After a long and bumpy ride, Microstrategy successfully completed its successful transformation from a dotcom-era software company into a levered Bitcoin treasury company for Main Street, when NASDAQ announced MSTR’s inclusion into the bellwhether tech index as of December 23rd. The decision to include Microstrategy marks a critical institutional acceptance of the controversial Michael Saylor into the TradFi lexicon, as MSTR will be the only crypto-proxy to benefit from the regular, passive, and substantial QQQ (index ETF) inflows, effectively turning all equity index buyers and passive investors into indirect BTC investors as part of their long-term investment portfolios. Mainstream adoption!

Crypto prices jumped, naturally led by BTC as prices jumped to a high of $106K and easily surpassing the ATHs as investors FOMO-bought the MSTR news over the weekend. MSTR stock jumped as high as 8% in the aftermarket, with the moment of truth to be determined at today’s NY session.

Interestingly, short futures liquidation was relatively tame on this move higher, suggesting that either crypto natives have been better positioned for this move, or they are actually under-bought (or squeezed out in early December). Will we get a further squeeze to $110K+ before year-end for an early Santa rally? Sentiment certainly suggests that it’s possible.

On the macro, the last major event of the year would be the final FOMC meeting this Wednesday, with markets pricing in full-certainty of a cut (~95%) followed by a pause in January (~15% chance of a cut). Chariman Powell will naturally want to keep all his options open by neither ruling-in nor ruling-out a cut in January, with recent major data showing sluggish job growth against somewhat stubborn inflation that remains above the Fed target.

Core CPE inflation is looking to end the year at around 2.9%, well above the Fed’s project of 2.6%, though some economists have argued that economic momentum has slowed further in Q4. Similarly, unemployment rate is looking to come in at 4.4% vs Fed projection of 4.2%, despite recent headline jobs creation being stuck near cycle lows.

As Fed officials have remained in communications blackout, the key focus for this meeting will be on Powell’s Q&A to see where identifies the economic balance and where the risks lie in this 50/50 call. Any focus on the ‘dot-plot’ being moved higher will likely be seen as a hawkish-nod and risk negative, while any emphasis on ‘committee confidence’ and other ‘trust me’ comments will be seen as a risk-on greenlight as it’s party-on until further notice. Our lean is with the latter, but with low conviction.

With the market in an early holiday mood (just look at how asset prices have fared in 2024!), the option implied move on FOMC day is towards the lower-end of the year, and SPX implied forwards are also pointing to a very sleepy month outside of the Fed Event.

One potential wrinkle might be the rapid rise in long-end bond yields (+20bp in 1.5 weeks), as fixed income investors show concerns with an overly-easy Fed and the imminent arrival of Trump 2.0 policies; however, this is happening against the backdrop of a multi-year low in bond volatility (MOVE index), meaning that investors are treating this as a controlled selloff and ordinary re-pricing to keep the risk-on party going.

Speaking of risk-on, we end this week’s commentary with some charts illustrating the record breaking inflows into US equities. December inflows shattered near-term records with nearly +150bln of new money coming into US equities MTD, while recent consumer sentiment has spiked back to 4-year highs on Trump policy hopes and economic performance. I’ve been in markets for a very long time and I can’t remember the last time when risk-on barometers are as positive and pervasive as they are currently, and across all asset classes.

This remains a market that is too strong to short, so best to ‘keep dancing while the music keeps playing’? Tis’ the season to be jolly, indeed. Happy holidays everyone!

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