Value Opportunity: Small Caps at a Discount
How I Upgraded My Home WiFi with Eero Mesh Network
Building a house from the ground up offers many opportunities to future-proof the infrastructure, and ten years ago, I made a conscious decision to hardwire Ethernet ports into every room of my home. At the time, mesh WiFi systems like Eero were cutting-edge and prohibitively expensive. Instead of installing a robust WiFi network, I settled for one Eero device per floor to keep costs manageable.
Fast forward to today, and the setup was beginning to show its age. My wife and oldest child had been voicing complaints about slow and unreliable WiFi in their bedrooms for years. Video calls would drop, streaming would buffer, and overall, it was clear that our single-device-per-floor setup was no longer cutting it. It was time for an upgrade.
The Turning Point: Cyber Monday Shopping
I had been keeping an eye on mesh WiFi upgrades but hesitated to invest due to the high cost of additional Eero devices. This Cyber Monday, I decided to revisit the idea. To my surprise, prices for Eero devices had dropped significantly. What once cost over $200 per device a decade ago was now listed for just $40 on Amazon. The affordability was striking and underscored how far technology pricing has come, thanks to disinflation and increased competition.
Seizing the opportunity, I purchased enough Eero devices to install one in every room of the house, leveraging the Ethernet ports I had hardwired years ago to build a seamless, high-performance network.
Installing Eero Mesh WiFi in Every Room
The installation process was straightforward:
- Unboxing and Setup: Each Eero device came with clear instructions. I downloaded the Eero app, which guided me through the setup step by step.
- Connecting to Ethernet: With Ethernet ports already in place, I connected each Eero device directly to its respective port. This allowed the devices to use a wired backhaul, boosting performance compared to a wireless-only setup.
- Positioning the Devices: I placed one Eero device in each room, ensuring they were centrally located and unobstructed by furniture or appliances.
- Testing and Optimization: Using the Eero app, I tested the signal strength throughout the house and made minor adjustments to maximize coverage.
The Results: A Seamless WiFi Experience
The difference was immediate. My wife and oldest child noticed the improved speed and reliability in their bedrooms right away. Video calls now run smoothly, streaming is uninterrupted, and the entire house—from the basement to the attic—is blanketed with a strong, stable WiFi signal.
Reflections on Disinflation and Financial Parallels
The dramatic price drop of Eero devices over the past decade is a clear example of disinflation in action. Technology that was once cutting-edge and expensive has become more accessible to the average household, thanks to advancements in production and competition driving prices down. This week’s stock market movements offer a similar lesson in adaptation and timing.
The markets presented a mixed picture: the Nasdaq surged to record highs, propelled by strength in the tech sector, while the Dow retreated due to weakness in healthcare and energy. Investors are keenly watching the Federal Reserve as it prepares to cut interest rates by 25 basis points. Yet uncertainty persists, with conflicting inflation data leaving many guessing about the pace of rate cuts in 2025. Much like my decision to wait for the right time to upgrade my WiFi, navigating these markets requires patience and a strategic approach.
The Federal Reserve’s decisions, coupled with evolving inflation trends, highlight how markets continually adjust to new information. Whether it’s identifying the right moment to buy into a promising stock or upgrading your home tech, timing is critical. Sometimes, waiting for clarity or a better entry point—whether in markets or in personal decisions—can lead to significantly better outcomes.
Final Thoughts
Upgrading my home WiFi with a full Eero mesh network has been transformative. By leveraging the hardwired Ethernet ports I installed years ago and taking advantage of Cyber Monday deals, I’ve built a reliable, high-performing network that supports my family’s increasingly connected lives. Similarly, in the stock market, thoughtful, calculated moves can lead to long-term success.
This week’s market movements echo that sentiment. The Nasdaq’s rise, the Dow’s pullback, and the anticipation surrounding the Fed’s next steps all underline the importance of adaptability and strategic decision-making. Whether you’re evaluating your portfolio or considering a long-overdue tech upgrade, it’s worth reflecting on how much the landscape has shifted—and how much of a difference a well-timed decision can make.
Recent Trade Review
This week, I executed a successful trade on Amazon ($AMZN), leveraging YellowTunnel’s Dynamic Power Trader (DPT) model. During last Wednesday's Live Trading Room session (watch here), the model flagged Amazon as a strong long opportunity, driven by extreme call buying and elevated gamma levels—key indicators of bullish momentum and potential price moves.
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CURRENT TRADING LANDSCAPE
The final full trading week of 2024 unfolded with a blend of market highs, sector-specific struggles, and significant central bank actions, all of which are shaping expectations for 2025. The Nasdaq Composite reached new record highs, fueled by strength in technology, while the Dow Jones Industrial Average faced headwinds from declining healthcare and energy sectors. Meanwhile, the S&P 500 posted modest gains, demonstrating resilience amid a stream of economic updates and global central bank decisions.
Despite risks, including cooling economic data, rising unemployment, and potential failures of small banks exposed to commercial and residential real estate, I remain in the bullish camp. Inflation has remained within expectations, and a better-than-expected earnings season has supported continued optimism. The recent strength in equities, particularly in technology, reflects strong corporate fundamentals and investor confidence, reinforcing the belief that the market can maintain its upward trajectory.
Looking ahead, the SPY rally has the potential to reach levels between $620 and $640 in the next few months, with short-term support expected between $560 and $580. While risks such as economic cooling and inflation concerns persist, I expect the market to continue making new highs as earnings and inflation data continue to support growth. The long-term trend remains intact, and despite short-term volatility, I believe the rally could have staying power as we enter 2025. However, caution is warranted in the near term, given the uncertain economic backdrop. For reference, the SPY Seasonal Chart is shown below:
Federal Reserve's Monetary Policy Decision
A pivotal moment for markets this week was the Federal Reserve’s final Federal Open Market Committee (FOMC) meeting of the year, where the central bank reduced its benchmark interest rate by 25 basis points. The move, which brought the federal funds rate to just below 4%, was the third consecutive rate cut, and although anticipated, it carried substantial implications for the broader market.
Fed Chairman Jerome Powell’s cautious tone about inflationary pressures and slower-than-expected easing in 2025 sent a ripple through investor sentiment. Powell’s projections indicated only two rate cuts in 2025, in stark contrast to the four anticipated by the market, leading to a sharp sell-off in equities. The S&P 500 dropped 2.9%, marking its steepest decline in four months. Treasury yields spiked midweek, with the 10-year yield climbing to 4.561% and the 2-year yield reaching 4.363%, signaling heightened caution about persistent inflation and slower progress toward monetary policy normalization.
Market Reactions and Global Central Bank Decisions
The Fed’s decision was compounded by global central bank moves. The Bank of Japan maintained its ultra-loose monetary policy, and the Bank of England kept rates steady, citing mixed inflation trends. These divergent policies underscored the varied approaches to managing inflation globally and had a marked influence on investor sentiment.
Labor market data further supported the narrative of economic cooling. Initial jobless claims rose to 242,000, surpassing expectations, suggesting a softening employment landscape. This, in turn, bolstered hopes for a “soft landing”—where inflation moderates without tipping the economy into recession.
Inflation Data and Market Sentiment
The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, provided some relief with a November core PCE rise of 2.4%, slightly below economist expectations of 2.5%. This marked a small but meaningful step toward the Fed’s long-term 2% target. However, inflation projections for 2025 were revised upward by the Fed, suggesting that price pressures may remain elevated for longer than previously anticipated.
In contrast, the Producer Price Index (PPI) showed continued inflationary pressures in certain areas, with a 0.4% increase month-over-month and a 3% rise year-over-year. These mixed inflation signals, while showing progress in some areas, highlight the ongoing challenges in achieving broader price stability.
Corporate Earnings and Sector Performance
Corporate earnings were a mixed bag this week. Technology-driven names like Jabil exceeded expectations, fueling optimism in the sector, while General Mills’ disappointing earnings and downward revision of its guidance negatively impacted consumer staples stocks. These earnings results underscore the importance of sector-specific risks and opportunities as we enter 2025.
Crude oil markets faced downward pressure, driven by weakening demand signals from China and anticipated increases in U.S. production, which led to volatility in the energy sector. Meanwhile, gold prices dropped 1.1% as cooler inflation data prompted investors to reassess their risk exposure, moving away from precious metals as a hedge against inflation.
Market Outlook and Future Expectations
Looking ahead, the final trading days of 2024 will be crucial. The broader market is still within reach of new highs, with technology leading the charge, while other sectors, particularly healthcare and energy, face headwinds. Lower Treasury yields, which range between 3.6% and 4.7%, have helped ease borrowing costs and supported stock valuations, contributing to a relatively stable market backdrop. Additionally, volatility has remained subdued, with the CBOE Volatility Index (VIX) hovering around 14, signaling steady investor confidence despite the challenges posed by inflation and slower economic growth.
The combination of strong corporate earnings, a softening inflationary backdrop, and resilient consumer sentiment provides a reason for optimism. However, risks remain. Rising unemployment, vulnerabilities in small banks exposed to commercial real estate, and geopolitical uncertainties could disrupt the market’s upward momentum.
Conclusion: A Year of Uncertainty and Opportunity
As 2024 winds down, the market sentiment is increasingly shaped by the Federal Reserve’s actions, inflation data, and the performance of key sectors. The Fed’s cautious stance regarding future rate cuts and its upwardly revised inflation projections suggest that 2025 may bring both challenges and opportunities. While the risk of a recession remains, the path to a “soft landing” looks increasingly plausible.
For investors, maintaining disciplined risk management while identifying opportunities amid market pullbacks will be essential as we approach 2025. Despite the macroeconomic uncertainties, the long-term trend remains intact, and the potential for further market highs still exists. The final days of 2024 will set the tone for the year ahead, requiring vigilance, strategy, and a clear understanding of the evolving economic landscape.
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SECTOR SPOTLIGHT
As we approach the final trading weeks of 2024, one sector stands poised to benefit from the ongoing market dynamics and central bank policy decisions. While the technology sector continues to drive record highs, another group of stocks, often overlooked, is quietly showing strength. In an environment where inflation pressures are moderating, Treasury yields are stabilizing, and investors are cautious yet optimistic about the future, this sector may be ready to take its next step forward.
Small-cap stocks, in particular, have shown signs of resilience and growth potential. These stocks tend to be more sensitive to changes in economic conditions, and with a positive earnings season behind us and inflation data suggesting moderation, small-cap stocks are well-positioned for potential gains as we move toward 2025. The iShares Russell 2000 ETF ($IWM), which tracks small-cap stocks, is a key player in this segment, and its performance could provide investors with an attractive opportunity to tap into the growth of emerging U.S. businesses.
Small-cap stocks have often been seen as a barometer for economic recovery, reflecting the growth potential of domestic businesses in various industries. The iShares Russell 2000 ETF ($IWM) provides investors with exposure to the Russell 2000 index, which consists of approximately 2,000 small-cap U.S. companies. These businesses represent a diverse range of sectors, including healthcare, technology, and consumer discretionary, and typically experience higher growth rates compared to larger companies in times of economic expansion.
Historically, small-cap stocks have tended to outperform their large-cap counterparts during periods of recovery, making $IWM an appealing choice as we head into 2025. The current environment, marked by moderating inflation, favorable borrowing conditions following recent Fed rate cuts, and continued earnings strength, positions $IWM well for further gains. With strong corporate fundamentals supporting the small-cap space and expectations for a “soft landing” in the economy, $IWM stands to benefit as investors look to capitalize on the potential for growth in this often-overlooked segment.
TRADE OF THE WEEK: $IWM - A Solid Buy for the Week Ahead
Looking ahead to the upcoming week, $IWM presents a compelling buying opportunity. The broader market sentiment, driven by strong earnings reports and signs of inflation cooling, supports the potential for small-cap stocks to perform well in the near term. As inflation pressures ease, small-cap companies, which tend to be more sensitive to domestic economic growth, are poised to take advantage of favorable market conditions. The iShares Russell 2000 ETF ($IWM), with its diverse exposure to small-cap companies, stands to benefit from this trend.
Additionally, the Federal Reserve’s decision to reduce interest rates by 25 basis points has created a more favorable environment for small-cap stocks. Lower borrowing costs provide companies with the ability to expand and invest in innovation, which is critical for their growth. With Treasury yields stabilizing and inflation data supporting a more positive economic outlook, small-cap stocks have a solid foundation for growth in the coming months.
The positive performance of corporate earnings in the small-cap space, particularly in sectors like technology and healthcare, further supports the bullish case for $IWM. As these companies continue to show strength, $IWM offers investors an opportunity to tap into the growth potential of emerging businesses.
My AI models also show strong support for $IWM, reinforcing the view that small-cap stocks are likely to outperform in the upcoming week. With favorable technical conditions and the broader market dynamics aligning, $IWM is well-positioned to continue its upward trajectory.
Given the resilient investor sentiment and the improving economic backdrop, $IWM is an attractive buy for those looking to capitalize on the strength of small-cap stocks in the weeks ahead. With strong corporate fundamentals and favorable macroeconomic conditions, $IWM offers an appealing opportunity for growth as we move toward 2025.
This week, I’ll be adding the iShares Russell 2000 ETF ($IWM) to my portfolio!
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Wishing you a week filled with resilience, growth, and prosperous opportunities!