Out-performance or under-performance aspects of the market haven't rally shifted yet. Bifurcation prevails despite a bit better Russell performance while Semiconductors are holding reasonably well, after recent shakeouts.

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Certainly, the general forecast of stumble in early January then rebound ahead of early-mid February persists, with S&P notching-out a nominal new high. It's hard to say much about that, other than it's stretched further and is not such a big problem as some believe, 'if' (and that's a provision) underlying breadth is going to improve into the late Winter and Spring.

Chatter Monday is focused on 'geopolitical escalation', as they're terming it. Of course the Auction went well and prices advanced, but it's generally just a market on-hold ahead of the FOMC Meeting (presumed friendly overall), and a slew of mega-cap earnings reports, with guidance crucial is most cases.

I'm thinking it's essential to say that the Middle East war didn't escalate quite as portrayed, other than the attack being in Jordan. Either our Army crew mistook the approaching enemy missile/drone as 'friendly' (one of ours on a return final approach from a mission), or the enemy purposely tried to get into the radar signature of the landing US drone, so as to fool defenses.

The primary escalation is simply that it occurred in Jordan. As to suffering the first American fatalities, well alright, but it's clear the Islamists/Iranians/terror groups have all been trying to hit us for weeks. This time they got through due likely to a Duty Officer 'turning off' the phalanx-style last ditch defense thinking it wasn't an incoming hostile drone, so they meant to escalate weeks ago.

For sure the enemy is getting cleverer over time, but it's their same objective as before. I've said for weeks that intercepting their attacks isn't retaliation, as we only hit a couple minor targets in response. Just because we failed this go round to intercept is not escalation itself. It's an error of inadequate defenses, or in this case not differentiating between approaching 'friend versus foe'.

Market X-Ray: 

Stocks firm but generally on-hold pending earnings, FOMC, as well a potential for a 'ceasefire deal' in the Gaza that the U.S. is pressing for.

Bottom-line: 

S&P 'appears' impervious to decline. It won't stay that way. The Fed may not 'pivot' formally until later this year, and that might just be enough of an excuse to see some profit-taking in the wake of 'even' a friendly FOMC.

However, the generally friendlier tone is helpful to small-caps who need more of a favorable lending (and rate) environment if they intend new funding. Sure there are some small stocks with ample cash and they benefit from high rates on cash balances, but that's not the majority.

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