As we head into the final stretch of the year, the market’s path of least resistance appears to favor a slow melt-up. Several factors are aligning to support this upward drift — but as always, the key lies in what doesn’t disrupt the current setup.
Seasonal Tailwinds and Historical Trends
We’re in a historically bullish window. November through January is traditionally a strong period for the markets, thanks to seasonality. It’s not uncommon to see a drift higher during this time, with lighter trading volumes leading to less resistance in price movements. The absence of surprises — such as unexpected Federal Reserve actions or geopolitical shocks — typically keeps the market moving upward.
On top of that, we’ve already weathered some of the year’s biggest potential disruptions.
The Federal Reserve has avoided hawkish surprises, the elections are behind us, and inflation data, while not perfect, hasn’t spooked the market recently. This sets the stage for a continuation of the momentum we’ve seen throughout 2024.
Key Drivers for a Bullish Scenario
Here’s what could help the market maintain its upward trajectory:
- Stable or Declining U.S. 10-Year Yield: The bond market plays a critical role in market sentiment. A stable or declining yield on the U.S. 10-Year Treasury would ease pressure on equities, particularly growth stocks.
- Improved Inflation Data: While inflation remains a concern, recent prints have shown some moderation. As long as we don’t see a significant reacceleration, this trend could continue to support equities.
- Earnings Strength in Key Sectors: The Magnificent 7 — which includes giants like Nvidia (NVDA) and other large-cap tech players — need to deliver steady results. So far, their performance has buoyed the broader market, but any cracks in their earnings momentum could cause turbulence.
- Absence of Drama: It’s hard to overstate the importance of market stability. As long as there’s no unexpected shock — whether from the Federal Reserve, geopolitical tensions or earnings surprises — the market should remain on course.
But there’s still reason for caution…
The markets may be enjoying seasonal tailwinds, but there’s still room for uncertainty. A single disruption could quickly derail the upward drift. Nvidia’s (NVDA) earnings this week did little to move markets up or down.
But upcoming inflation data in December will be crucial in determining whether the Fed leans more dovish or hawkish at its next meeting.
The bottom line?
Stay cautiously optimistic. The conditions for a melt-up are in place, but it’s always wise to have a backup plan. Protect your positions, watch the key data points, and be ready to adjust if the unexpected happens.
This market might just find a way to grind higher into 2025 — but it won’t be without its share of risks along the way.
I’ll see you in the markets.
Chris Pulver
Chris Pulver Trading
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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk.
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