The Morning Call
1/8/24
The
Market
Technical
The S&P had a
punk week. That shouldn’t be that big a surprise given (1) its meteoric rise
over the prior two months and (2) it lost its mojo at major resistance [i.e.,
its all-time high]. So I don’t think last week’s pin action necessarily bodes
ill for future direction. What counts now is (1) where the index finds support
and (2) can it successfully challenge its all-time high. Contributing factors
are (1) seasonality which should be acting as a plus and (2) those multiple gap
up opens down below.
New year and new trends.
https://allstarcharts.com/new-year-new-trends/
Market
tension rises.
Sell off starts the year.
Sell-Off
Starts The New Year - RIA (realinvestmentadvice.com)
Like the S&P,
the long bond had a tough week. It negated its very short term uptrend and is
in the process of challenging its 200 DMA (now support; if it remains there
through the close on Wednesday it will revert to resistance). Also like the
S&P, it is way too soon to be making assumptions about a change in trend.
While GLD was able to hold its very short term uptrend, it continues to be unable to push through its all-time high. Until it does so, I see no reason to be invested here.
As I noted last
week: While the long term uptrend remains in place, the dollar’s short term
technical picture has been wrecked. To be sure, a gap down open of the order of
magnitude shown on the chart begs to be closed. But that will likely take a
long time. Expect a lot of directionless trading over the short to intermediate
term.
Friday in the
charts.
Fundamental
Headlines
The
Economy
Week in review
The stats in the
US were mixed last week, although two primary indicators registered negative.
The inflation data continued to point to a lessening therein, which is in line
with our own forecast. But, in my opinion, economic growth numbers still don’t
provide any clear indication as to whether the coming landing is soft, hard or
we have no landing at all. To be clear, there is a growing consensus for the
soft landing scenario---I just don’t see it at this time.
Big
four recession indicators.
Weekly leading economic
index.
Q4 nowcast
suggests no recession.
https://www.capitalspectator.com/us-q4-gdp-growth-expected-to-support-soft-landing-outlook/
One development that
bears comment was the release of the last FOMC meeting minutes which were a bit
more hawkish than the narrative from Powell’s ‘Fed pivot.’ I think that this was a function of timing (remember
that these minutes are at least two weeks old) not another change in perspective
monetary policy. I maintain my thesis that the ‘Fed pivot’ was a function of
pressure brought by the Administration to ease monetary policy in this election
year. And that is not going to change; indeed, given the current poll numbers,
it will likely only increase as the year progresses.
Bottom line:
(1)
I think that the inflation risks are behind
us, at least for the short term. However, longer term, I believe that the most
important economic factor is the potential [inflationary] impact of a grossly
irresponsible fiscal policy which if left unresolved will ultimately push
interest rates and inflation to higher levels, risking a tighter monetary
policy and impeding the economy’s ability to grow.
(2) The
question of recession [what kind of landing] remains open, in my opinion. There
simply isn’t enough consistently upbeat data to warrant the assumption of a
soft [no] landing. Not that that won’t occur; it is just not yet in the numbers.
But I will take it a step further. I still think that there is a decent chance
of a recession---or something worse than current Market expectations. Why? Recessions
historically begin after the yield curve uninverts. Right now it remains
inverted. Pay attention to the normalization of the curve.
US
International
The November German
trade balance was E20.4 billion versus forecasts of E17.9 billion; November
factory orders were up 0.3% versus +1.0%.
November EU retail
sales fell 0.3%, in line; December economic sentiment index was 96.4 versus
94.1; the December industrial sentiment index was -9.2 versus -8.8; the
December services sentiment index was 8.4 versus 5.0; December consumer confidence
was -19.0 versus -19.1.
Other
Fiscal
Policy
Two weeks to fix three problems.
https://www.zerohedge.com/political/two-weeks-fix-three-problems-will-republicans-cave-again
Inflation
EU inflation rose less than anticipated.
Recession
December vehicle sales.
https://www.advisorperspectives.com/dshort/updates/2024/01/05/vehicle-sales-as-of-december-2023
Consumers set new all-time high holiday
shopping record.
https://www.investopedia.com/consumers-set-new-online-holiday-shopping-record-8422285
Inside the December jobs report.
Government Shutdown
Deal?
Civil strife
Ballot cleansing.
Bottom line
Investors start
year with shift to cash.
https://www.reuters.com/markets/us/global-markets-flows-bofa-update-1-2024-01-05AV
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