Your Thanksgiving Risk Radar

Three weeks removed from the election, it’s clearer than ever that a decisive Presidential victory was indeed exactly what the market wanted. Volatility continues to dissipate at the margin, with VIX sinking back down to post-election lows despite big gyrations in stocks, bonds, currencies, and crypto. So, basically everything.

Stocks kind of look the simplest. The S&P 500 feels cozy at 6,000, a happy level upon which it can rest its laurels for the holiday season. Rotation traders are eyeing a Santa Claus rally for small-caps, and the seasonality certainly favors it, as does the momentum in the small and mid-caps, as well as new sector leaders like banks and industrials. Nvidia (NVDA) is worth keeping an eye on, with shares sluggish after earnings, but there’s been enough breadth in the market to offset a lackluster quarter for the Mag-7.

The most interesting single stock is, of course, the financial marvel known as MicroStrategy (MSTR), or perhaps more fun to just call “Master,” as did DampedSpring’s Andy Constan in our interview this week. He does a good job breaking down the math behind the convertible bond, which is acting something like free money to CEO Michael Saylor, who seems to have disconnected from most financial realities. It’s quite obvious that it’s all a massively leveraged bet on the price of bitcoin not going down, but what else is new?

What most people probably couldn’t fathom is that despite the deafening volume on the crypto conversation, this latest surge is actually less momentous than the one around the ETFs earlier this year, which was lower-momentum than the Covid-era explosion past $60,000 for the first time. That’s called a bearish divergence – when price makes new highs but on lower momentum – and it’s a pattern that goes back all the way on bitcoin’s chart. To me, the technical pattern is an artifact of bitcoin’s purely speculative nature. If it crashes big as it often does, will Trump still think it’s a winner?

Speaking of the incoming president, it’s been a busy week for staffing. The choice for Scott Bessent as Treasury Secretary seemed to send a ripple through the bond and forex markets, but I’d be very careful attributing any moves to future policy at this point. On my Nov. 14 Risk Radar, I pointed out that long yields would likely slow down soon. The idea was that the Treasury curve would flatten as short rates rose to reflect lower odds of a Fed cut in December, which would in turn limit the pro-growth implications of Fed policy and slow the ascent in long yields. I think that’s what’s happening now. A few soft economic prints are also helping put a bid into bonds.

The dollar looks dominant in a world of tariffs, but more interesting is the relationship between the 10-year yield and the greenback, which is typically reliably tight. If it breaks down a bit due to this bond rally, look there for answers. If the dollar joins yields lower, it means Fed may cut in December and U.S. growth prospects might temper. If it stays higher though, yields look likely to hang in above four percent until we have more clarity on policy.