🎅 The Santa Claus rally

What’s going on here?

The Nasdaq has put investors in a good mood, striking new highs and opening above 20,000 for the first time ever on Thursday.

What does this mean?

Sometimes, things just point in an index’s favor. The tech-heavy Nasdaq is up a stellar 33% this year, boosted by the AI boom, economic optimism, and – most recently – expectations of another stimulative US interest rate cut next week. That’s always welcome news for investors. Lower borrowing costs tend to encourage consumer and business spending, which is good for companies’ profits and shares. And it’s just this kind of stuff that puts folks in the holiday spirit: higher stock markets increase the “wealth effect”, making people feel richer and more inclined to splash out on gifts and nice-to-haves.

Why should I care?

Zooming in: Chip, chip, hooray.

Everyone loves a good exchange-traded fund (ETF) – and the ones that track the Nasdaq and the S&P 500 are particularly adored, with more than $2 trillion under their belts. And since they tend to be heavily weighted toward the Magnificent Seven, that’s given a boost to those firms too. But not everyone’s putting their money in broad ETFs: everyday investors and pro money managers alike are always on the lookout for stocks that can outperform indexes. This week, that had plenty of them buying up shares in Alphabet after the launch of its latest quantum computing chip. Google’s parent jumped 5% on Wednesday, far outpacing the Nasdaq’s 1.8% rally.

The bigger picture: Sweet things.

Like a decadent holiday dessert, US stock valuations are almost too rich. Still, that hasn’t stopped the country’s stocks from moving higher and gaining faster than those in other wealthy nations. When stocks do well and keep it up, they’re said to have strong price momentum – and that can signal that it’s a good time to buy. But if ETF selling picks up, that momentum could shift and turn winners into losers.

What’s going on here?

Central banks in the eurozone and Switzerland announced new interest rate cuts on Thursday.

What does this mean?

The European Central Bank trimmed its key lending rate for the fourth time this year, lowering it to 3% from 3.25% as expected. It’s part of a continuing push to steady the region’s faltering economy – traders are expecting at least four rate cuts next year. Meanwhile, the Swiss National Bank announced a bigger-than-expected move. Striving to head off potential further gains in Switzerland’s “safe haven” currency, the central bank sliced its benchmark rate in half – to just 0.5%.

Why should I care?

For markets: Piques your interest.

Lower interest rates make a currency less appealing to international savers and investors. So after four cuts, it’s not surprising that the euro has slid against the US dollar and the British pound. And if you look at the factory slowdown in Germany and debt crisis in France, it only highlights the economy’s need for the kind of stimulus that lower borrowing costs can bring. Interest rates are just one driver of a currency’s value, though. Just look at the Swiss franc: it’s been holding strong despite exceptionally low rates. And that’s because of its age-old reputation as a safe-haven asset that delivers in times of turmoil.

The bigger picture: Good havens.

Once upon a time, the Japanese yen had safe-haven status in the market too, despite Japan’s long run of low interest rates. But that changed as policymakers began using unconventional central bank tricks that effectively undermined its value. Those moves had an effect on markets, sending investors toward the exits and bolstering the appeal of other perceived havens like gold and bitcoin.