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The market was essentially flat today, but that’s a distorted picture. Currently, this is the Bloomberg 500, which serves as a proxy for the S&P 500. When we break it down, Broadcom rose 24% today, adding almost nine points to the index. Without Broadcom’s big move, the equity market wouldn’t have performed nearly as well.

Looking at the RSP, which is already drawn here, it’s down about 42 basis points for the day and doesn’t look great. It appears to be breaking below the lower bound of a channel, potentially forming a five-wave structure. The Dow shows a similar pattern, which largely stems from the sharp movement in 10-year Treasury rates, now up about eight basis points. This follows what seems to be hot inflation data across CPI, PPI, and import/export prices.

As discussed with members, the Cleveland Fed’s projections suggest core PCE could come in at 0.26% month-over-month, rounding to 0.3%. On a year-over-year basis, core PCE might be closer to 3% rather than the 2.9% estimate. December CPI swap pricing is forecasting a 0.4% month-over-month increase, indicating hotter CPI for December compared to November. On a year-over-year basis, CPI is expected to be 2.9%.

Two-year inflation swaps have risen to around 2.61-2.62% this week, fluctuating between positive and flat for most of the day. One-year inflation swaps have also ticked up slightly, ending the week near 2.65%. Treasury rates have made a significant move, with the 10-year yield rising over 25 basis points this week, bringing it back to the 4.50% level, a key area we reached just after the election.

Taking a closer look at the 10-year, it’s breaking out of a pennant pattern that has been forming for months, moving above key support and resistance at 4.35%. This appears to be a clean breakout. Additionally, as I highlighted to members, the 10-2 curve is forming a bullish flag, indicating steeper curve expectations. Most of the steepening is expected at the back end of the curve, which is not favorable for risk assets over the long term.

The dollar is nearing resistance at 107.25. A break above that level could set up a move toward 109.60. This wouldn’t be good for small caps, which are already under pressure. Credit spreads have started to widen, with signs emerging yesterday in Europe, particularly in Italy and Germany. Rising credit spreads could further weigh on small caps.

For the S&P 500, the key level to watch is 6,000. A break below this level could open the door to much lower targets, especially if the 10-year yield pushes above 4.50%.

Video Length: 00:05:22

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