12/23/24
I
am taking the next two weeks off. Have very happy holiday season. See you January 6th.
The Market
Technical
The S&P had a volatile week---a huge selloff,
accompanied by a resetting of the 50 DMA from support to resistance and then an
immediate reversal to close back above the 50 DMA. Generally, when a confirmed
break is quickly reversed that means that the original break was a false
flag---which I am going to assume is what occurred.
Longer term, I still believe that the downside has
been truncated. But short term, there is apt to be a lot of volatility given
the ‘unknowns’ related to what Trump actually will do once in office. Plus
there are a number of ‘knowns’ that aren’t going to help: (1) reduced government
spending = lower corporate profitability, (2) more government debt being financed
long term [bonds versus bills] = higher long rates, and (3) QT is about to
start having an impact [see below].
I am making my list and checking it twice, waiting
for a downtrend to give me a good price.
Powell and government shutdown hit stocks.
Santa Claus Rally Or Did The Fed Steal Christmas? -
RIA
Another lousy week in bond land. TLT was again down
big time and on multiple gap down opens---adding to the already multitudinous gap
up and down opens of the last three months. You can thank the hawkish narrative
from Powell for that. Or perhaps better said, you can thank the Fed’s reversal
of a too dovish (i.e., inflationary) prior stance. I doubt that this one move
will alter inflation’s course, so more downside is likely. Certainly, the
technicals are telling us so.
Gold, like equities, sold off hard, successfully
challenged its 50 DMA and then immediately reversed itself. That keeps the
developing head and shoulders pattern in play. But I have little conviction on
that call. I remain cautious pending follow through.
The dollar continued its relentless move higher,
likely a function of the hope held out by Trump’s more responsible fiscal
agenda and what appears to be a more hawkish Fed.
Friday in the charts.
Fundamental
Headlines
The Economy
Week
of review
Last week’s US economic stats were slightly
negative though the primary indicators were balanced (four plus, two neutral, four
minus)---once again a pretty neat fit for my ‘muddle through’ scenario.
It is late in the expansion cycle.
https://bonddad.blogspot.com/2024/12/personal-income-and-spending-continue.html
Ditto says this indicator.
https://mishtalk.com/economics/two-recession-indicators-what-do-they-say-now/
Overseas, the numbers were positive, confirming the
reversal of a developing trend of downward momentum. Let’s hope conditions
continue to improve.
The price data was neutral. While the international
stats were negative---more or less supporting my thesis that higher inflation
is in our future. I continue to believe that policy comments out of the future
Trump administration regarding tariffs and tax cuts only raise the odds that my
forecast (inflation in the rear view mirror) will come to fruition. To be sure,
the cost cutting proposals could be an offset but (1) Trump has the power to
impose tariffs unilaterally, and (2) it is a lot easier to get congress to cut
taxes than it is to cut spending---witness the inability last week of
instituting cuts in the budget extension legislation.
Bottom line: my outlook remains: (1) the economy
‘muddles through’ and (2) inflation has likely seen its lows. But the level of
economic uncertainty is higher than normal, at least in the short term, and all
economic forecasts (including my own) should be viewed accordingly.
US
International
Q3 UK GDP grew 0.0% versus forecasts of +0.1%; Q3
business investment was up 1.9% versus +1.2%.
Other
Monetary Policy
QT is about to bite.
https://www.zerohedge.com/markets/stocks-cant-catch-break-qt-finally-about-bite
Fisal Policy
The debt ceiling and
Trump’s desire to eliminate it.
More.
Winners
and losers from the government funding legislation.
Inflation
The PCE measure of shelter (a major component of
the index) decreased in November.
https://www.calculatedriskblog.com/2024/12/pce-measure-of-shelter-decreases-to-48.html
Investing
BofA urges caution.
https://www.zerohedge.com/markets/hartnett-contrarian-sell-signal-was-just-triggered
So does Morgan Stanley.
https://www.zerohedge.com/markets/mike-wilson-what-collapsing-market-breadth-telling-us
Downside risk to our portfolio in 2025.
https://www.apolloacademy.com/2022-coming-back-for-the-60-40-portfolio/
The latest from John Hussman.
https://www.advisorperspectives.com/commentaries/2024/12/19/wild-bells-ring
The stock market is more concentrated than
ever.
https://www.axios.com/2024/12/20/stock-market-apple-microsoft
News on Stocks in Our Portfolios
What I am reading today
Mainstream
media is now fringe, fringe is mainstream.
https://www.honest-broker.com/p/mainstream-is-now-fringe-and-fringe
The
real cause of healthcare dysfunction.
https://arnoldkling.substack.com/p/the-real-cause-of-health-care-dysfunction
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