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The Fuse

Equity futures are modestly higher on this last trading day of 2023. It’s been an outstanding year for the bulls with double-digit gains across the board. Rates have come down sharply on the hope of Fed rate cuts in 2024, and they signaled as much earlier this month. History shows the markets do well after a strong year, so there is that potential out there. Lots of options expire today (weekly, monthly, quarterly).

Interest Rates are bumping higher in a continued mild selloff in bonds. We expect to see some re-positioning today of money allocated from bonds equities as the year finishes up. It’s been a slightly positive year for bonds as much of the run has been made over the last two months. So far the Santa Claus Rally has delivered about a 1% rally so far, a very respectable move with three sessions remaining.

The Fed’s aggressive rate hike campaign was the news story of the year in 2023, and they may have tamed inflation with its hawkish policy. NVDA and META were the top winners in the SPX, which is trying to close at an all-time high before the closing bell in 2023. Gold is down slightly while crude oil is pushing above $72 per barrel. The Dow Industrials and Nasdaq closed at record highs on Thursday. Sentiment is getting very overbought as the seasonal trends shift next week (following the santa claus rally which ends on Wednesday).

A pretty quiet session, the SPX 500 had a 13-handle range, very very small for the entire session. We have seen this before, and more recently near Thanksgiving and following that a big whack to the market. It seems the bulls don’t want to give up an inch here nor want to sell before year-end, but the new month may have some surprises.

Breadth was poor yesterday as the buyers have seemingly run out of gas. That is a sign of course that pullbacks may becoming soon, bu for now there is little to fear. We should note sentiment is flashing excessive optimism. Again, it won’t matter until it does.

Another low volume day as is typical for this time of year. However, today may see some big volume prints as several option series will expire on this last trading day of 2023. Expect to see better volume levels after the start of the new year.

Without much volatility in the markets finding the strength to get to a new high in SPX is becoming difficult. Realized volatility is down sharply, under 10%. Hence, there is not much action happening nor expected. That will certainly change once the new year is upon us. For now we wait for some volatility to expand the range.

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What’s it mean?

A lethargic day as the internals tell the story. VOLD was flat lined all day as was the ADD, the ticks were about equal with red and green, meaning we saw several buy and sell programs hit during the day. VIX was basically down all session and stayed down, we could see it drive lower today as well, we often see that happen during a holiday weekend. Not much information about the markets in these internals yesterday.

The Dynamite

Economic Data:

• Friday: N/A

Earnings this week:

• Friday: N/A

Fed Watch:

Nothing much on the Fed front this week though the prior week had some more jarring words from fed speakers. The current market or fed funds futures seems to be predicting a slew of rate cuts in 2024, far more than the committee expects. Inflation trends are certainly slowing down though and that may push the Fed to consider more cuts, but the data will help them decide.

Stocks to Watch

Apple – This company continues to pull a rabbit from its hat and hit their sales goals, with holiday shopping still going on can they do it again?

Amazon – It’s go time or Amazon as they simply dominate online sales. The holiday season is often a boom time for them, we’ll hear all about it soon.

Tesla – Plenty of news here with this company as the stock continues to grind higher. That is a big tell, big money is still coming after the stock.

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