With NASDAQ announcing that MSTR will officially be included in the iconic technology stock index on December 23, Microstrategy has finally concluded its long and tumultuous transformation journey, successfully shifting from an internet-era software company to a leveraged Bitcoin financial company. The decision to include it in the index marks the first formal acceptance of the controversial Michael Saylor by TradFi, and MSTR will become the only cryptocurrency concept stock benefiting from the stable and large-scale passive fund inflows into QQQ (index ETF), meaning that all index investors and passive investors will indirectly become long-term investors in Bitcoin, accelerating the participation of the mainstream crowd!
Driven by the MSTR news, investors kicked off FOMO buying mode over the weekend, with BTC easily breaking through its historical high to $106,000, driving the cryptocurrency market up. MSTR's stock price rose by as much as 8% in after-hours trading, but the real test will come during today's New York trading session.
Notably, the short covering in futures has been relatively mild during this surge, indicating that cryptocurrency investors may have been prepared for this trend or are still underweight (or were forced out as early as the beginning of December). Is there a chance for prices to further break through $110,000 by the end of the year? Current market sentiment clearly affirms this possibility.
On the macro front, the last important event of this year will be Wednesday's FOMC meeting, with the market currently expecting a nearly 100% probability of a rate cut on Wednesday (~95%). Next, in January, there will be a pause on rate cuts (with a rate cut probability of about 15%). As recent major data shows weak employment growth but inflation still above the Fed's target, Chairman Powell naturally wants to keep all options open, neither completely ruling out nor affirming the possibility of a rate cut in January.
The core PCE inflation at year-end is expected to land around 2.9%, higher than the Fed's forecast of 2.6%. However, some economists believe that economic momentum has further slowed in the fourth quarter. Similarly, even though recent employment growth is close to the cyclical low, the unemployment rate is expected to be at 4.4%, also higher than the Fed's forecast of 4.2%.
As Federal Reserve officials are currently in a communication blackout period, the focus of this meeting will be on Powell's press conference Q&A, to observe his stance on economic balance and risks. Any attention to upward adjustments in the dot plot may be viewed by the market as a hawkish signal, unfavorable to risk sentiment; if he emphasizes soft language such as 'committee confidence' and 'trust the Fed,' it will be beneficial for the continuation of market risk sentiment. We lean towards the latter, but our confidence is not high.
As the market enters holiday mode early (let's see the asset performance in 2024!), the implied volatility of the market on the day of the FOMC meeting is at a yearly low, and the forward implied volatility of the SPX index also indicates that December will be a calm month.
The downside is that long-term U.S. Treasury yields have surged by 20 basis points over the past 1.5 weeks, reflecting fixed-income investors' concerns about an overly accommodative Federal Reserve and the upcoming Trump 2.0 policies. However, this is all happening against a backdrop of bond volatility (MOVE index) being at multi-year lows, indicating that investors view this as a controllable bond sell-off and a normal repricing, allowing the euphoria of risk sentiment to continue.
Finally, we summarize this article with a few charts showing record inflows into the U.S. stock market. December's inflows have once again broken recent records, with nearly $150 billion in new funds pouring into the U.S. stock market since the beginning of the month. At the same time, buoyed by expectations of Trump policies and economic performance, consumer confidence has soared to a four-year high. It's hard to recall the last time risk asset optimism was so high and widespread across all asset classes.
Such a strong market is indeed difficult to short, so should we continue with 'the music goes on, and the dance steps don't stop'? After all, we are in a joyful season, and I sincerely wish everyone a happy holiday!
