Perplexing crosscurrents persist ahead of CPI amidst the FOMC meeting in the new week. At the same time we did see lower fuel and transport (diesel is plunging which is very important for lower agricultural transportation costs); lower retail gasoline; and softer commodity prices. Yet the wholesale PPI was up; so we question that as essentially still slightly lagging actual experiences.

The U.S. economy has been in better shape than the rest of the world; China is now starting to come off draconian Covid-control restrictions (incidentally it might have been Tim Cook pressing Foxconn who badgered Beijing to chill it a bit with regard to suppressing the Chinese people); and most strategists are sticking to the consensus view of 'recession' and 'down 2023 market' ahead.

'Shallow recession' seems to be the prevailing view that I don't disagree with; at the same time the arguments for that are overworked; the historical factor of probabilities of Yield Curve inversions leading to one are correct; however it is also correct that outside of a handful of mega-caps, it's already discounted.

That doesn't mean S&P can work lower; but like the NYA (included Oscillators nightly); the broad market (troops) was hammered sooner as we forewarned, for almost two years; and now acting better than such Indexes dominated by the 'Generals'. The strategists 'only now' recognizing how the economy might evolve have a point; but in this case the big disruption to historical expectation likely is that the broad market already crashed.. last year not this year.

That's not to say stocks (at least Indexes) can't get crunched again; but says I can't see how this effects a wide variety of stocks 'if' they don't need to dilute shareholders substantially; or get caught-up in the need to finance to survive. And yes, that makes 'stock picking' harder for 2023 (slim pickings especially among the mega-cap stocks); while very possibly opening up the field for gain in certain industries almost irrespective of the macro concerns.

These primarily center on multinational companies; but also the conclusions, as most strategists present them, for the most part ignore the implications of a rising demand (for goods, parts and Oil) as not if China refocuses on growth.

Preparing for corporate belt-tightening is as broadly understood as reductions in bonuses to strategists and traders due to a disappointing year (is that why it is almost popular to be negative on America's future; a view we don't share?).

In sum: the economy 'might' be healthier than the perceptions on Wall Street. Can that be that the near-universal gloom expressed by strategists has some sort of motive that's a bit disingenuous; like they're not positioned for upward action? Hard to say and I don't have particular confidence about mega-caps, or broad big-cap multinational earnings; at least for the new year's start.

But if the S&P tanks anew in Q1; then wouldn't it be anticipating recovery later (yes); but that's conventional. Basically it's the transfer of money for years into equities from fixed income that tilted things; the loss of foreign investment; the draining of client funds by several brokerages that pushed crypto insanity; as well as the implications of Putin's war. As these are absorbed or ameliorate in the new year, some of the dire numbers out there might be revised 'higher'.

For the week ahead it's all meandering and defensive (that was the December first-half call) ahead of the FOMC and CPI (a day prior to the Fed decision by the way). You do need a downward trajectory for inflation or Fed dialing back their aggressiveness; but of course at some point S&P will discount a shift.

I of course realize the Fed may not 'pivot', so might stay higher (but not much higher) for longer; but actually the 5-6% borrowing rate is normal business; it's seemingly difficult for which we blame the Fed having stayed too low for much of the preceding few years; which created a sense of 'free money' and moving citizens deeply into consumption rather than savings; along with greater debt. It got relieved in a sense during the pandemic; although many people 'spent' a bit of extra money rather than eliminating debt, which is something we urged.

Basically I don't disparage Wall Street's naysayers; just believe a) things shift, and not in ways always predictable near year-end; b) if the money managers are so bearish as they proclaim, then whatever proportion of stock they wish to sell, has probably already been done, begging the question: c) who's left to sell? While I'm leaning towards the market perhaps being shaky to start; given a prevailing view that 2023's first half will be bearish for S&P and the second half more bullish; I'm suspecting it might be somewhat just the opposite.

And that would result in S&P perhaps backing-off as a last-gasp consolidation (for reasons unknown; the Fed, peace breaking out or China and certainly not Russia with their lunatic nuclear-first-strike consideration just one day after Putin reiterated it's only for defense of the Nation.. craziness). I see issues all over the place; but some of them are more fear than reality. Artificial stimulus in the USA during pandemic was arguably the biggest problem for markets to adjust to (or from); and they embarked on trying to establish normal values in a ton of big stocks the big funds are loaded with; with the rest already faltered.

Walmart is going into the brutalized sector of 'buy now, pay later'. I suspect it has a motive beyond the retail consumer pinch issues; as being proposed as the reason. I ponder if Walmart is establishing a financing mechanism for one of its ultimately notable investments, that being for selling (or leasing) Canoo vehicles in a couple years (initially vehicles will be seen by most customers as they receive deliveries). Just a hunch; there's no reference to that possibility.

Tension on the tape throughout this defensive week; basically expected to be a range-bound situation as the focus in on the CPI just before FOMC decides. If the destination for 'rates' comes into sight; and we get past month-end and year-end positioning and tax adjustments; you get a flummoxed behavior that fails to appreciate something I've suggested: 'get the FOMC out of the way to clear the path for a year-end rally'; even if just a relief phase.

Bottom line: No assurances, but this is a set-up for a short-squeeze of sorts. The Put-Call ratio was the highest seen in some time; and that might matter. I realize analysts looking at overlays of the 1970's and see eerily S&P or rate influence analog similarities; but I don't wish to view markets metaphorically.

The Yield Curve can reduce Bank incentives to lend; and can be coincident at the same time people still maintain lots of deposits (Bank of America at least has stated lending isn't an issue; they aren't seeing what others contend.. and that might just mean the Fed is nearly done; and now analysts are worried).

It will take awhile for the curve to normalize; but again as more than one have pointed out to me; these are normal interest rates; 'abnormal' is where they'd taken us, before the Fed itself decided to end the party they threw, as the Fed itself was overstaying; now going through the challenge of evolving sobriety.

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Market Briefing For Wednesday, Dec. 7