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The S&P 500 once again didn't manage to break above 4,835, even as bond yields retreated. The HYG fund lagged behind, and the Russell 2000 remained muted. The 2-year yield dramatically retreated to 4.14% – a move that the 10-year, at 3.96%, didn't mirror – arguably on Yemen aftermath sinking in.

Stocks still remain in risk-on mode, with the mainstream rate cutting hopes about victory over inflation. Just as I wrote on Friday, there is higher consumer inflation and it‘s hinting at a 3% year-over-year floor -- something which the Fed would be hard-pressed to know how to solve along with slowing economic growth, but we‘re a good two quarters away from that.

Still, stocks are marching higher for a top that isn't two quarters away. The key points to look at would be the unemployment rate, productivity, and retail sales coupled with overall services PMI health. So far, so good – there is no worry about inflation being or becoming sticky, and likewise (justifiably) there is no worry over a recession or a lack of soft landing in the one to two quarters ahead.

The latest earnings were a mixed bag, with JP Morgan standing out in bearish projections while Citigroup, Wells Fargo, and BlackRock diverged in stock price moves. This indicates that this isn't the time to be bearish on financials, or to be bearish about either of the two sectors that I‘m describing in today‘s sector picks. The weekly, daily, and four-hour charts all obviously hint at a breakout.

Still, the Fed remains as the greatest policy risk, with opinions about year-end Fed funds rate dramatically diverging between FOMC members. While the spread was 25 bp in September, it was 150 bp in December, introducing significant volatility, which is part of the stock market reversal I had warned about on Jan. 1.

Whether we see a 25 bp cut in March or not (and odds are that we do), the stock market seems to view the glass as half-full. Additionally, rate cut odds for January came back to 5.2%, which aren't really bearish for stocks now, but the Red Sea situation will likely have an effect on inflation down the road.

Let‘s move right into the charts (all courtesy of StockCharts) – today‘s full scale article contains 4 of them, featuring the S&P 500, sectoral picks, precious metals, and oil.

S&P 500 and Nasdaq Outlook

What unfolds next may resemble the second half of November, except that a deeper, brief retracement is possible. Though, this isn't in the cards before we start approaching Friday‘s options expiry, or unless Yemen truly surprises us. Earnings to be reported next week are unlikely to be bad, and I‘m looking for cautious guidance to be shaken off similarly to Citigroup, and better than Wells Fargo.

Gold, Silver, and Miners

Geopolitics receded (temporarily), yet yields are likely the thing to power the slowly-turning gold. The $2,005 level likely won‘t be visited unless the 10-year yield breaks 4.15% with conviction. Such a bond market move just isn't on the table -- even following a January FOMC release that would leave rates as they are. It'd be best to wait and see what the tone will be in regards to cutting.

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