Author: Zhitong Finance

This week, the five consecutive days of rise in U.S. Treasury bond yields have a negative impact on the post-election period. The stock market frenzy has subsided, but the picture on the market's speculative fringe is very different, with Bitcoin and its peers continuing to hit new highs in speculative enthusiasm, while a range of niche cryptocurrencies and Elon Musk-related assets have also surged . However, the performance of traditional risk assets has been relatively dismal, with the S&P 500 ending three consecutive weeks of gains and market breadth deteriorating, while Bitcoin and a series of questionable meme tokens have bucked the trend. The dominance of small investors in the market continues to show, and signs of market overextension are emerging, with Goldman Sachs' risk positioning and sentiment indicators reaching their highest levels since 2018. Wall Street is holding off on betting big ahead of next week's Federal Reserve meeting, with most economists predicting a slower pace of monetary easing next year.

Specifically, U.S. Treasury bond yields jumped 24 basis points this week, the largest increase this year, but it did not stop the enthusiasm of speculators. Bitcoin quickly rebounded after briefly dipping below $95,000, posting a sixth consecutive weekly gain and sending a slew of dubious meme tokens surging. At the same time, the stock price of Michael Thaler's MicroStrategy Inc. was pushed to more than $400, and the market value of a crypto token called "fartcoin" also surged to more than $700 million. These phenomena highlight the persistence of day traders and the speculative atmosphere of the market.

In terms of traditional risk assets, this week's major U.S. stock index gains were the smallest since Trump was re-elected, and the S&P 500 index fell 0.6%, ending a streak of Three weeks of rising momentum. Morgan Stanley's long-short basket tracking momentum stocks has fallen nearly 3.5% over the past five days, with the Russell 2000 and an index of unprofitable technology companies both down nearly 3%. Additionally, market breadth has deteriorated, with less than half of the index's stocks trading above their 50-day moving averages. The largest long-term Treasury ETF had its worst week of the year, falling more than 4%.

Small investors continue to dominate the market, as evidenced by trading volumes on OTC venues. In particular, those trading platforms operated by stock wholesalers, such as those serving retail clients such as Robinhood Markets Inc., have seen trading volumes exceed 50% and have recently reached all-time highs.

Meanwhile, nearly all of Elon Musk's stocks have surged, with Tesla Inc.'s shares up another 12% and its market value since the electionhas exceeded US$500 billion. A closed-end fund called Destiny Tech100 Inc. also surged more than 500%, in part because of its holdings in Musk's privately held SpaceX.

Marvin Loh, senior macro strategist at State Street Global Markets, said: "The market is still very dynamic, but its preferences are becoming increasingly picky. In the absence of further catalysts, Those fringe stocks are more vulnerable." Signs of market overextension are also emerging, with a Goldman Sachs Group Inc. risk positioning and sentiment gauge just reaching its highest level since 2018. The highest level, more than half of which indicators are at significantly high levels. Similar readings were seen before the pullback. It is reported that the indicator tracks the flow of funds in everything from stock futures to call stock options.

Christian Mueller-Glissmann, head of asset allocation research at Goldman Sachs, said that although macro data have only improved slightly so far, Goldman Sachs' overall position and sentiment indicators have reached 70%. Historically, similar high positioning and sentiment indicators have suggested a limit to how quickly stocks can return.

Wall Street is holding back on aggressive bets ahead of next week's Federal Reserve meeting in which policymakers are expected to push for a quarter-percentage-point rate cut.

Views are not unanimous, however, with Deutsche Bank and BNP Paribas predicting the Fed will not take more action this year. The pace of monetary easing next year is also expected to slow more than officials predicted three months ago, with most economists predicting just three interest rate cuts in 2025.

Dan Suzuki, deputy chief investment officer at Richard Bernstein Advisors, said that while a December rate cut is part of risk appetite, it may not be enough to keep stocks moving Continue to rise.

Suzuki said: "Unless Powell's tone is very dovish, I don't think this will be a significant catalyst in the short term. But it provides some downside support for the market ."