Market Monitor December 19

Highlights

The Federal Reserve (Fed) and Micron Technology took center stage on Wall Street yesterday.

Fed Slows Down Rate Cuts

On Wednesday, the Fed reduced its policy rate by 25 basis points to a range of 4.25%-4.50%, citing a cooling labor market and inflation trending toward the 2% target. However, the central bank indicated that the pace of rate cuts would slow in 2025, with only two reductions instead of the previously anticipated four.

Fed Chair Jerome Powell emphasized that higher-than-expected recent inflation figures and updated forecasts prompted this adjustment. The Fed now predicts inflation at 2.5% in 2025 (up from 2.1% previously) and 2.1% in 2026. Economists also anticipate additional inflationary pressure from the planned import tariffs of incoming President Donald Trump.

Markets reacted negatively, as investors had been counting on a more aggressive easing policy.

Micron Technology Under Pressure

Meanwhile, Micron Technology’s stock plummeted 16% following a disappointing earnings forecast. Despite strong demand for AI-related semiconductors, traditional markets such as smartphones and PCs underperformed.

Micron projected revenue of $7.9 billion for the second fiscal quarter, significantly below the consensus of $9 billion. The expected earnings per share of $1.53 also fell short of analysts' expectations of $1.92. The company reported a 19% decline in smartphone chip sales and noted that consumers are delaying upgrades to their devices.

However, the AI segment showed resilience, with a 400% growth in data center-related sales and strong demand for high-bandwidth memory (HBM) chips.

Major Indices Overview

S&P 500 (SPY)

• Short-Term (ST) Trend: Negative, with a 1-week loss of -3.02% and a 2-week loss of -3.93%.
• Long-Term (LT) Trend: Positive, showing a 3-month gain of 3.14% and a 6-month gain of 7.64%.

Despite recent short-term losses, the long-term trend for SPY remains strong.

NASDAQ 100 (QQQ)

• ST Trend: Negative, with a 1-week loss of -2.34% and a 2-week loss of -1.46%.
• LT Trend: Positive, showing a 3-month gain of 6.58% and a 6-month gain of 7.08%.

The QQQ demonstrates resilience in the long term but is under pressure in the short term.

Russell 2000 (IWM)

• ST Trend: Negative, with a 1-week loss of -6.31% and a 2-week loss of -7.65%.
• LT Trend: Mixed, with a 6-month loss of -0.77% but a 12-month gain of 9.12%.

Small-cap stocks are the weakest performers, showing significant short-term declines and modest long-term gains.

Sector Performance

1-Week Performance:

• Top Sector: None, all except Information Technology are in decline.
• Worst Sectors: Materials, Energy, and Real Estate are leading the losses.

1-Month Performance:

• Top Performer: Information Technology and Communication Services are the only sectors with gains.
• Weakest Sectors: Energy, Materials, and Real Estate.

3-Month Performance:

• Top Performer: Information Technology (strong leadership continues).
• Weakest Sector: Real Estate , followed by Materials and Energy.

Sector Insights: Tech continues to dominate, while cyclical sectors are struggling.

All info available on our Sector Performance page

Historical Breadth Numbers

Advance/Decline Ratio (A/D):

• Advancing stocks: 35.7%
• Declining stocks: 61.6%

The market is bearish, with decliners heavily outweighing advancers.

Stocks Above SMA (200):

Only 46.6% are trading above their 200-day moving average, highlighting weak participation.

New Highs vs. New Lows:

• New Highs: 0.7% (very few breakouts).
• New Lows: 6.5% (selling pressure continues).

Recent Trends:

Advancing stocks have consistently been below 40% over the past week, reflecting a weak market breadth.

All info available on our Market Monitor page

Conclusions

• Market Sentiment: Bearish in the short term, with declining short-term trends for major indices and sector underperformance.
• Long-Term Strength: The SPY and QQQ maintain positive long-term trends, supported by the strong performance of Information Technology.
• Opportunities: Focus on technology-driven growth areas, as they remain the bright spot. Be cautious with small-cap stocks and cyclical sectors (Energy, Materials).