To The Moon

Positive sentiment is fragile but building—could this be the turning point? 

This article is written by Shernice, if you like my article please hit the like button or do a repost. 

It looks like we might be seeing a bit of a weather whiplash, with thunderstorms turning to sunshine and sunshine turning to thunderstorms—just like how Trump’s tweets on X could shake up the market vibes!

The Dow Jones Index took a tiny dip yesterday, while the S&P 500 saw a modest rise.

Yesterday, pre-market, the ADP private payroll report came in softer than expected, calming some of the market’s nerves. U.S. December payrolls grew by 122,000—falling short of the expected 140,000 and the previous 146,000. Following the data release, U.S. stock futures perked up slightly.

But just as things were settling down, stupigg CNN dropped a bombshell: Trump might declare a national economic emergency to justify sweeping tariffs on allies and rivals alike! This sparked immediate worries, sending the dollar index and U.S. Treasury yields soaring. The 10-year Treasury yield briefly spiked to 4.733%, causing risk assets to scatter in panic.

Sensing things could spiral, the Federal Reserve’s go-to firefighter, Governor Christopher Waller, stepped in to reassure the markets. He confidently stated that inflation is declining, supporting the case for further rate cuts. Addressing Trump’s tariff plans, Waller downplayed their impact, calling them unlikely to influence the Fed’s decisions. He also expressed doubts about the U.S. government implementing harsh tariffs. Lastly, Waller reiterated the economy’s solid foundation, with employment near full capacity and no signs of the labor market weakening anytime soon.

Thanks to his “market massage,” the 10-year Treasury yield eased back below 4.7%. But let’s be real—Waller’s words alone probably didn’t work this magic. It’s highly likely the Fed signaled a few big banks—or perhaps even stepped in directly—to buy up Treasury bonds and suppress yields. This wouldn’t be the first time the Fed pulled such a move; it’s a playbook they used back in spring last year when yields flirted with breaking 4.75%.

With the Fed watching Treasury yields like a hawk, 4.75% to 5% might just be the range where intervention kicks in to maintain financial stability.

As for today, the flurry of data and headlines left traders spinning, leading to choppy action in U.S. major indices. The S&P 500 closed with a doji candle below the 5-day moving average, signaling indecision. The trend hasn’t fully turned bullish yet, and all eyes are now on Friday’s Non-Farm Payroll (NFP) report, the week’s main event.

Currently, Wall Street estimates the NFP will show 160,000 new jobs added in December, with unemployment holding steady at 4.2%. If the report is strong, the market might flip into a “good news is bad news” mode, fearing aggressive Fed action.

But don’t panic if pre-market indices tank on Friday! A robust economy is the backbone of a long-term bull market, and strong job numbers mean healthy consumer spending and corporate earnings growth. So, if Wall Street dares to bash stocks on strong NFP data, seize the moment to buy the dip.

If the S&P 500 gaps down to around 5,780–5,800, that’s your cue to buy. Stay calm—odds are, the market will recover the same day with a solid green candle or a bullish doji. Conversely, if the NFP report turns out weak or lukewarm, we might see a different playbook unfold.

The market seems to be in a “bad news is good news” mood again, with stock futures rising pre-market on hopes of rate cuts. So, what should we do if that happens?

Here’s my take:

Scenario one: Stocks gap up at the open but fade during the day, ending with small gains or a slight dip.

Scenario two: Stocks open strong, keep climbing, and close with solid gains.

The odds of a sharp selloff are low—unless, of course, Trump drops a bombshell on Friday, like announcing a national economic emergency to rattle the markets.

Crafty fox, Wall Street might be deliberately suppressing the market as a “gift” to Trump. It’s a win-win for him. If the market rebounds post-NFP report but Trump decides to join forces with Wall Street to slam it back down—similar to today’s tariff scare—there’s nothing we can do to predict such a black swan event.

So, all these predictions about Friday’s action assume no unexpected bad news. If luck is on our side, things play out as scripted. If not, well… all bets are off, and we’ll be left blaming Trump again!

On another note, I came across a Goldman Sachs report that sheds some light on the recent market moves. The collapse of leveraged long financing costs—aka funding spreads—was a key factor behind the late 2024 and early 2025 selloffs. After Trump’s election win, institutional investors leveraged up at record speed, driving stocks higher and funding costs along with them.

But on December 18th, after the Fed’s rate decision, everything flipped. Powell’s cautious stance on future rate cuts crushed market expectations for easing, causing funding spreads to nosedive and wiping out six months of gains in just two weeks. Institutional investors started unwinding their leveraged positions, with hedge funds leading the charge in shorting the market.

According to Goldman, the ongoing institutional selling through futures is a warning sign for retail investors. But here’s the twist: by the time reports like this reach us, the worst of the selling might already be over. Wall Street’s playbook often involves using these reports to bait retail investors into panic selling, while the big players quietly prepare to buy back in.

So, if we see a panic-driven selloff soon—perhaps next week—marked by a VIX spike, high volume, and a sharp drop, it could signal a market bottom. The recovery might follow as early as the same day or the next. That’s just how Wall Street works: big fish eat the little fish, and hedge funds are sometimes both hunters and prey.

For retail investors, we’re not even small fish—we’re plankton in this ecosystem! Unless a major macro event triggers systemic selling, this current wave of selloffs might just end up as another round of short squeezes, propelling the S&P 500 to new highs.

One thing’s for sure: 2025 is shaping up to be a rollercoaster. Whether it’s the U.S., Europe, or China, no market will be a smooth ride. And with Trump’s knack for stirring up drama, even one of his casual “essays” can send ripples through global financial markets!

The old saying "with a flip of the hand, clouds; with another, rain" feels so fitting here! During Trump’s first term, from the trade war of 2018 to the end of his presidency, the S&P 500 saw several corrections of 7–10%, with one nearly hitting a bear market at the end of 2018 (a 20% drop!).

Of course, we’ll leave out the black swan of 2020, but most of those mid-term pullbacks managed to bounce back within 2–4 weeks. I suspect this year will follow a similar pattern—lots of dramatic ups and downs with sharp swings. Generally, any dip over 5% is likely to be a buying opportunity.

No need to rush—missing the perfect buy point isn’t a big deal as long as you allocate funds wisely. Today, the index briefly dipped below the 50-day moving average but managed to close above it, holding support for now. Maybe today’s doji candlestick marks the bottom, but we’re still under the 5-day moving average, so we’ll need to reclaim that level for short-term stabilization.

Even then, the index needs to break out of its descending wedge to aim for new highs. Otherwise, the trend remains downward, and we’ll need help from a drop in Treasury yields to lift the market. If yields keep climbing beyond the critical 4.75% level, the market simply can’t bear the pressure and could fall further.

For now, it’s best to stay cautious. As Trump’s decision day draws near, market anxiety is heating up, with Treasuries taking a relentless beating. However, TLT is edging into oversold territory.

Treasury Secretary Yellen mentioned today that recent bond selloffs were driven by rising term premiums and rate expectations. Term premiums had been at historic lows but are now normalizing thanks to the strong U.S. economy. While this has contributed to the selloff, it also suggests relief might be on the horizon. Both the Treasury and the Fed seem ready to step in and stabilize things.

So, with 10-year yields bouncing between 4.75% and 5%, it could be a good opportunity to buy TLT in batches. While we can’t count on a massive rally, there’s potential for a short-term rebound trade.

No one can perfectly time the absolute bottom of Treasuries, and that’s why scaling in makes sense. If we could predict it precisely, we wouldn’t need to layer in purchases, right? 😊

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