Overpowering Powell

S&P 500 was subdued into Powell, and duly followed the recent pattern of shaking hawkish messaging off, and moving rate cuts expectations ever closer – now, there is only 36% odds of Fed funds rate remaining the same in Mar, with 55% odds assigned to 1 rate cut. Core PCE Thursday and weak data out of eurozone (France, Germany and Spain) lately together with BoJ insistence upon taking it slow with ending yield curve control and negative rates, are fostering the continued retreat in yields. Financial conditions are simply easing fastest (in many people‘s) living memory.

And given that the economy is still keeping its head above water and not going into recession (the rich annotation of the yields chart spells out why), the market interprets the retreat in yields as stocks positive, and – in line with my calls this week and prior – reacts with rotation into interest rate sensitive sectors and stocks that I had been bringing you as winners since early Nov.

Needless to say, the daily publications clients and intraday ones whether they took the brief spread idea or not, had been benefiting as much as those listening to my very bullish gold calls (silver is waking up slowly too, so enjoy that as well) for weeks, punctured here and there with brief (mostly daily) consolidation, but still pushing higher on rising volume – and copper has likewise turned the corner. Meanwhile, oil seasonality would start getting supportive when we get over the OPEC+ and recession scares (given the speed with which $1T is added to the national debt, i.e. some 90 days, the real economy can even make it into the elections before NBER declares one – it wouldn‘t be shocking to consider this possibility when restrictive Fed is this much overpowered by deficit spending, and steeply easing financial conditions show clearly which way to go in asset allocation as you can read further).

S&P 500 and Nasdaq outlook

Source: www.stockcharts.com

Santa Claus rested for the prior couple of days, faked a reversal to the downside – only to see it rejected, and on high volume at that. One of the reasons why I didn‘t call for a downside break Friday, but Powell‘s hawkish entry was respected till markets picked up on other aspects of his speech, and sided with more easing.

When you see smallcaps (with all their profit and cash flow challenges) do this well while the Magnificent 7 keep losing their bid, it must be interpreted as a healthy sign of the bull market that for all the tax optimization selling into year end, wouldn‘t face deeper challenges. Once 4,615 is overcome, the next stop is 4,635 – and new highs will be made spring 2024 as I stated in one of the latest (premium, meaning just yours) analyses. And NVDA would as well overcome $500 with ease, and it wouldn‘t take many months.

Sectors and stocks

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Credit markets

Source: www.stockcharts.com

Yields encouraged rotations out of prior leaders (XLK and XLC chiefly), and support is slowly approaching – and that would give way to relative stabilization since the sharp late Oct turn. Note how well HYG, JNK are doing – that‘s clear risk-on.