Value Behind Moves
Hey team, the final and most important week of the year is over, and as expected, it provided a highly volatile environment.
Let’s recap last week’s highlights and see what’s next!
Impact Snapshot
Consumer Confidence - Monday
Christmas Day - Wednesday
Unemployment Claims - Thursday
Macro Viewpoint
The S&P 500 index dropped 2%, marking its second consecutive weekly decline as concerns mounted over Federal Reserve monetary policy and the risk of a government shutdown.
On Wednesday, the Federal Open Market Committee lowered the central bank’s benchmark lending rate by 25 basis points, aligning with market expectations.
However, the committee indicated that rate cuts in the coming years may be less frequent than previously anticipated, adding to investor unease.
Compounding the market’s challenges, a potential government shutdown loomed after a bipartisan funding agreement through mid-March unraveled earlier in the week. A separate proposal by House Republicans to fund the government for three months failed late Thursday.
Looking ahead, the coming week will feature limited economic data. Markets will close early at 1 p.m. ET on Tuesday, Dec. 24, and remain closed on Wednesday for Christmas.
The perception of value
Last week, after the market’s emotionally charged response to the FOMC rate decisions and accompanying commentary, we shared some insights in our recent market brief.
We encourage you to revisit it if you haven’t already, as this short article will provide additional context.
Seasoned traders understand that price alone doesn’t tell the full story of the market. They’ve learned to factor in context, recognising it as a critical element in their decision-making process.
It is impossible to overemphasise the role that value plays in market activity. Value serves as the foundation for all activity within the market. Put simply, it is the driving force behind every transaction.
This is why maintaining a constant awareness of value is indispensable for effective trading. Without a clear understanding of value, market movements can seem random and unpredictable.
When traders have a strong sense of value, they often dismiss negative news, which explains why markets sometimes rally despite bearish developments. Conversely, uncertainty about value can lead participants to fixate on potential problems, even in the presence of positive news.
Think about your own behavior: When you're feeling confident, don't you tend to overlook bad news? And when you're feeling uncertain, don't you tend to look for trouble?
Since markets are comprised of people, it stands to reason that they reflect human behaviour patterns.
