In the final stage of a glorious year, the sell-off by the world's largest tech companies has taken a toll on the stock market, with the three major US stock indices all in the red, and the Bit spot ETF also facing net outflows of funds last week. Trading volume has shrunk significantly at the end of the year, and market investors may be reviewing their 2024 operations and planning their investment strategies for next year. In any case, the market is highly volatile, and investors need to be aware of the risks of their leveraged positions.
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ToggleYear-end trading is sluggish, helping to increase volatility
During the year-end holidays, trading volume has shrunk significantly, and in the absence of any particular news drivers, the three major US stock indices are all in the red, with the S&P 500 Index and the NASDAQ Index seeing a pullback this week. The "Big Seven" index fell 2%, led by Tesla and Nvidia. Prior to this, the stocks dubbed the "Big Seven" had risen sharply, contributing more than half of the benchmark gain in the US stock market in 2024. The 25% return of the S&P 500 Index masks the plight of the average constituent stocks lagging significantly in gains.
Momentum investing is the biggest winner in 2024
According to Bloomberg reports, even with a pullback this week, the Dow Jones US Thematic Market Neutral Momentum Index shows that the momentum quantitative trading strategy of buying last year's top stocks and selling declining stocks has risen 31% in 2024, the best year on record since 2002.
Note: The Dow Jones US Thematic Market Neutral Momentum Index is an index designed to measure the performance of a long-short strategy between high-momentum companies and low-momentum companies. This index achieves a market and industry neutral strategy by holding long positions in high-momentum companies and short positions in low-momentum companies.
Momentum strategy is a method widely used by quantitative traders and supported by academic research, which captures the continuation of market trends for a period of time, whether due to more investors joining or slower absorption of new information. It reallocates funds to the recent winners at each rebalancing, helping to capture medium to long-term trends.
It has proven to be very consistent with the stock rankings, with the seven tech giants like Nvidia and Meta firmly at the top. While this allows anyone holding an index fund to profit easily, this overly familiar setup has exacerbated concerns about the concentration and crowding of stock returns.
Another explanation for this is that tech stocks have become unique resilient winners, which is partly due to the prosperity of AI. UBS mentioned in its 2025 outlook report that, given the industry's profitability and balance sheet strength, even an economic recession may not be enough to damage the industry.
Bit coin ETF also sees a significant outflow of funds
According to data from SoSoValue (as of 12/26), the Bit coin spot ETF faced a rare net outflow of funds last week (there was also one in late November) since early November. As of the press time, Bit coin is reported at $94,584, up 123% year-to-date, and although it has faced a correction this month, it is still one of the best performing assets of the year.
Due to the expectation that the crypto-related regulations will be relaxed after the Trump team takes office, but regulations cannot be changed overnight, as Arthur Hayes, the founder of BitMEX, had previously predicted that the crypto market will experience a painful decline around Trump's inauguration on January 20, 2025. His family office Maelstrom will pre-reduce some positions, hoping to buy back some core positions at a lower price at some point in the first half of next year.
(Arthur Hayes: What is the truth about Trump? Where to pre-position assets)
Risk Warning
Crypto currency investment is highly risky, and its price may fluctuate wildly, and you may lose your entire principal. Please carefully assess the risks.
