* At the close...

Thanks for reading today.

Enjoy the evening.

Be safe.

Here are today's internals:

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Adding to (COF) ($133.33) and (AXP) ($188.81) shorts.

As I mentioned in my "Futures" column, the S&P Short Range Oscillator had steadily declined from a large overbought (8.2%) in the last week of December to much less overbought (2.72%) at Friday's close. 

It will be interesting to see what tonight's reading is.

Look at this video within the first 15 seconds as Steve Jobs talks about deciding Not to do a lot of things and saying "No". 

Wouldn't Steve have said "No" to the glasses ?

And here is the opening to the email I received from Apple:

The countdown is on.

Apple Vision Pro introduces the era of spatial computing, where digital content blends seamlessly with your physical space. So you can do the things you love in ways never before possible.

I am out of my (XLF) short with a very small gain.

I plan to reshort on strength.

Buys today: (XOM) , (OXY) and (CVX) .

At 10:30 am:

- NYSE volume 135M shares, 12% below its one-month average 

- Nasdaq volume 1.69B shares, 3% below its one-month average

- VIX + 1.27% to 13.52

Breadth

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Biggest Movers

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Heat Map

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S&P Sectors

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Occidental Petroleum price target raised to $80 from $78 at Truist Truist raised the firm's price target on Occidental Petroleum to $80 from $78 and keeps a Buy rating on the shares as part of a broader sector research note on E&P names. The new and existing well productivity will continue to drive supply/demand dynamics and ultimately commodity prices, the analyst tells investors in a research note. While the firm sees "moderate" commodity prices at $78 in WTI and $2.94 in Henry Hub Natural Gas for most of this year, dominated by incremental supply from solid repeatable activity plans and November election concerns, late 2024/2025 pricing should improve as demand begins to pull away from overall supply and as plans become less repeatable, impacting well productivity, Truist added.

Jeffries: Upgrade to Buy. CVX lagged US peers in '23, but we see it as well positioned to reverse that performance in 2024. Underperformance was driven by US production miss, HES surprise & dilution, and TCO cost overruns driving uncertainty and a higher cost of capital. With improved execution, better visibility, and confidence in numbers, we see potential for CFPS growth to translate into positive revisions and improved valuation. PT$184.

Conclusion: CVX lagged the majority of its peers in '23 due to increased uncertainty around production visibility (Permian, Tengiz), depth of inventory, and capital overruns. Going forward, we are increasingly comfortable with US production targets, timing / costs at Tengiz, and lack of impact from Guyana-VZL / EMED disruptions. While the FTC is executing its full review of the HES acquisition, we expect it to close by mid-24. With better visibility and execution, we expect CVX's valuation to improve (absolute and relative).

Upside

- (HARP) +110% (confirms to be acquired by Merck at $23.00/shr in cash in $680M deal)
- (AMAM) +99% (to be acquired by Johnson & Johnson at $28.00/shr in ~$2.0B deal)
- (AXNX) +21% (to be acquired by Boston Scientific at $71/shr in cash in $3.4B deal; reports prelim Q4)
- (LFMD) +17% (initial FY24 guidance)
- (INSP) +13% (reports prelim Q4)
- (AEO) +11% (notes the momentum continued into early Jan; raises select Q4 metrics)
- (LGND) +10% (US FDA approves ZELSUVMI for treatment of Molluscum Contagiosum)
- (BFLY) +9.9% (receives FDA clearance of next-generation handheld ultrasound system, Butterfly iQ3)
- (RXST) +8.4% (Q4 guidance)
- (CROX) +7.8% (earnings, guidance)
- (ARDX) +7.1% (guidance)
- (ALHC) +4.4% (affirms FY24 guidance)
- (UPWK) +3.9% (Jefferies Raised UPWK to Buy from Hold, price target: $20)
- (CORT) +3.8% (earnings, guidance; announces $200M share repurchase program)
- (SMR) +3.8% (confirms certain strategic actions to better position itself commercially, financially, and strategically including cutting 28% of full-time staff)
- (BCRX) +3.6% (reports prelim Q4)
- (HELE) +3.5% (earnings, guidance)
- (ATRC) +2.9% (earnings, guidance)
- (BOOT) +2.6% (earnings, guidance)
- (EWCZ) +2.3% (earnings, guidance)

Downside

- (DTC) -36% (cuts guidance, names new CEO)
- (DADA) -26% (discloses certain suspicious practices were identified that may cast doubt on certain revenues from the Company's online advertising and marketing services in 2023; Says Q4 and FY23 guidance should no longer be relied upon until further notice)
- (LMDX) -19% (securities will be suspended from trading on Nasdaq)
- (GCO) -16% (reports Q4 SSS, guidance)
- (SPR) -15% (reportedly Spirit AeroSystems manufactured and installed the plug door that was involved in a midair blowout on an Alaska Air 737-9 flight on Friday)
- (ZIM) -15% (reportedly first shipping carriers are entering agreement with Houthis to avoid attacks)
- (BA) -6.4% (weakness following 737 'blowout' incident on ALK flight)
- (TLYS) -6.4% (guidance)
- (PACB) -5.3% (reports Q4 revenue)
- (PLNT) -5.0% (earnings)
- (ALK) -4.2% (midair window blowout on flight from Portland, OR on company's Boeing 737-9 aircraft)
- (REGN) -4.2% (reports Q4 net product sales; announces agreement with Medison Pharma to commercialize Libtayo (cemiplimab) in multiple countries)
- (ADTX) -3.7% (subsidiary Pearsanta, Inc. acquires MDNA Life Sciences Inc.'s Proprietary Mitomic Testing Platform Pioneering Early Disease and Cancer Detection in transaction valued at ~$25M)
- (EXEL) -3.6% (earnings, guidance; to cut workforce)
- (FIVE) -3.4% (earnings, guidance)
- (ZI) -3.1% (RBC Cuts ZI to Underperform from Sector Perform, price target: $14)
- (EXAS) -3.0% (earnings, guidance)
- (TWST) -2.9% (Q4 guidance)
- (LDI) -2.5% (recently identified a cybersecurity incident affecting certain of the Company's systems)

At 9:05 am:

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From Peter:

Let's start with this and get it out of the way:

Larry David

Dallas Fed president Lorie Logan didn't just expand on the Fed minutes commentary that it's time to start discussing the cadence of QT from here as the reverse repo facility further winds down but she also, possibly inadvertently and maybe just implicitly, highlighted without saying it how difficult it will be to end QT because she also said:

"If we don't maintain sufficiently tight financial conditions, there is a risk that inflation will pick back up and reverse the progress we've made. In light of the easing in financial conditions in recent months, we shouldn't take the possibility of another rate increase off the table just yet...Over the past few months, long term yields have given back most of the tightening that we saw over the summer. We can't count on sustaining price stability if we don't maintain sufficiently restrictive financial conditions."

I will quote here what Ben Bernanke penned in an editorial in the Washington Post back on November 5th, 2010 in rationalizing the use of another round of QE after the use the first time:

"This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long term interest rates fell when investors began to anticipate this additional action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion." 

In other words, Bernanke said let's print all this money via QE, ease financial conditions, goose asset prices, narrow credit spreads and the economic will in turn grow. Rather than having the economy recover and grow on its own, that would in turn lift asset prices. Now Lorie Logan is not saying she wants to shift from QT to QE of course but just ending QT could be seen by markets as a step towards an eventual QE, especially with all the US Treasuries that need to be sold in coming years.

And here is the trap, how does the Fed extricate themselves from all of this without stoking inflation again, triggered in part by a notable easing in financial conditions. It's a much trickier juggling act this time around. Maybe Logan's answer, as she said, for countering the further loosening potential of ending QT will be higher for longer short rates and this is another push back to the market expectations of 6 cuts this year.

I will again reiterate my bullishness on short term Treasuries and bearishness on the long end (after trading the rally when the 10 yr yield touched 5%). Let's compare the current 10 yr yield of 4.04-.05% vs the last time it touched this level back on March 2nd 2023. On March 2nd, the 10 yr inflation breakeven was 2.49% vs 2.23% today. The 5 yr 5 yr inflation breakeven was 2.29% back then vs 2.22% right now.

Core CPI in February 20223 was 5.5% y/o/y vs the estimate of 3.8% for December to be seen on Thursday. The price of oil was about $75 then vs just under $72 as of this writing for WTI with CRB index 2% higher then vs Friday's close. Jobless claims printed 190k on March 2nd and a week later we saw a BLS payroll gain of 311k vs 472k in the month before. Wage growth in that report was up 4.6% y/o/y. We've seen job and wage growth moderation since. The 2 yr yield last year on that day closed at 4.89% vs 4.39% today.

Bottom line, based on what I said above, there should be many reasons why the 10 yr yield should be notably lower than 4% and it's not. I'd argue that the Treasury supply worries that we did talk about last summer and into the fall and then stopped talking about when Treasuries rallied, isn't going away and is only going to get more intense in the coming years. And, I'll argue again that what the BoJ does really matters here (YCC was still a thing then at .50%) as does the fate of QT of other foreign central banks in impacting the long end.

10 yr US yield

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Here is an updated 1 yr chart and 4 yr chart as of Thursday for the Shanghai to Rotterdam container shipping rate which has experienced the biggest price spike relative to Shanghai to LA.

1 yr

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4 yr

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There was improvement in the December European Economic Confidence index as it rose to 96.4 from 94 and better than the estimate of 94.2. Most of the m/o/m gain was due to a jump in the services component as well as in retail. Consumer confidence and construction confidence rose too and there was a slight gain in manufacturing, though remaining near the lows. European bond yields are higher in response but the euro is little changed.

European Confidence Index

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Somewhat dated as it's for November, Germany said factory orders were softer than estimated but exports exceeded expectations by a notable amount, rising 3.7% y/o/y vs the forecast of up .5%. Most of those exports went to other EU countries. Exports though still are down 4.9% y/o/y, reflecting the still challenged European economy.

At 8:09 am:

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

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From JPMorgan: 

US: Futs are lower amid a risk-off tone; bond yields are lower and cmdtys are weaker across all 3 complexes. USD is flat. With earning kicking off later this week and our HC conference, this may be the calm ahead of the proverbial storm. The major macro data points are CPI and PPI on Thurs and Fri, and prints may be market-moving as the bond market tries to determine the timing of the first rate cut among March, May, and June. Feroli maintains his call for cuts kicking off in June. The biggest single name story is in BA and some 737 being grounded; BA is -8.5% pre-mkt. 

and... 

EQUITY AND MACRO NARRATIVE: The SPX lost 1.5% last week, breaking its 9-week winning streak, after gaining 14.9%. Defensives outperformed as investors take a cautious tone to start the year. While economic consensus is for a soft landing, the markets are not yet reflecting that reality.

Our recent client conversations reveal that macro folks are in the soft landing camp while I find that Equity and Credit L/S folks are more bearish. The common thread for the bearish camp is the combination of a still inverted yield curve and the long-and-variable lags to existing monetary policy means that one or more things are likely to break in the economy. Further, the bearish client thinking subscribes to the school of thought where the longer the delay, the worse the outcome.

While it appears consensus that the Fed has completed the hiking cycle, we have yet to see the front-end of the yield curve collapse/bull steepening that has accompanied every other ending of a hiking cycle. As investors try to determine the existence and location of the Fed Put, many would be buyers below current levels with some indicating a desire to buy the SPX down 5-10% from current levels. It may be the case that to see a broadening, or the continuation, of the current rally that the yield curve needs to bull steepen, potentially the full disinversion of the 2s/10s spread. Separately, valuation may be a headwind but with real yields expected to fall, that may not be a significant near-term catalyst.

• Consensus GDP forecast is +1.35% for FY24, according to Bloomberg data
• Consensus SPX top-down EPS is $232.20 for FY24 with a YE24 price target of 4,833, +2.9% from Friday's close.
• Consensus bottoms-up EPS is $243 for FY24.

* Not to me...

Over the weekend The Wall Street Journal cited Elon Musk's drug use.

Here was my Surprise #8 on my Top Ten Surprises for 2024: 

Surprise #8. What would a surprise list be without mention of Elon Musk?

It is revealed that Elon Musk suffers from a serious addiction. Entering an extended stay in rehab, Musk is forced to temporarily relinquish operating control over his companies. Tesla's (TSLA)  shares fall back to the lows of 2023.

 Chhhanges? A changing market complexion?

* Investor sentiment remains bullish - though the recent market weakness has resulted in a turn down (from deep overbought to more modestly overbought) - the S&P Short-Range Oscillator is at 2.72% v. 1.38%

* This morning, yields are flat and crude oil prices (-$2.18) are collapsing - and so is gold falling (-$16.20) and bitcoin is flat.

* The drop in oil, wiping out Friday's gain, is conspicuous - as bearish bets on crude intensify:

* Stock futures are modestly lower

* The U.S. dollar is falling against the euro

* Bad breadth continues and despite protestations from the bullish cabal, there is no broadening - just look at the rollover in the Russell Index:

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* In light of the short term reversal lower in the markets and the lack of broadening participation, we might consider a changing market profile:

Still don't know what I was waitin' for
And my time was runnin' wild
A million dead end streets and
Every time I thought I'd got it made
It seemed the taste was not so sweet
So I turned myself to face me
But I've never caught a glimpse
How the others must see the faker
I'm much too fast to take that test

Ch-ch-ch-ch-changes
Turn and face the strange
Ch-ch-changes
Don't want to be a richer man
Ch-ch-ch-ch-changes
Turn and face the strange
Ch-ch-changes
There's gonna have to be a different man
Time may change me
But I can't trace time

- David Bowie, Changes

"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 have reversed Friday's strength and are modestly lower this morning - with a small trading range. S&P futures peaked at +9 and bottomed at -13. Nasdaq futures peaked at +41 and bottomed at -83. At 6:21 a.m. ET, S&P futures were -8 and Nasdaq futures were -24.

and...

* Commodities are lower. Brent crude is down -$2.18 to $76.59.

and...

* The S&P Short-Range Oscillator remains largely overbought - but less than last week at 2.72% v. 1.38%.

* The VIX is up again to 14.01 (+0.66).

* The U.S. dollar is slightly stronger against the yen and flat v. sterling and euro.

* Treasury yields are unchanged overnight, and as I've mentioned, we may be at the point that lower rates will hurt equities. The 2-Year Treasury yield is -1 basis point at 4.381% and the 10-Year is also one bp lower at 4.038%.

and...

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 +3 basis points.

* Overnight, the inversion of the 2s/10s Treasuries curve is moving lower to -3. Real rates remain quite elevated; the 10-year is still about 1.75 (again in real terms). Foreshadowing?:

* Gold is up -$18 and is at $2,031.

* Bitcoin is flat at $43.1k.

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:

"Group Stink"

Tipping Point

Don't Stop Thinking About Tomorrow (Rosie)

If Tom Lee Expects a +9% Gain In The S&P Index This Year...

Shhh. Low Volume

Here were Fridays trades:

* Adding to short Index calls.

* Took a nearly $10 gain on my (MCD) short in one day.

* Trading Around Core Shorts

- I added a trading layer of shorts on the rally and scaled higher.

- I am taking off those shorts (done today) for a nice profit.

I will be a Board meeting between 10:30 am and 11:45 am this morning.

Radio silence.

Baird downgrades (AXP) to underperform and moves (COF) to market neutral. 

Both stocks were new shorts last week.

"O, then my best blood turn To an infected jelly and my name Be yoked with his that did betray the Best! Turn then my freshest reputation to A savour that may strike the dullest nostril Where I arrive, and my approach be shunn'd, Nay, hated too, worse than the great'st infection That e'er was heard or read!"

- William Shakespeare 

I disagree and call BS to Goldman's view; it is non rigorous and not based on history:

Here is why I believe the "money on the sidelines" argument is flawed. From Dec. 20:

* Everyone is entitled to his own opinion but not his own facts

* Facts are stubborn things, and whatever may be the wishes of the bulls they cannot alter the state of those facts that retail money market funds are a lot less than commonly discussed and massive migration into equities rarely occurs

* Moreover, and importantly, retail money market funds as a percentage of total stock market capitalization is at a multi-decade low!

* Finally, most of the retail savings in money market funds are associated with wealthy Americans

* That said, and as noted by Bob Farrell, the public typically buys most at the top and the least at the bottom

"I've already made my mind up, don't confuse me with the facts."

- Plato

The "old" argument that money on the sidelines will provide meaningful support of the next Bull Market leg has been bandied about in the business media by "talking heads" and investment strategists over the last few weeks.

"You mention cash on the sidelines, which is something we have heard many times with people on this network...."

- Melissa Lee, CNBC (July, 2023)

The argument is bogus and inaccurate -- and I call BS to it.

I conclude that although there is likely to be some benefit of excess savings in retail money market funds migrating into stocks - it will not be anywhere near enough to fuel a new Bull Market leg higher.

As well, such a migration rarely ever comes to fruition but it serves as a non rigorous crutch and a rationale to support the recent reset higher in stock valuations. Frankly, it is always an argument made in extended "up" moves in markets. (As an example, here is a August 2021 interview (over two years ago!) with Jim Cramer in which he expects money on the sidelines to fuel the markets. Jim Cramer says cash moving off the sidelines can help keep stock rally alive.

More importantly the data - the amount of money in retail money market accounts are vastly overstated (commonly said to total $6 trillion, but really only $2.2 trillion) - and, as such, is non supportive of the argument of sideline cash as a catalyst.

Let's now go to the facts and data:

Retail Money Market Accounts Total Only $2.2 Trillion (Not $6.1 Trillion)

The most important chart:

DECEMBER 14, 2023

Money Market Fund Assets

Washington, DC; December 14, 2023-Total money market fund assets1 decreased by $11.55 billion to $5.89 trillion for the week ended Wednesday, December 13, the Investment Company Institute reported today. Among taxable money market funds, government funds2 decreased by $11.36 billion and prime funds increased by $1.38 billion. Tax-exempt money market funds decreased by $1.56 billion.

Assets of Money Market Funds
Billions of dollars

* Change in money market fund assets is primarily driven by flows and can be used as a proxy for net new cash flows.

Note: Components may not add to the total or compute to the $ change due to rounding.

Retail: Assets of retail money market funds increased by $2.92 billion to $2.27 trillion. Among retail funds, government money market fund assets increased by $651 million to $1.47 trillion, prime money market fund assets increased by $3.45 billion to $682.38 billion, and tax-exempt fund assets decreased by $1.18 billion to $110.09 billion.

Institutional: Assets of institutional money market funds decreased by $14.47 billion to $3.62 trillion. Among institutional funds, government money market fund assets decreased by $12.01 billion to $3.34 trillion, prime money market fund assets decreased by $2.07 billion to $265.21 billion, and tax-exempt fund assets decreased by $381 million to $10.41 billion.

ICI reports money market fund assets to the Federal Reserve each week. Data for previous weeks reflect revisions due to data adjustments, reclassifications, and changes in the number of funds reporting. Weekly money market assets for the last 20 weeks are available on the ICI website.

As seen in the above table, retail money market assets total only about $2.25 trillion - not the "$6 trillion" mentioned by the many.

The "other" monies in money market funds are institutional in nature - and I don't think this money is "hot" money that will move into a climbing stock market.

Retail Money Market Funds Are at a Multi-Decade Low Relative to Total Stock Market Capitalization

To calculate retail money market funds' possible impact we can't simply look at the absolute amount of monies in money market accounts.

Rather, we must take total retail money market funds as a percent of stock market capitalization: TODAY IT IS AT A MULTI-DECADE LOW!

Retail Money Market Accounts Rarely Change Over Time

If you look at history the level of retail money market funds rarely changes:

- The History of Retail Money Market Funds

- The History of Total Money Market Funds

- The History of Money Market Funds (Excel Spread Sheet)

Furthermore, a lot has been made of the near $600 billion rise in retail money market accounts over the last twelve months. However, as noted in Peter Boockvar's chart, below, the rise in retail money market funds over the past year pretty much mimics the drop in bank deposits in terms of dollars.

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Source: Peter Boockvar

Speaking of my pal Peter, here is what he wrote this morning on the subject of cash on the sidelines:

I will first comment on the 'cash on the sidelines' debate that I keep hearing about and have for many years and the belief on the part of some that it's this pot of dry powder to 'come into the stock market.' There is ALWAYS cash on the sidelines as for every dollar that comes off the sidelines to buy a share of stock there is a dollar that comes back on the sidelines from the seller with the proceeds. The only time there is technically fresh money is when there is an IPO or equity secondary as new shares are created.

I mentioned yesterday that Friday saw the biggest ETF inflows into SPY since its 1993 inception and here is a chart to visualize. The $20.8b Friday inflow was followed by another $10.2b on Monday. It finally cooled down yesterday.

Yields on Money Market Instruments and Short Dated Treasuries Remain Near 5%

* With a high, risk-free equity-like return (with no volatility) available in money market accounts, the incentive to move large amounts of retail and institutional into equities is relatively low

"The public buys the most at the top and the least at the bottom."

- Bob Farrell, Market Rule #5

Not only are money market accounts still earning near 5%, but consider the following returns on short-dated Treasuries:

* 3-month Treasury bill yields 5.425%

* 6-month Treasury bill yields 5.346%

* 1-year Treasury bill yields 4.973%

* 2-year Treasury note yields 4.384%

Though I expect some migration (as seen recently below), a massive migration out of money market accounts and into equities seems unlikely given the alternatives above:

And, as Bob Farrell cites above, the public buys the most at the top.

I expect nothing different in this cycle.

Bottom Line

The size of retail money market funds balances has been greatly exaggerated by nearly a factor of 3x.

In marked opposition to the bullish musings about cash on the side lines, the amount of retail money market funds measured against total stock market capitalization is at a multi-decade low!

As Peter Boockvar observed this morning: 1-1=0. (There is ALWAYS cash on the sidelines as for every dollar that comes off the sidelines to buy a share of stock there is a dollar that comes back on the sidelines from the seller with the proceeds).

In reaching for an argument to extend the recent bull move, "talking heads" are making an argument that does not conform to the facts, analysis, history or common sense.

From Charlie, here.