December 20th Market Overview

Happy Friday everyone.

Big bounce in markets today, driven by a welcome surprise in inflation data - November's PCE came in at 2.4%, below what was expected.

We're seeing extra volatility from this year's largest triple witching expiration ($6.6 trillion in options contracts) while Congress races against tonight's gov’t shutdown deadline.

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Let's dig in...

Executive Summary

• Markets recover following the Dow’s longest losing streak since 1974
  

• PCE inflation drops to 2.4%, easing investors (and everyone’s) concerns
  

• $6.6 trillion triple witching options expiration adds market volatility
  

• Government shutdown looms as House GOP funding measure fails

Market Overview

Key Market Drivers

1. Markets rally as PCE inflation comes in below expectations at 2.4% year-over-year, with both headline and core PCE rising just 0.1% monthly
   

2. Housing inflation showed signs of cooling, rising only 0.2% for the month
   

3. Triple witching today marks the simultaneous expiration of stock index futures, stock index options, and stock options - today's event involves $6.6 trillion in contracts, 2024's largest options expiration.
   

4. Personal income grew 0.3% and expenditures rose 0.4%, both falling short of economist estimates
   

Stock Spotlight

• $NVO ▼ 17.35%: Posts worst trading day since April 2002 on disappointing CagriSema trial results
  

• $FDX ▲ 8.5%: Plans freight business spinoff; Q2 earnings hit $4.05 per share vs $3.90 expected
  

• $MP ▲ 20%: Q4 results exceed estimates
  

• $NKE ▼ 7%: Revenue declines despite beating lowered estimates; CEO indicates longer turnaround needed

Big Name Updates

• $NVDA ▲ 2%: Turns positive after morning weakness
  

• $TSLA ▲ 1%: Recovers in afternoon trading
  

• $LLY ▲ 2%: Benefits from Novo Nordisk trial disappointment

Other Notable Company News

• $COIN and $HOOD each down over 5% as crypto markets slide
  

• $IVE set to end 14-day losing streak, up 1.3%
  

• $TRV forms bullish outside day pattern alongside market recovery

Sector Watch

Bond Market

Treasury yields decline after the PCE data release, as markets adjust rate cut expectations following Wednesday’s Fed meeting.

Policy Watch

• Cleveland Fed’s Hammack explains her vote against this week’s rate cut, citing “uneven” progress on inflation
  

• House funding bill failure raises shutdown risk starting tonight
  

• Chicago Fed’s Goolsbee: Today’s PCE data suggests inflation “still on path to 2% target”

What to Watch

1. Government Shutdown Impact:

• TSA warns of longer airport security lines if shutdown begins tonight

• U.S. troops, border patrol agents, and air traffic controllers would work without pay during holiday season

• Transportation security and federal services may face immediate disruption

2. Triple Witching Aftermath:

• Today’s $6.6 trillion options expiration marks the largest of 2024

• December expiration particularly significant as contracts started trading years in advance

• Volatility could persist as markets digest largest triple witching event of the year

3. PCE Inflation Trends:

• Core PCE at 2.8% annually shows progress toward Fed’s 2% target

• Housing costs rose just 0.2% monthly, indicating potential cooling

• Services inflation running at 3.8% annually versus 0.4% decline in goods prices

P.S. 

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Thanks for reading 🙂

- John