Hoping For Sanity Is A Poor Bet During The Holidays: The Action For December 21, 2023
The Times offers wary advice for those hoping the Supreme Court can help restore sanity to our democratic process, but odds are as much against a nonpartisan Court as for yesterday’s downturn to calm the bulls and restore valuations to sanity. 2023 marked a new high in the public’s capacity to ignore bad trends in favor of spending and hoping, and the year likely ends with a bang that presages a noisy and unedifying 2024. The S&P 500 likely rises over the course of the week and into next unless tomorrow’s key inflation report contradicts the latest data and shows disinflation stalling.
The bulls have control for the moment as several indicators reveal confidence in corporate earnings and the macro environment. These include:
S&P 500 Technicals: The top 40 in the S&P 500 look set to move the market higher.
Russell 2000 Technicals: Small stocks are breaking out and reflect surging confidence in economic growth.
MOVE Index Of Bond Volatility: Fixed income volatility is steady and implies modest inflation expectations and stable interest rates to come, potentially bullish for equities and the global economy.
Short-Term Treasury Rates: Short rates are falling, a sign of moderate inflation and a dovish Fed, potentially bullish for equities.
Long-Term Treasury Rates: Long rates are falling and that will improve the attractiveness of equities while boosting the housing and auto industries to the benefit of economic growth.
BTP-Bund Spread Of Italian & German Bonds: Italian default risk and a corresponding crisis for the Euro are muted, which is critical for European stability and is good for global growth.
Liquidity Metrics: Measures of money flow across the globe are trending upwards lately, which helps equities.
And based on the action yesterday and overnight there are no risks other than geopolitical disasters in the making for the bull to consider. My current positions reflect my intermediate-term bullish forecast, and include 3M (MMM), Pfizer (PFE), and a large position in UPRO that is partially hedged by an offsetting position in SPXU, which nets out to a long position in equities.