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A look at the market's internal:

• New York Stock Exchange volume hit 438 million shares, flat to its one-month average;
• Nasdaq volume hit 4.49 billion shares, 9% below its one-month average
• Volatility Index is + 6.21% to 14.02
• NYSE Highs: 19 Lows: 6
• Nasdaq Highs: 28 Lows: 4

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Wolf Street howls about a changing jobs market: "More Signs that Power in the Labor Market Has Shifted from Workers back to Employers"

I added to my (SPY) and (QQQ) calls on the rally off of the lows.

From Peter:

The Fed tried but... 

The noteworthy fact of the November 1st FOMC meeting was the Fed basically saying (with comments in speeches prior on this) that the market had tightened for them with the sharp rise in long rates and thus gave them license to pause. Well, with the notable easing of financial conditions since and into the December 13th meeting, stoked in part by the Fed itself, they said in the minutes from that meeting that "Many participants remarked that an easing in financial conditions beyond what is appropriate could make it more difficult for the Committee to reach its inflation goal." 

The minutes also said that while their "baseline projections implied that a lower target range for the federal funds rate would be appropriate by the end of 2024", the "participants also noted, however, that their outlooks were associated with an unusually elevated degree of uncertainty and that it was possible that the economy could evolve in a manner that would make further increases in the target range appropriate." Meant to keep us on our toes in terms of balancing the markets desire for a lot of rate cuts and the Fed's interest right now in just a few. 

Also, implicitly hammering home the message that while rates might get cut this year, the fed funds futures market is not in sync with their thinking, they said further "Several also observed that circumstances might warrant keeping the target range at its current value for longer than they currently anticipated." 'Several' ain't 'few.' 

And they "reaffirmed that it would be appropriate for policy to remain at a restrictive stance for some time until inflation was clearly moving down sustainably toward the Committee's objective." I bolded the word 'sustainably' because it is one I keep highlighting as most important to the Fed. 

Bottom line, it is a cheer that inflation is slowing but I'll say AGAIN that the question for inflation and rates at this point is not the cyclical downturn we're currently experiencing after the spike we saw, it is where it SUSTAINABLY settles out at. By reading these minutes, the Fed is not in a rush to respond with many rate cuts to the cyclical drop in inflation, that historically follows a spike, until it is much more confident it can be sustained. 

If the Fed meant to tighten the expectations between themselves and the market, it didn't do much as the December fed funds futures yield is up just 3.5 bps to 3.965%, still priced for about 6 rate cuts, albeit a touch less so.

Now large short (XLF) at $37.62.

I am short (XLF) at $37.53.

To me, the Fed's comments negate the bullish narrative that emerged surrounding the December pivot. 

Stated simply.

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P.S. - I am putting on some SPY and QQQ straddles now with the recent rise in the VIX. Small for now.

The December ISM manufacturing index rose to 47.4 from 46.7 and was a bit above the forecast of 47.1. It was October 2022 the last time it was 50 or above. New orders were down a touch to 47.1 and hasn't seen a 50+ print since August 2022. Backlogs bounced 6 pts but to a still weak 45.3. Inventories fell .5 pt to 44.3 with customer inventories back below 50. Employment stayed in contraction at 48.1 but up 2.3 pts m/o/m. Export orders rose 3.9 pts to a hair below 50 at 49.9. Imports were little changed at 46.4. Supplier deliveries too were little changed with supply chains much more normalized. Prices paid fell 4.7 pts to 45.2 after rising by 4.8 pts last month. 

While the headline print rose slightly, the breadth deteriorated further where just one industry saw growth and that was 'primary metals.' That compares with 3 in November while those seeing contraction totaled 16 vs 14 in the month before. The help to 'primary metals' was the end of the UAW strike as American auto companies started buying materials again. If you haven't seen steel prices, they've been jumping to the highest levels since last May for hot rolled. 

The bottom line according to ISM, "Demand remains soft" and "84% of manufacturing GDP contracted in December, up from 65% in November." I'll add and state again, there is a restocking cycle ahead at some point but that 'point' is not yet seen in the data. On inventories, ISM said "Overall, panelists' companies continue to manage manufacturing inventory levels down, as companies prepare for fiscal year closure." 

Looking at the anecdotal industry comments and there is some hope that maybe that 'point' will come soon. 

From a company in the Computer & Electrical Products industry: 

"Anticipation of the U.S. Federal Reserve holding off on interest-rate changes will encourage more companies to spend on capital investments again. As budgets get approval after the start of the calendar year, this should help drive investment and increase manufacturing activity once again." 

In the chemical space: 

"Overall, order intake has picked up over the last quarter and a backlog of projects is beginning to accumulate." 

Transportation equipment: 

"Demand is up across the board. We are starting to see back orders grow again." 

On the other hand, from a machinery company: 

"Business is slowing. Finished goods inventories are growing." 

While the big home builders are doing ok, the broad wood products business still sells to a lot of smaller ones too: 

"Higher financing costs have diminished demand for residential investment. Customers are delaying a portion of their plans until borrowing costs are reduced. We are impacted with reduced new orders, diminished backlog of orders and uncertain short-term demand for products and services." 

It's always important to marry the ISM report with what S&P Global said as the latter includes more small and medium sized businesses. Their read was 47.9 vs 49.4 in November and said "Output fell at the fastest rate for six months as the recent order book decline intensified...The slowdown is spreading to the labor market. Payroll were cut for a 3rd month running as increasing numbers of firms grew concerned about the development of excess operating capacity. The fourth quarter has consequently seen factories reduce employment at a pace not seen since 2009 barring only the early pandemic lockdown months." 

In contrast to ISM, S&P Global did say prices pressures picked up as "Hikes in supplier prices for metals and plastics, alongside greater transportation charges, reportedly drove the uptick in inflation." And, "Despite a sluggish sales environment, firms opted to pass through higher costs to customers in December. Selling prices rose at a solid pace that was the steepest since April." 

On the inventory situation, "Firms sought to run down stocks amid cost cutting initiatives, with both pre and post production inventories declining in December." 

Finally from S&P Global, "Given current order book trends, the overall picture from the survey is one of supply exceeding demand for many goods, which points to downside risks to production, employment and prices as we head into 2024." That said, "business optimism at manufacturers ticked higher in December. Hopes of a pick up in client demand and greater investment in advertising supported the strongest degree of confidence in three months." 

ISM Mfr'g

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ISM New Orders

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ISM Inventories

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While somewhat dated, job openings in November totaled 8.79mm, about as expected but that is the least since March 2021 and is another signal that the demand for labor has slowed. The hiring rate fell to 3.5% from 3.7% which is nearing the low seen during the shutdowns and compares with 3.9% in February 2020. 

Of note too, the quits rate fell to 2.2% which is the lowest since September 2020 and is below the 2.3% level it saw in February 2020. 

Also to point out, the need for leisure and hospitality workers seems to have been mostly satiated as the demand here is at the lowest since March 2021. Job openings in manufacturing, not surprisingly after reading above, fell but rose for construction. The demand for healthcare and social assistance remained consistently strong. 

Job Openings

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Hiring Rate

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Quit Rate

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Recent purchase Johnson & Johnson (JNJ) is now on its eighth consecutive day of advances - the longest streak since July 2020!

The Wall Street bulls are beginning to worry that a rebellious elf has pushed Santa out of the sleigh. This is the final day of the so-called Santa Claus rally and the last couple of days it has swung into negative territory. This is not a very good sign for the seasonal success marker.

My friend, Jeff Hirsch, editor of the invaluable Stock Trader's Almanac reminds that when the Santa Claus rally fails, it puts in jeopardy or at least puts on the alert signal from a variety of other early seasonal indicators, making it a bit of an uphill fight for the bulls.

The process so far has not been at all helpful to the bulls and the lingering weakness in Apple continues to provide a slight negative tone to the market overall. So, unless the bulls can get the Cavalry out and promote a rescue rally for the afternoon, the old rule of thumb will be getting talked about and that is - if Santa comes to Broad and Wall, the bears may return to make the call.

The yields are not providing much influence either way and does seem to look like the markets moving pretty much on its own internals.

Let's if the newsticker can provide some help because the algorithms are not finding much hope in the internals. If nothing else, a negative close today may, at the very least, slowdown the insertion of funds for the New Year as money managers start to look for sectors that are showing any real promise.

Remain alert. Certainly, remain wary, but please stay safe.

Arthur

At 10:40 am:

* Weak... 

- NYSE volume 152M shares, 3% below its one-month average

- Nasdaq volume 1.72B shares, 4% below its one-month average

- VIX: up 7.35% to 14.17

- NYSE Highs:8, Lows:4

- Nasdaq Highs:15, Lows:33 

Breadth

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Biggest Movers

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Heat Map

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ETFs

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* This accounts, in part, for the reversal (higher) in crude oil:

Randy

U.S. Energy Dept Announces Solicitation For Up To 3M Barrels Of Crude Oil For April 2024 Delivery

Wishin' and hopin' and thinkin' and prayin'
Plannin' and dreamin' each night of his charms
That won't get you into his arms
So if you're lookin' to find love you can share
All you gotta do is hold him, and kiss him and love him
And show him that you care

- Dusty Springfield, Just Wishin' and Hopin' 

I am seeing a large buyer in OXY. 

Just wishin' and hopin'. 

As noted earlier, I have been an aggressive buyer this morning.

As noted in Why I Remain Bearish, the optimistic consensus of nearly every talking head in the business media is preaching a broadening out - led by the Russell Index. 

The Russell is not cooperating, nor is it crowing (-$3.63).

I have been highlighting private equity ( (KKR) , (BX) and (APO) ) as short candidates in the last week. 

This morning Goldman Sachs downgraded (BX) to neutral. 

The shares were recently -$6.

From Peter:

The thing with the Fed minutes is sometimes they are 'laundered' in the sense that any post FOMC meeting cleanse/messaging the Fed wants to send, they have used the minutes release as a way to do so. I bring this up because we have a clear divergence in what the fed funds futures are pricing in with the number of rate cuts and what both the dots and the comments have been from Fed members, especially the new voting ones, 6 vs 3.

If the Fed intends to highlight the difference again, today would be the way. For example, 'most/several participants only see a few rate cuts in 2024.' Now of course this is only as they feel today, both what's been priced in to the bond market and how Fed members predict where the fed funds will end up at year end and of course anything can change.

While Fed members are surely comforted by the slowdown in the pace of inflation, I don't believe they want to rest on any laurels. Just yesterday I saw this headline from the Journal of Commerce, "Asia-Europe ocean rates hit 14 month high after Red Sea attack on Maersk ship." From Reuters, "French shipping group CMA CGM will increase its container shipping rates from Asia to the Mediterranean region by up to 100% as of Jan 15 compared to Jan 1, it said in a notice posted on its website on Tuesday." The price will be $6,000 for a 40 ft long container vs $3,000. We know goods prices have round tripped to the pre Covid pace on a rate of change basis, back to zero. I don't think it stays there.

It's a stat that has been known for a while, the one I mentioned yesterday according to Trepp that about $500b of commercial real estate debt comes due in 2024 (another $500b in 2025 by the way). Here's another from Trepp, "Approximately 26% of CMBS loans maturing within the next three months have an interest rate less than 5%." Assume that the new rate on offer is around 8-10% and if you can't get that, the private credit world will give you a bridge loan for something between 10-15%. Bottom line, the 'long and variable lags' of higher interest rates still has a lot of time and impact to play out.

Ahead of the jobs data for December this week and an updated read on jobless claims, in case you didn't see this article today in the WSJ, "Finding a New Job is Getting Harder" citing data from Indeed which squares with the moderation in hiring we've seen this year and certainly what we've heard for the last few quarters from ZipRecruiter.

The first sentence of the article, "Employers finished 2023 with far fewer open positions than at the start of the year, according to private sector estimates, as businesses filled more jobs and decided not to hire for others. Total job postings as of the end of 2023 declined more than 15% from a year earlier, according to data from job-listing site Indeed through Dec. 29." A quote from an economist there said "The pace of descent seems to have leveled off a bit in the 2nd half of the year."

Germany reported its December labor data and they saw an increase of 5k in the number of unemployed but that was much less than the estimate of up 20k. Their unemployment rate of 5.9% is now at the highest level since May 2021. The head of the labor agency in Germany said "If we look back at 2023, we can see that the weak economy has left its mark on the labor market - however, considering the extent of the stress and uncertainty, the labor market is still holding up well."

After the bond sell off over the past 4 trading days, the 10 yr bund yield is little changed today but are mostly higher in the region, following a rise in Asia and why the US 10 yr yield is nearing 4.0% again. I do expect another retest of 5.0% this year.

German Unemployment Rate

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India has been an economic standout, a market we've been long and positive on for years now, and their manufacturing sector continues to benefit from a diversification of supply chains from China. They reported its December manufacturing PMI today and it slipped to 54.9 from 56, though still well above 50, unlike many other regions in the world. S&P Global said "India's manufacturing sector continued to expand in December, although at a softer pace, following an uptick in the previous month. Growth of both output and new orders softened, but on the other hand, the future output index rose since November. Rates of increase in input and output prices were broadly unchanged."

Mortgage applications are never worth looking at around the holidays as while they seasonal adjust, they never do a good job of it. For the week ended 12/29, purchases were down 7.6% and refi's fell 18% but wait until next week for a better read after the recent lift in response to lower mortgage rates, though that are still very high.

From Arthur Cashin: 

The Wall Street bulls were worried in the initial session of the New Year that perhaps Pancho Villa had, in fact, come to town as the chest pounding rallies that they had seen since the October lows, a rally of near historic proportions on certain levels, was suddenly snapped in the head by a coconut, particularly the high cap tech stocks. We had some people downgrade Apple and that, of course, is the world's most valuable stock.

A downgrade took the wind out of a variety of sectors, led in large part by those high cap tech stocks, but the Wall Street bulls did manage to slide by slightly by getting a mild uptick in the Dow after it had zigzagged back and forth time and time again across the zero line. Clearly, the S&P and the Nasdaq finished the day with a pronounced limp, but as we noted after quoting Jeff Hirsch and the observations he and Yale have on the Santa Claus rally and the first couple of days trading in January, we have a few sessions to go before we can declare victory one way or another.

Trader chatter after the close had a wild flurry of theories about motivations for Tuesday's action. Some cited the action in Bitcoin and the sharp overnight zigzag in some of the short-term bond yields as a possible indication that there was a portfolio "accident" of some size and yet no one could point a finger in what sector that accident may have occurred. Some of the wider ranging traders cited the evolving heliocentric positioning and the tidal influence on the sun and claiming that could be the cause of some of the psychological changes around the markets and a few even cited what they claim was increased earthquake activity from that giant quake in Japan to a tiny rumble in the borough of Queens, NY.

We are not quite ready to apply the Richter Scale to the Dow Jones yet, but I have learned in 60+ years in this business, you do not dismiss any influence out of hand. So, we will see, as we move toward the opening, if the Yanqi's are there with the movie cameras and, I guess, we will be a little bit forewarned, but as is usual at this time, we should take a look and see what our cousins offshore did.

Overnight, global equity markets are leaning a little bit lower as interest rate futures are ticking mildly higher, lowering the likelihood of rate cuts starting in March. The fact that yields are inching higher seems to discount the concern of some traders that there may have been a financial "accident" yesterday. Clearly, there is virtually no sign of a flight to safety this morning.

In Asia, Japan closed down the equivalent of 80 Dow points. Hong Kong was off the equivalent of 300 Dow points. Mainland China was the odd man out, showing a fractional higher close. India closed down the equivalent of about 200 Dow points. As we go to press, London is trading about 170 Dow points lower. Paris is down about 300 Dow points and Frankfurt is off about 270 Dow points. Today's calendar will have a couple of features that the bond boys will be watching. It is Wednesday, so we will get Auto sales and Mortgage data well before the opening.

We will hear from the Richmond Fed's Barkin later this morning. In midmorning, we will see the ISM Manufacturing data, and, at the same time, we will be getting the closely watched JOLTS data and then at 2:00 p.m., we will get to see the Fed Minutes. They are normally laundered, but with the Dot Plots discounting rate cuts, traders will parse every word to see if they can get a sense of what the conversations at the table may have been. Action in the Red Sea is heating up again. So, we will have to go with the current drill.

Stay very close to the newsticker. Keep your seatbelt fastened. Stay nimble and alert and most of all in these rather anxious times, stay safe personally and let's see if the bulls can regroup as we move for a kind of consolidation day.

Adding to my already large (OXY) holding, despite a brokerage's downgrade.

* On some of my positions...

Goldman Sachs price target raised to $410 from $380 at Citi Citi raised the firm's price target on Goldman Sachs to $410 from $380 and keeps a Neutral rating on the shares. The target increase reflects an increasing probability that Citi's initial estimates on risk-weighted assets inflation from the Basel III endgame will prove conservative should revisions to the proposal materialize, the analyst tells investors in a research note.

Occidental Petroleum downgraded to Neutral from Buy at Mizuho Mizuho downgraded Occidental Petroleum to Neutral from Buy with a $63 price target.

Starbucks price target lowered to $116 from $123 at Barclays Barclays analyst Jeffrey Bernstein lowered the firm's price target on Starbucks to $116 from $123 and keeps an Overweight rating on the shares. The analyst expects discretionary with the restaurant sector, namely casual dining and specialty, to continue to outperform in 2024. Sales are proving resilient and inflation is easing faster than menu pricing, the analyst tells investors in a research note. As we move through 2024, should persistent consumer headwinds lead to ultimate trade-down, defensive names will outperform, contends the firm. Barclays also believes foodservice distributors are well positioned in either scenario.

Wells Fargo cautious on Alphabet, sees upside to Meta's 2024/2025 EPS Wells Fargo says Snap (SNAP) and Pinterest (PINS) had moved to the top of the firm's Overweight list with company-specific drivers for revenue acceleration in 2024. Wells still sees upside to Meta Platforms (META) 2024/2025 EPS but watches revenues decelerate in 2024, especially in the second half of the year. Additionally, the firm expects rising competitive/regulatory risks for Alphabet (GOOGL).

Nike price target lowered to $120 from $127 at RBC Capital RBC Capital lowered the firm's price target on Nike to $120 from $127 but keeps an Outperform rating on the shares. Competition is heating up, but Nike remains strong in life cycle management and innovation/newness, the analyst tells investors in a research note, stating that the firm believes that the company can deliver a similarly successful transition to 2017. The setup is also "more attractive" heading into FY25, and gross margin recovery thesis remains intact for Nike, RBC adds.

Medical Properties Trust price target lowered to $7 from $9 at Mizuho Mizuho lowered the firm's price target on Medical Properties Trust to $7 from $9 and keeps a Neutral rating on the shares. Despite valuations screening somewhat expensive, healthcare real estate investment trusts have several positive drivers heading into 2024, including, fundamental strength - specifically pricing power, inflection in sentiment towards certain segments, growing external growth opportunities, and a supportive macro environment, the analyst tells investors in a research note. Skilled nursing is the firm's preferred sub-sector followed closely by senior housing. Omega Healthcare Investors (OHI) and Welltower (WELL) remain Mizuho's top picks, and it added Ventas (VTR) as a top pick as well.

Upside

- (TPHS) +110% (mortgage lender agrees to extend mortgage loan forbearance period to Jan 31st)
- (ABVC) +73% (to receive aggregate in ~$460M in 46M shares from AiBtl BioPharma Inc., as its first milestone payment under a global licensing agreement)
- (SASI) +65% (NextTrip CEO Bill Kerby appointed as CEO of Sigma Additive Solutions)
- (DYN) +41% (positive initial clinical data from ACHIEVE trial in DM1 patients and DELIVER trial in DMD patients)
- (TDCX) +31% (receives prelim non-binding proposal to acquire remaining shares at $6.60 per ADS from founder)
- (SIDU) +17% (secures NOAA approval to provide imaging services to government and commercial customers)
- (AGIO) +9.5% (Phase 3 ENERGIZE study of Mitapivat met primary endpoint and both key secondary endpoints in adults with non-transfusion-dependent alpha- or beta-thalassemia)
- (SLS) +8.9% (provides corporate updates and highlights key upcoming milestones)
- (ICCM) +8.6% (new study reports IceCure's ProSense boosts immune response against cancer)
- (PRFX) +7.8% (reports successful head-to-head comparison of PRF-110 versus market leading post-surgical analgesia for extended postoperative pain relief)
- (PSTG) +6.3% (to join S&P MidCap 400 Index)
- (ARQT) +5.8% (Mizuho Securities Raised ARQT to Buy from Neutral, price target: $8)
- (LBPH) +5.6% (files to sell $150M public offering of common stock)
- (CLRB) +4.9% (to announce top-line data from WM pivotal trial on Jan 8th)
- (TALO) +4.7% (starts oil and gas production at Lime Rock and Venice Gulf of Mexico discoveries)
- (PGTI) +4.2% (Deutsche Bank Cuts PGTI to Hold from Buy, price target: $41.50)
- (GIPR) +3.3% (disclosed entered into an Agreement of Purchase and sale with Modiv)
- (AFMD) +3.1% (sells unit AbCheck to Ampersand Biomedicines for $6M cash-stock)
- (BLMN) +2.6% (enters cooperation agreement with Starboard, adding Jon Sagal to Board)
-IVVD +2.5% (submits request for Emergency Use Authorization (EUA) to U.S. FDA for VYD222 for the pre-exposure prevention of COVID-19 in immunocompromised adults and adolescents)
- (SENS) +2.2% (reports prelim Q4 revenue)

Downside

- (ESPR) -18% (announces $125M amendment to collaboration agreement with Daiichi Sankyo Europe)
- (SCYX) -8.6% (discloses binding Memorandum of Understanding for amendment to License Agreement with GSK)
- (MARA) -8.5% (BTC weakness ahead of potential spot Bitcoin ETF approval by federal regulators)
- (RIOT) -8.0% (BTC weakness ahead of potential spot Bitcoin ETF approval by federal regulators)
- (SOFI) -7.1% (Keefe Bruyette Cuts SOFI to Underperform from Market Perform, price target: $6.50)
- (PCT) -6.7% (Craig-Hallum Cuts PCT to Hold from Buy, price target: $4)
- (BCDA) -6.4% (CEO releases shareholder letter outlining development update)
- (MSTR) -5.9% (BTC weakness ahead of potential spot Bitcoin ETF approval by federal regulators)
- (RKT) -4.3% (Wells Fargo Cuts RKT to Equal Weight from Overweight, price target: $14)
- (SRPT) -4.1% (weakness off strong DYN DMD trial data)
- (AMBA) -4.0% (Wells Fargo Cuts AMBA to Equal Weight from Overweight, price target: $65)
- (RYAAY) -3.7% (reports Dec load factor)
- (S) -3.7% (acquires cloud native application protection platform PingSafe in cash-stock deal; terms not disclosed)
- (XPOF) -2.7% (Piper/Sandler Cuts XPOF to Neutral from Overweight, price target: $13)
- (MRCY) -2.2% (Jefferies Cuts MRCY to Underperform from Hold, price target: $30)
- (BX) -2.1% (Goldman Sachs Cuts BX to Neutral from Buy, price target: $128) 

At 8:56 am:

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* This is a new addition to my premarket notes - I think it has value

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There is now a near universal view - after a quantum rise in the markets (especially of a Nasdaq-kind) - that the markets are headed higher over the near term and for the full 2024 year.

However, it is important to observe how wrong the confident consensus has been in each of the last two years:

* At the end of 2021, the herd was optimistic. 2022 was a disaster in both the fixed income and equity markets.

* With such a bad experience in 2022, the consensus ended the year wildly confident but this time bearish - especially on mega tech. And that could not have been further off market as not only did the market rip higher but tech materially led the way.

* Today the consensus, following the momentum built up in the last three months, is exceedingly bullish - nary a bear can be found. This is consistent with Divine Ms M's wonderful quote that "price has way of changing sentiment."

Count me today, as I was at the beginning of 2023 - when I was more upbeat than most - to be outside the consensus, again. This time I am downbeat when almost every one else is upbeat.

I see a vast array of unexpected political, geopolitical, economic and market surprises could be on tap for new year...

Let's start with the most disturbing factor, the equity risk premium...

1. Equity Risk Premium: Despite the enormity of the drop in yields, the equity risk premium is still paper thin - and, historically this is a reasonable predictor of weak markets. The move higher in stocks in 2023 was mostly a valuation reset - and the specific move in the last two months has entirely been a reset of multiples as the 4Q2023 S&P EPS projections are down -4% from the beginning of the fourth quarter and 2024 S &P EPS forecasts are down by -1% in the same timeframe.

There is to me, a single-minded preoccupation with lower yields and disinflation. To me yields are still high relative to the (stagnating) S&P earnings yield and relative to the lowly S&P dividend yield (at only 1.45%). The S&P dividend yield compares unfavorably to the one year Treasury bill yielding 4.80% and a three month Treasury note yielding 5.40% - the gap between the S&P dividend yield and Treasuries is at a multi decade wide. 

In other words, a reasonable risk free, non volatile and equity-like return can be gathered in fixed income today. 

2. Geopolitical: As I have cautioned the world is no safer than it was three months ago, six months ago or one year ago. Arguably it is less safe. The Black Swans of Geopolitics are being largely ignored despite the danger being equal in my view to just before both World Wars. Indeed the similarities to 1914 and 1938 are very scary.

3. Political: Politically we are also in worse shape with an aging President leading the Democratic Party and a multiple times indicted ex President (likely to represent the Republican Party) contributing to a toxic Washington that has never been more partisan and unequipped or unlikely to compromise in important legislative matters.

4. Deficit/Debt: On that score the burgeoning U.S. and a $300 trillion global debt crisis are being ignored. Our nation's annual deficit and the accumulated debt load will suppress economic growth:

With global debt growth accelerating at an alarming rates, markets are rallying on expectations of lower interest rates, lower inflation, and strong economic growth, a jigsaw puzzle whose pieces fundamentally don't fit together. Lower inflation and lower interest rates point to slowing economic growth and lower corporate profits which are inconsistent with forecasts for new stock market highs. But a foolish consistency is the hobgoblin of little minds in the ZIRP/QE era, and having crossed the Rubicon into that era, we can never cross back.

The world's debt load represents an existential threat to the global economy. That debt can never be repaid in constant dollars - it can only be addressed by defaults, inflation, and currency devaluation. The day of reckoning for this intensifying crisis is moving closer due to the exponential nature of debt. Investors who ignore this looming threat will suffer terrible consequences in the future; those who factor it into their investment decisions will better protect themselves and even prosper. But make no mistake about it - there is no way to avoid the debt crisis. Ignoring it is not an option and is the equivalent of financial suicide for anyone who sticks his or her head in the sand.

5. Economic And Corporate Profit Growth Expectations Are Inflated And Inflation Will Remain Sticky: As it relates to a consumer-driven domestic economy, the stacked or cumulative rise of well over 20% in prices since 2020 will likely weigh on both economic and corporate profit growth over the next several years. I am less concerned about a recession this year than an extended period of market unfriendly slugflation (sluggish economic growth and sticky inflation).

6. Market Structure: The action in the last three months is proof positive that markets no longer move based on fundamental economic logic. Instead, they are driven by liquidity, flows, momentum and an extremely short-term oriented psychology which is reflected in the popularity of ODTE (zero days to expiration options) that today account for more than 60% of total options trading activity daily. Macro rules markets but not in the sense of traditional macroeconomics but the new macro-structure of markets.

* I was on Bloomberg Radio yesterday morning Bloomberg Surveillance: 10 Surprises of 2024 - Bloomberg

* Investor sentiment grows more stretched to the optimistic side, in the surveys and elsewhere -- the S&P Short-Range Oscillator remains overbought (at 4.27% v. 3.55%) as favorable economic and market outcomes remain the consensus view.

* This morning, much like yesterday, yields and crude oil prices are higher - while gold and bitcoin (-$2,500) are getting schmeissed (-$20).

* Stock futures are lower

* The U.S. dollar is bouncing:

* The most important chart? (A beauty from The Divine Ms M):

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It's a long way coming down
The ladders in your eye
For a wednesday in your garden
I think that I would die

- The Guess Who, A Wednesday in Your Garden

"The stock market will do whatever it has to do to embarrass the greatest people to the greatest extent possible."

- Wally Deemer

"Workin' on our night moves Trying to lose the awkward teenage blues Workin' on our night moves In the summertime And oh the wonder Felt the lightning And we waited on the thunder Waited on the thunder."

- Bob Seger, "Night Moves"

This daily Futures feature is like inside baseball. I try to show you and write about what I believe thoughtful hedge fund managers are looking at when they awake -- let's call it our normal routine -- setting the stage for their strategy for the day. The market is a complicated mosaic and the more info you have, the better trader and investor you will be!

The market (and money) never sleeps -- and neither do I, it appears! I have previously described the importance that overnight futures trading hold for me here. It is a guidepost to my strategy in the regular trading session. Moreover, the overnight/early morning futures hold opportunities as they are (1) inefficient, though liquid and (2) it seems fear and greed are often exaggerated outside the regular trading session. I frequently try to capture those efficiencies by trading actively both in the pre- and after-market sessions.

Here are brief observations I wanted to highlight and provide a summary of overnight price movements in various asset classes:

* Stock futures followed through to the downside in the overnight session. S&P futures peaked at +3 and bottomed at -18. Nasdaq futures peaked at +15 and bottomed at -90. At 7:19 a.m. ET, S&P futures were -17 and Nasdaq futures were -83.

and...

* Commodities are lower. Brent crude is up $0.15 to $76.04.

and...

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* The S&P Short-Range Oscillator remains largely overbought at 4.27% v. 3.55%.

* The VIX is up again to 13.80 (+0.60).

* The U.S. dollar is much stronger against the yen, sterling and euro - for the second day in a row.

* Treasury yields are higher overnight; as I've mentioned, we may be at the point that lower rates will hurt equities. The 2-Year Treasury yield is +2 basis points at 4.351% and the 10-Year is +4 basis points at 3.978%.

Remember what I wrote in my 10 Surprises for 2024:

The yield on the 10-year Treasury, which today is at 3.9%, never declines below 3.75% and fluctuates between 3.75% and 4.75% most of the year. A developing US recession, late in the year, sends the budget deficit as a percentage of GDP to 10% or more -- overwhelming Treasury supply and sending the 10-year yield back above 5%.

The U.S. federal debt problem is no longer shrugged off by investors -- it looms larger in late 2024 and slowly becomes a serious systemic problem in the years ahead.

Over there, the yield on the 10-Year U.K. Gilt bond is up +1 basis point. 

* Overnight, the inversion of the 2s/10s Treasuries curve is up to -38. Real rates remain quite elevated; the 10-year is still about 1.5 (again in real terms).

* Gold is up getting schmeissed, -$19.70 at $2,053 after the recent spate of volatility.

* Bitcoin is -$2.500 and at $42.2k.

Here is a synopsis of some of my columns I believe were important, or in the event you were out for the day and/or did not read my Diary. The principal intent is to review the logic of my market moves and other factors:

Oil Vey! My Contrarian Pick for 2024 (Energy Stocks) 

My Bloomberg Interview

Down Go Private Equity Stocks

I Am Often Wrong and Always In Doubt

What I Got Wrong Over the Last Two Months

Clear as Day On Apple

Here were Tuesday's trades (slow trading day!):

* I sold my Index puts for a quick profit.

From Charlie:

This table is a valuable resource for momentum-based short term traders:

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From JPMorgan: 

US: Futs are weaker as today is the first of several important macro data days; today the focus will be on ISM-MFG and Fed Minutes. Global mkts have experienced a sell-off/profit taking. Interestingly, yesterday's US session saw a >$5bn MOC to buy, tilted towards Fins and TMT. It does feel like there are buyers below current levels as the SPX struggles to breach 4,800. Pre-mkt, MegaCap Tech names are lower; may see follow-on selling post-AAPL's downgrade. Bond yields are higher, as we are seeing bonds come for sale alongside stocks, globally. 10Y yield back near 4% and a move above likely adds more vol to Equity mkts; USD stronger to begin the year. Cmdtys remain mixed, but lower overall 

and... 

EQUITY AND MACRO NARRATIVE: A risk-off tone to kick off the year, albeit on lower volumes with many folks still on holiday. We saw Value and Defensives post more than +2.5z moves with many Tech sub-sectors seeing falling by at least 1z and some down at least 2.5z. Overall, the trading activity was one of buying 2023's laggards and selling 2023's winners. Chinese ADRs came for sale following weaker than expected PMI data, which also dragged all of EM lower as the USD surged. The DXY index had its best single day performance since March 2023. 

The balance of this note contains some US Mkt Intel views, macro data forecasts from Feroli, Trading Desk commentary, and trade ideas from our Rates Trading Desk; followed by the usual assortment of data and news articles. Happy New Year! 

• SPX HISTORICAL STATS- The SPX finished 2023 +24% (Dec 27) led by Tech with all other sectors underperforming and Defensives (HC, Staples, and Utils) in negative territory. Dating to 1950, there is a greater probability that the SPX returns 20% than it is to lose at least 5% (20x vs. 16x). After the SPX returns at least 20% (20x), the SPX is positive the following year 80% of the time; the SPX adds at least +5% return 70% of the time, adds at least +10% return 55% of the time, and adds at least +15% return 40% of the time.

o What does this mean for January? Looking at the last 25 years, the SPX has been positive 12 times with an average up-return of 3.86% and an average down-return of -3.74%; the overall average return is -29bps over this time period.

o Lastly, in Presidential Election years dating to 1960, the SPX has finished positively 13 of 16 times. The average up-return is 12.9%, the average down-return is -17.2%, and the overall average is 7.3%. Also, in those 13 up years, the SPX has produced at least +10% return in 8 of those years, or 61.5% of the time. Not, in the three down-year observations, the outcomes were -38.5% (2008), -10.1% (2000), and -3.0% (1960); so, one could argue that two of three were outliers.

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Source: Bloomberg; JPM US Market Intelligence

o WHAT COULD LEAD TO OUTPERFORMANCE? Above trend GDP growth, continued positive EPS growth, rate cuts delivered while economic growth remains robust, lower real yields

o WHAT COULD LEAD TO UNDERPERFORMANCE? Spike in inflation (with consumer-led being more problematic than cmdty/oil-led), Fed fails to make rate cuts, surge in Treasury yields and/or USD, geopolitical actions that increase US military activity.

"For some reason, because of the way investor psychology works, people switch from only seeing the good to seeing only the bad."
- Howard Marks

Bonus: Top Links

* The VIX and S&P Move Together

* What Will It Take To Get Bearish?

* Last Year's Biggest Winners in the Russell

* Ten Charts To Watch This Year

* From The Divine Ms M...

Wolf Street howls about the national debt - as I have recently.