Market 01/02: Fear Envelops the Market at the Start of the New Year

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Terrorist attack in New Orleans and Las Vegas

2 serious terrorist attack events by 2 members of the US military

Event in New Orleans:

• Location: French Quarter - pedestrian street

• Time: 3.15AM on the morning of 1/1/2025

• Perpetrator drove into the crowd of pedestrians, then got out of the car and exchanged gunfire with police

• Hydraulic iron bollards to prevent this from happening last night were not used because they were under repair

• 15 people killed, perpetrator taken down thanks to police nearby and quick response to the situation

• The vehicle contained a lot of homemade explosives, but luckily they were not detonated

• FBI immediately recovered the flag of the terrorist organization ISIS from behind the vehicle

• However, conflicting information came out right after

  • New Orleans market declares it a terrorist attack

  • FBI comes out and says it's not a terrorist attack

  • Texas Governor declares it terrorism with perpetrator from Texas and driving a vehicle with Texas plates

• Perpetrator's identity: Shamsud Din Jabbar

  • Born and raised in Texas

  • Divorced twice and has 3 children

  • Served in the US military for 10 years

  • Currently has a stable job and seems to have converted recently (according to friends)

→ FBI announces searching for other related suspects but then says the perpetrator acted alone, the incident is still under investigation.

Event in Las Vegas:

Perpetrator loaded a lot of explosives and fireworks onto the trunk of a Tesla Cybertruck and drove to the front of Trump Hotel in Vegas and detonated it.

However, due to the Cybertruck being very sturdy, most of the pressure went upward so no one was injured and the hotel glass next to the vehicle was not broken. The only fatality was the perpetrator.

• Identity: Matthew Livelsberger

  • Currently serving in the US military for nearly 20 years, Green Beret special forces member, stationed in Germany and on leave

  • Responsible for explosives and remote weapon control in the military

A big question is also raised: if the perpetrator had a lot of experience with explosives, why was the bomb ineffective and why not detonate it remotely?

The event causes a lot of fear for the FBI and authorities because both are US military members, fought in Afghanistan at the same time, both stationed at Fort Bragg (where the perpetrator in Trump's second assassination attempt visited hundreds of times), and both rented electric pickup trucks (Tesla Cybertruck and Ford F150) from the Turo app.

Currently, the incident and the possibility of more members involved are still under investigation.

→ Next week, Steve hopes readers should temporarily stay away from crowded areas.

Tesla vehicle sales drop for the first time in history

• 2024 sales 1.79 million vehicles, lower than 1.8 million in 2023

• Q4 Tesla delivered 495,570 vehicles - lower than 512,277 expected

• Model 3/Y produced 436,718 lower than 481,306 expected

  • Delivered 471,930

Tesla stock breaks hard -7% in today's session, with next support at 360 50EMA daily.

Apple lowers iPhone prices in China

• All iPhones discounted 500RMB (~$68.5) in China

• Apple tries to protect market share under competitive pressure from Huawei and local brands with cheap products

Unemployment claims back to 8-month low

• National jobless claims only 211,000 in the last week of 2024 from 220k previous week and below 221k forecast, lowest since April

• Texas and California see biggest drops

• Continuing claims back to 1.844 million from peak 1.89 million, lowest since September

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Oil prices surge on expectations of economic recovery from China

• Market expects new 2025 economic support packages in Xi Jinping's speech

• CEO says hard to increase US crude production even if Trump wants

• Biden could issue ban on oil drilling on all federal lands near the sea

→ Oil prices +2.2% right from the open before inventory data

• Crude inventories -1.18 million barrels less than expected draw of -2.4 million

• Gasoline inventories +7.72 million barrels far above +0.7 million expected, highest since end of 2024

→ Weaker gasoline demand pulls WTI slightly lower

• Inventories down for 6th straight week with DOE buying additional 265k barrels into SPR

• Output dips slightly from peak while rig count also falls

Hindenburg releases short report on Carvana

• Hindenburg claims Carvana is using financial accounting manipulation tactics to make it look better than reality and controlled in a “nepotistic” style with no proper internal controls.

Current short report has little impact on stock price yet. Hindenburg is a short-seller who has reported on previously along with many other stocks.

China sounds full alarm on first day of new year

• China Caixin PMI falls to 50.5 from 51.5 in November showing economy still deep in recession

• CSI 300 ends first session of year -2.9%, Hang Seng -3.1%

• China 10-year bond yield breaks new low to 1.613%, -6.7bps overnight

Market: Fear returns in first New Year session

US Futures gap up nearly +0.8% overnight signaling stable sentiment in New Year opening session. Almost entire market green at open except Tesla and Apple declines. However after 1 hour sell-off pressure emerges as flows into energy, financials, and healthcare weaken.

Heatmap after first 2 hours:

However the structure was clear beforehand: 5900 is the SPX level to defend for market stability. After about 3 hours SPX breaks quickly below 5900 and market enters risk-off.

Into afternoon session:

Looking at internals, the issue is clear: liquidity has not returned, bond yields stable but VIX spikes with put flow showing hedging demand across market today.

→ Mostly Steve thinks due to fears of continued and more severe terrorist acts.

Short-dated IV spikes showing near-term fear:

→ Market fear has returned but liquidity not back. Market structure reversal mainly from hedging flow, not organic selling (see internal)

Additionally impact from MM adjusting hedges due to market closure for National Mourning Day on 01/09 next week. (negative gamma below 5900 → MM increase short shares)

• Rotation into value sectors today (energy, healthcare, utilities and Telecom green)

→ If liquidity returns and buyers can push market lightly → short-dated put hedges get crushed creating a short-cover rally. Below final support at SPX~5800.

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