low momentum companies.
Momentum strategies are methods widely used by quantitative traders and supported by academic research, capturing market trends that persist for a period, whether due to more investors joining or late absorption of new information. It reallocates funds to recent winners during each rebalancing, helping to capture medium to long-term trends.
It has been proven that this is very consistent with the stock ranking, with seven major tech giants like Nvidia and Meta firmly at the top. While this allows anyone holding index funds to easily profit, this overly familiar setting has intensified concerns about the concentration and crowding of stock returns.
Another explanation for this is that tech stocks have become unique resilient winners, partly thanks to the boom in AI. UBS mentioned in its 2025 outlook report that considering the industry's earnings and balance sheet strength, even a recession may not be enough to damage the industry.
Bitcoin ETFs also saw significant capital outflows.
According to data from SoSoValue (as of 12/26), Bitcoin spot ETFs faced rare net outflows last week since early November (there was also one at the end of November). As of the deadline, Bitcoin was at $94,584, with a cumulative increase of 123% this year. Although facing a pullback this month, it remains one of the best-performing assets this year.
Because the community expects a relaxation of crypto-related regulations after the Trump team's inauguration, but laws cannot be changed overnight, previously, BitMEX founder Arthur Hayes predicted that the cryptocurrency market would experience a painful decline around Trump’s inauguration on January 20, 2025. His family office Maelstrom plans to reduce some positions in advance, hoping to repurchase part of the core positions at a lower price sometime in the first half of next year.
(Arthur Hayes: What is the truth about Trump? Which assets should be positioned in advance?)
This article, 'Tech Giants' Heavy Losses Drag Down US Stocks, Bitcoin Spot ETFs Face Capital Outflows,' first appeared in Chain News ABMedia.
