FOCUS ON POWELL
Clear expectations are in place as investors eagerly await the Federal Reserve’s anticipated decision to decrease interest rates by a quarter percentage point at today’s meeting, which would mark the third cut of 2024. All eyes are now on Chair Jerome Powell’s forthcoming press conference, where potential adjustments to rate projections for 2025 will be scrutinized. Of particular interest is the unveiling of the “dot plot,” which will reveal Fed officials’ rate forecasts and offer valuable insights into the trajectory of future rates. Recent economic data and cautious remarks have muddied prior expectations of additional rate cuts for 2025, and many economists are now forecasting a possible shift toward a more tempered pace of rate reductions.
RISING TIDES
Mortgage rates experienced a sharp increase last week, leading to a notable decrease in overall mortgage demand. The decline was primarily driven by a drop in refinance applications, despite still remaining significantly higher compared to the same period last year. Conversely, applications for home purchases saw a slight uptick, reflecting a positive trend in the market. Joel Kan from the Mortgage Bankers Association noted that this increase in purchase activity was largely fueled by conventional and VA loan applications, showing growth on a weekly and annual basis. Looking ahead, mortgage rates have remained stable at the beginning of this week as the market awaits the Federal Reserve decision on rate cuts due later today.
CURRENTLY VOLATILE
As for Bitcoin, it surged to a new all-time high of over $108,000, only to retreat slightly to around the $105,000 as of this morning amidst anticipation of a Federal Reserve interest rate cut and positive sentiment from President-elect Donald Trump towards crypto. The overall value of digital assets approached $4 trillion during the recent rally, reflecting growing investor interest in cryptocurrencies. Additionally, MicroStrategy Inc.’s potential inclusion in the Nasdaq 100 Index has further fueled optimism among investors. Moreover, it is worth noting that volatility in the market is anticipated following the Fed’s decision, and analysts are predicting potential momentum for Bitcoin during the upcoming holiday season. However, caution is advised, as Bitcoin’s price movements exhibit signs of volatility and retracement despite reaching new highs.
BULLISH CASH DECLINE
Recent data shows that the amount of cash held by investment managers has decreased to only 3.9% of their total assets by the end of December. This drop in cash holdings has often been a sign that stock markets could see losses in the near future. At the same time, investment managers have increased their investments in U.S. stocks to a level that is higher than ever before. This suggests that they are feeling positive about the U.S. economy and the policies of the incoming president. Investors are focusing on factors like strong U.S. economic growth, supportive central bank policies, and hopes for a Chinese economic recovery. However, some analysts are concerned that a significant sell-off could occur if certain triggers are met. Overall, investors seem optimistic about the outlook for U.S. stocks, but they are also cautious about potential risks, such as a global trade war.
REVVING UP
U.S. new vehicle sales are forecasted to rise to their highest levels since 2019 in the upcoming year due to lower interest rates and increased affordability. Analysts project that new light-duty vehicle sales will reach about 16.3 million in 2025, slightly surpassing previous forecasts. This growth, expected to be around 2.5% or less, will be driven by normalized vehicle inventories, automaker incentives, and lower financing rates. Entry-level and more affordable vehicles are predicted to see significant growth, while electric vehicles are also expected to perform well, with all-electric models reaching an estimated market share of 8% in 2024. However, uncertainties surrounding regulations and potential tariff threats could impact the market, leading analysts to caution that some automakers may face challenges despite the overall sales increase.
