S&P 500 bulls salivated in anticipation of some low CPI recognition but got none from the Fed. Actually, Powell reiterated the readiness to adjust the restrictive Fed funds rate level higher if justified – and household inflation expectations coupled with the still hot and tight labor market, provide him with enough work so that the expectations don‘t become unanchored. Note that the Fed is taking on a supply issue coupled with excess demand, through demand destruction.

The resulting selloff merely illustrates the degree of liquidity junkie condition markets is in, looking for cheap money. The no-surprise 50bp hike yesterday and then 25bp Jan and Mar would only get Fed funds rate to 5.00% while I see them taking it to 5.50% slowly, and keeping it there. That‘s hardly a pivot or pause – only a deceleration in rate hike pace while the effects of tightening are gradually playing out, with housing and manufacturing more than teetering already.

With a recession on the relatively immediate horizon, and fresh Treasury debt issuance and short-term debt rollover needs, good luck for the central bank executing the tightening policy the way they look to. Methinks that CPI, GDP, and earnings projections need revisiting as the current estimates are too rosy, and well before Q2 2023 ends, the situation will be dramatically different as per Monday‘s extensive examination of which recession narrative is to pan out.

My big picture view continues to look for rips to sell as S&P 500 made two brief retracements yesterday, and the ground for the Santa Claus rally looks shaky. The buyers were unwilling to step in, and justifiably so. What we have left, is remaining institutional investors buying and then the unpredictable tax loss selling amid a darkening economic and liquidity horizon that‘s temporarily and disproportionately affecting commodity and precious metals too. As inflation wouldn‘t retreat as far as projected (5-6% appears best case), look for rising stock market volatility to usher in a fresh bid in real assets, which are slated to do well during sticky inflation and economic growth trouble times.

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Let‘s move right into the charts (all courtesy of www.stockcharts.com).
 

S&P 500 and Nasdaq Outlook

Yesterday I wrote that time wasn‘t on the bulls‘ side, and it‘s even more true today. Key levels are described in the caption, and I doubt another 4,040 retests is coming this week. 4,025 at best.
 

Credit Markets

No fine message as regards risk-taking, Santa Claus is having issues – and the dollar decline translates to markets saying that the upcoming issues won‘t leave the States unaffected in the least. S&P 500 bears are in control, and TLT is about to rise still some more.

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