S&P 500 continued higher Friday, with only two decent selling attempts – first following the revised CPI spike, then in the first half of the regular session. Positioning continues being bullish, no matter the heavily challenged breadth – I‘m though not looking for this steady pace of gains to continue through Tuesday‘s CPI as the revision in effect raises the disinflationary bar a little, but it would be overcome nonetheless. Still, it‘s the strong earnings, sales and job market fueling sentiment that fundamentally drives this rally as much as recessionists throwing in the towel.

For all the P/E ratios that get thrown around often with respect to the tech space, I would say that this was worse last year when NVDA was objectively more expensive relative to earnings or sales, hence I called already early Nov for it to overcome $500 mark later on. True, market breadth was much better in the Nov-Dec period than now, but these divergencies notoriously take long to get resolved – and we‘re not at a top yet. The narrower the advance, the more danger it brings.

Yields aren‘t yet squeezing the economic growth, and there is plenty apart from the strongest two (MSFT and NVDA) that‘s going well – I had been bullishly covering discretionaries lately, bringing up AMZN already last year as an outperformer within the sector, and the higher the disposable income you go, the better those retailers are doing (and I don‘t mean just LULU that‘s relatively lagging if you examine specialty retailers).

Look also at financials and industrials that I was also talking favorably in the past months – and add in materials waking up, which corresponds to the manufacturing sector (PMI) finely recovering too, and you get easily what that means for risk taking and asset prices in general, medium-term.

At one point, rising yields and acknowledgement that the Fed doesn‘t want to cut too much too soon, would though force a serious decline in stocks (valuations that are a function of liquidity – if in doubt, look at Bitcoin and miners to see we‘re still in risk-on) – most likely around Mar FOMC, and that would be rhyming with USD upswing keeping gold, silver and commodities still in check by then. Copper for now is projecting the image of low inflation, continuing disinflation – and Tuesday‘s CPI whether core or headline, wouldn‘t diverge from that.

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Graphical warning sign, which is likely to force a correction than a top that wouldn‘t be surpassed. That top would be surpassed, but the air is getting progressively thinner.

Credit Markets

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Yields haven‘t yet topped, and the rate cutting enthusiasm isn‘t yet in my view sufficiently dialed back. The path higher would start to raise doubts over soft landing, but we aren‘t there yet.

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