Year-end special: A deep review of this year’s U.S. stock trades (our year)!
December twenty-second, two thousand twenty-four (241216-241222)
To: Horizon subscribers,
This is the year we’ve shared together, with a story behind every candlestick.
I. A strong start (23.12.26 - 24.01.02)
Between the final closing bell of 2023 and the opening of 2024, asset managers’ bullish trading volume in S&P 500 index futures hit a record, marking the largest long-position opening since 2019/12, reaching 154 hundred million dollars; together with 28 hundred million dollars of short covering, total demand reached 182 hundred million dollars.
In the following days, macroeconomic data releases were mixed, between 1/2 and 5, The market digested mild Fed meeting minutes, a strong U.S. labor report, and a disappointing ISM services index. Expectations for the Fed shifted, ultimately putting pressure on equities.
The 12 FOMC meeting minutes released at the time stated:Participants viewed the policy rate as “possibly at or near its peak for this tightening cycle.” Participants also “generally...reaffirmed that it would be appropriate to maintain a restrictive policy stance for some time until inflation was clearly and sustainably moving down toward the Committee’s objective.”
The comments in the minutes echoed Powell’s remarks at the 12 press conference, namely that FOMC was “very attentive” to the risk of keeping rates too high for too long.
Fed staff continued to project that real gross domestic product (GDP) growth in 2024 and 2025 would be below their estimate of potential growth, and expected the lagged effects of past rate hikes to “weigh more fully on economic activity over the next few years,” even as they expected the unemployment rate to remain “roughly unchanged.”
The minutes also twice noted that participants viewed “the effects of past policy tightening may be greater than expected” as a downside risk. These concerns also supported eventual rate cuts, The market believed this was a dovish meeting cadence.
The services index fell 2.1 points in 12/ISM, below market expectations, The report’s components were weak, with the employment component falling to its lowest level since 2020/5.
Meanwhile, nonfarm payrolls increased in 12, exceeding consensus expectations by 4.1 hundred thousand. Against a backdrop of falling core inflation, At the time, markets expected the Fed to cut rates by 25 basis points three times in a row, then cut quarterly to a terminal rate of 3.25-3.5%.
Ultimately, expected Fed rate cuts were scaled back. In 2024/12, SOFR fell 11 basis points, and the S&P 500 Index declined.
Broadly speaking, up to this point, most Wall Street institutions maintained their bullish stance.
Second: Real Rates and the Market Pullback (24.01.30 - 24.02.06)
Because of The Fed’s gradually more hawkish stance, combined with the US labor report shock, caused a sharp rise in real interest rates and put downward pressure on the market.
Asset managers sold 133 hundred million dollars in positions over one week, of which 77 hundred million dollars in long-position closures were the main driver, Short positions increased by 56 hundred million dollars. In retrospect, The selling likely took place on 1/31, when open interest plunged and the model detected pension fund outflows; short trades ended after the sell-off.
Amazon and Meta reported impressive earnings, and hedge funds continued buying, reaching 42 hundred million dollars; the trade continued.
Third: Geopolitics, Rate-Hike Pressure, and Market Lows (24.03.26 - 24.04.30)
Asset managers were net sellers in four of the five weeks from 3/26 to 4/30, reducing holdings by a total of 323 hundred million dollars. This included the largest single-week net reduction of the year—206 hundred million dollars, The bottom formed by 4/30.
Fourth: A Turnaround in May (24.04.30 - 24.05.28)
In early May, the U.S. stock market got a few lifelines.
Fed Chair Powell took a dovish stance at the FOMC press conference, pushing back against the possibility of a rate hike.Powell said he thought the next rate hike was “unlikely”, he was confident that policy was restrictive, and FOMC would need to see evidence that policy was not restrictive enough before raising rates, but no such evidence had appeared.He also said that if progress on inflation stalled, FOMC would respond by delaying rate cuts, indicating a high bar for rate hikes.
Powell said he expected headline inflation to fall this year, though he acknowledged that His confidence was lower than before because of upside surprises in recent months.
Finally, in response to a question about how the 11 election would affect the Fed’s rate decisions at upcoming meetings, Powell firmly stated that the election would not affect FOMC’s decisions.
At the same time, Apple significantly exceeded market expectations. Services revenue and margins reached record highs, and gross margin reached 74.6%(up 180 basis points quarter over quarter), and the installed base across all products and regions reached an all-time high for AAPL.
Finally, U.S. labor market data showed sharply slower growth, a rising unemployment rate, and more favorable average hourly earnings. The market widely expected two rate cuts this year at that point, in 7 and 11.
Overall, the macro backdrop raised the likelihood of Fed rate cuts in 2024 again and drove real interest rates on 10-year bonds lower. The S&P 500 Index rose 1.8% in three days.
“Although many macro signals point to an economic slowdown or recession, market risk sentiment remains positive and equities are near record highs. But from a historical and statistical perspective, this time is different, and high valuations for risk assets are justified. Perhaps what is different this time is that, although interest rates are high, investors do not appear particularly concerned about asset valuations, as can be seen in the recent increase in meme-stock and cryptocurrency trading activity, technology stock valuations, and the divergence between equity and bond performance.”
— Horizon Market Notes 240605
“The best trading period of the year is approaching, the U.S. market may continue to outperform, led by technology stocks and high-quality defensive stocks. Although it is only early June, the first two weeks of July have typically been the best trading period of the year since 1928.”
— Horizon Market Notes 240607
Note: The S&P Index stood at 5346 points on 24.06.07 and reached 5667 points by 24.07.16.
“A reminder about the high bar for earnings season (TMT Sector), as noted in last week’s Notes, the bar entering earnings season is relatively high. Many TMT (technology, media, and telecom) stocks may be approaching the Tactical Bull Framework and need stronger second-quarter earnings data.”
“Hedge funds have been net sellers of U.S. TMT stocks for four consecutive weeks (selling in 7 of the past 8 weeks)”
— Horizon Market Notes 240716
V. Sharp correction (24.07.23 - 24.08.06)
“Hedge U.S. equity downside risk before next week, forty percent of SP500 index companies and 4/7 giants report earnings next week, Buying the dip is not recommended; downside risk can be hedged”
— Horizon Market Notes 240724
Growth concerns and the unwinding of carry trades pressured global equities, while heavy selling by asset managers in S&P 500 index futures continued.Macro portfolio adjustments, growth concerns, and the unwinding of carry trades led to the most severe two-week selling event, during which asset managers’ funds were reduced by a net 285 hundred million dollars.
The market panicked, and people started talking about “Vomaggedon.”
6) Powell speaks to support the market (24.08.06 - 24.08.27)
Following the dovish remarks at Jackson Hole(some of which the market had already anticipated), the Fed’s easing signals fueled a 3-week market rally, and asset managers’ net long positions increased by 258 hundred million dollars between 8/6 and 27.
On the day Powell spoke, 9-month S&P 500 index-adjusted rate futures (a proxy for fund flows) recorded one of their largest gains since 2024.
“Characteristics of small caps and Russell 2000:Small Caps Suffer From Lower Factor Exposure、The Russell 2000 Has More Unprofitable Companies、Small Caps Have Higher Interest Expense、Small Caps Were Relatively Defensive Post-TeTech Bubble”
— Horizon Market Notes 240806
“Most of the yen carry trade unwind is over:Since 2011, the cumulative size of the USD/JPY carry trade has been about 5000 hundred million dollars. About half of the carry trade expanded over the past two or three years. Around 2000 hundred million dollars was sold over the past few weeks, equal to three-quarters of the total unwind Malcolm ultimately expected.”
— Horizon Market Notes 240807
“Most U.S. equity selling came from forced risk transfers:There were clear signs of forced risk transfers during the de-risking process. Desk franchise flows and PB data did not show heavy selling (it was mostly non-discretionary behavior),The worst of the forced de-risking is over”
— Horizon Market Notes 240808
“The most similar previous between-meeting move was in 2001/1; another similar action was the rate hike in 1994/4. Previous between-meeting rate cuts coincided with significant deterioration in broad financial conditions, The recent decline in long-term rates reflects expectations of a more aggressive easing cycle ahead more than it reflects a recession”
— Horizon Market Notes 240809
“Systematic funds’ capacity to re-enter: 70% of the selling since mid-July came from systematic funds. Given their extreme de-risking, In fact, the threshold for these funds to rebuild positions is now very low, a move of plus or minus 1.25% in the S&P 500 Index could trigger volatility-control strategies to rebuild positions.”
— Horizon Market Notes 240812
“Hedge funds diversified their cyclical-sector investments, increased investments in financials and industrials, and sold consumer stocks. Their current allocations to industrials and financials are their largest overweights to those sectors in the past decade.”
— Horizon Market Notes 240821
“Wait for October: Historically, U.S. stocks have been weak in September, while October also offers a final entry opportunity before year-end.October offers a final entry opportunity before year-end.”
— Horizon Market Notes 240905
“An awkward 35 points and two market movers:The “big writer” Timiraos and former New York Fed president Dudley pushed for a 50-point rate cut, and U.S. stocks continued to rise on that expectation. The market is now pricing in an awkward 35 points—a pure coin toss.”
— Horizon Market Notes 240913
“With the debate over whether the Fed’s stance is proactive or reactive still heated, market pricing shows some divergence, and things have changed since this week’s Weekly Wrap came out. Market pricing has ultimately tilted toward a more optimistic view, pricing in 50 basis points of cuts as expected by 71%, with risk assets rebounding across the board... We think this rally may extend further over the next 5 to 10 trading days.”
— Horizon Market Notes 240917
Seven. The Fed’s Further Moves (24.09.17 - 24.09.24)
Asset managers bought 141 hundred million dollars between 9/17 and 24, a period that coincided with the Fed announcing a 50-basis-point rate cut, and long positions increased by 107 hundred million dollars.
“After today’s decision, there are probably only 50 basis points left this year, suggesting a return to a slower pace of cuts at the remaining two meetings, and the Fed also thinks employment gains may overstate the economy’s actual strength. They emphasized repeatedly that this is a recalibration.”
— Horizon Market Notes 240919
“The rate decision did not trigger a new trading pattern, China diluted the U.S. equity momentum AI trade, and the traditional “winners” during rate-cut cycles did not behave according to historical precedent this time.”
— Horizon Market Notes 240927
“October to November: from micro trading to macro trading, October is for trading micro-level earnings; November brings the election and the FOMC meeting. That is why we paid relatively little attention to Powell’s remarks today, because the trading theme is not there yet. When you do something matters—perhaps more than anything.The baseline expectation is two more cuts of 25 points”
— Horizon Market Notes 241001
“September payrolls and economic growth:2525 remains unchanged; the U.S. stock market is more inclined to view it as a signal of a stronger economy rather than a signal of higher interest rates. Nothing will change the major trend; for equities, only the growth outcome truly matters... After the report, cyclical assets outperformed defensives, and banks and consumer stocks did well.”
— Horizon Market Notes 241004
“No recession worries; the second risk has diminished:The risk of a U.S. recession is very low. The second risk is labor supply, but that has improved a lot too, returning to the conditions of a few months ago; keep the 25 point going.”
— Horizon Market Notes 241007
“The market has edged toward Trump: Trump is slightly ahead; Russell 2000 is a trade.”
— Horizon Market Notes 241011
“Trump trades to consider: among the four major Trump-proxy trade sectors in the market, beyond currencies, the U.S. equity Trump proxies mainly include financials, industrials, bitcoin-sensitive stocks, and reflation plays.”
— Horizon Market Notes 241014
“Retail investors are dumping Nvidia: Yesterday, 9500 ten thousand retail investors sold; 5100 ten thousand of those sellers were NVDA. In the past month, 2.46 hundred million dollars has flowed out of NVDA” “U.S. households’ allocation to equities has reached a record high”
— Horizon Market Notes 241015
“Now is the starting point for a trade with rising volatility”
— Horizon Market Notes 241016
“Driven by TSM the underlying driver is still the Capex Cycle: capital expenditure expectations are high, especially for next year. This is a trend.”
— Horizon Market Notes 241018
“Global hedge funds’ positioning ahead of the earnings-heavy period, generally long the U.S.”
— Horizon Market Notes 241021
“Who has bought U.S. stocks, and who hasn’t: hedge funds have bought quite a lot; next, active managers will step in. If realized volatility stays below 76 points, risk-control funds will also enter, Open interest suggests the Nasdaq could break out next week。”
— Horizon Market Notes 241023
“Long dollars and short Treasuries is the most consensus view:The market is clearly tilting toward long dollars. Although positioning in Treasuries was mixed in 9, both groups have turned firmly bearish this month.”
— Horizon Market Notes 241029
“Micro-level earnings matter more than macro factors in the U.S. stock market:The impact of corporate earnings far outweighs the direction of macro-level elections.”
— Horizon Market Notes 241031
“The weakest employment report: everyone knew it was weak, But no one expected it to be this weak; a 25-point Fed cut is all but certain, and the trade is still a soft landing.”
—— Horizon Market Notes 241101
Eight. American Exceptionalism (24.11.05 - 24.11.26)
In the two weeks following the election in 11, the S&P 500 index significantly outperformed its global peers because uncertainty declined, alongside the possibility of deregulation and higher tariffs.
The U.S. election triggered a massive rotation of capital from MSCI emerging markets and EAFE markets into the S&P 500 Between 11/5 and 26, asset managers’ net long positions increased by 325 hundred million dollars.
“U.S. small and mid caps are the core proxy for the domestic U.S. market, U.S. small and mid caps are increasing domestic exposure, while non-U.S. small and mid caps are reducing exposure to the U.S. market. People talk about the other related thematic trades, but they are indeed much harder to implement.”
“Experienced traders are watching soybeans: they started stocking up quite early over these past few months. Commodity veterans know to keep an eye on soybeans. In fact, China started trading on Trump’s return to office quite early; over these past few months, the country has been overbuying soybeans, the country has been overbuying soybeans for months, 9 imports were 1137 ten thousand metric tons, up about 59% year over year, the highest for this period on record; cumulative soybean imports for 1-9 totaled 8185 ten thousand metric tons, up 8.1% year over year.Stocks are built; the next step is to be careful.”
—— Horizon Market Notes 241107
“How high are current U.S. equity valuations:The market’s beta is trading a broad rise in after-tax earnings, but valuations are still not cheap.”
—— Horizon Market Notes 241115
“U.S. domestic cyclical growth premium: Transports & Analog Semis:The trade is to lower global growth expectations while raising U.S. growth expectations.”
—— Horizon Market Notes 241118
Nine. Year-End Trading (24.11.26 - 24.12.17)
Because equity leverage costs surged and dealers’ balance sheets faced pressure at year-end, asset managers continued building positions during this period.
From 11/26 to 12/17, long positions fell by 152 hundred million dollars and short positions increased by 35 hundred million dollars. It is worth noting that The Commitment of Traders data do not yet include trades after the 12 FOMC meeting, which weakened market expectations for rate cuts in 2025.
At the meeting, FOMC cut rates by 25 basis points as expected and made clear that it would slow the pace of rate cuts next year, which was also widely expected by the market. The main surprise was that the hawkish dot plot showed a median projection of two cuts in 2025, rather than the three generally expected.
Other Fed officials proved more hawkish than expected, and tariff risks increasingly appear likely to constrain FOMC rate cuts. But Powell leaned dovish at the press conference, reiterating the key points of his Jackson Hole speech.
“On the newly released minutes of the 11 FOMC meeting:They offered several key insights, and there may be two changes in balance-sheet management.”
—— Horizon Market Notes 241127
“The market is quietly pricing in a black swan:Low volatility does not mean low risk. Many institutions in the current market are using trading structures such as VIX Call Spreads to hedge or speculate on tail risks in a cost-efficient way, Beneath the market’s “calm” surface may lie heightened vigilance about potential risks.This also reflects deep disagreements among volatility-market participants about the future direction and demand for hedges against extreme scenarios.”
—— Horizon Market Notes 241213
“Russell 2k Futures: demand cannot support a pullback”The U.S. equity market is overvalued from a macro perspective: the S&P 500 is up YTD this year, 27%, whether in absolute terms or in macro-consistent valuation, both are relatively close to historical highs。”
—— Horizon Market Notes 241218(Beijing time, before the U.S. market opens)
“What We Are Seeing Post FOMC：Powell’s hawks are weighing on the market; yields are surging, curves are bear-steepening, and U.S. stocks are broadly weakening, the Bitcoin Sensitive sector fell the most (-11.29%), and Non-Profitable Tech dropped 6.38%. VIX rose to 19, credit spreads widened, and expectations for FED cuts in 2024 were revised down further; fewer than two rate cuts are now priced in (-31.5bps).”
—— Horizon Market Notes 241219
The weekend is over; wishing everyone who made it this far a happy life and a smooth week ahead!
If you made it this far, give us a like so we know!
Note: All content in this article is for reference only, does not constitute investment advice, and is not a basis for any laws, regulations, or regulatory policies. Investors should not use or rely on this information as a basis for making decisions or rely on such information