Perceptions of 'fatigue'  for our projected January Effect rally dominate the financial pundit discussions. That makes perfect sense to me, since we have been talking of things settling-back a bit, at least temporarily in February.

However that may only be for parts of February; with anxiety ahead of the key well-watched FOMC meeting, and then 'relief' if they only do 25 basis points. I hasten to add any interim pullback of shakeout may be within-context of our overall uptrend from my tricky 'erratic complex' inverse head & shoulders bottom of late 2022. Regardless, we got our targeted move over S&P 4000.

It's likely to have a rest; but again, within context of our overall stability trend. Everyone seems to see the trend as 'obviously negative'. Nope wasn't and it isn't. Complex bottom in the Fall basically, and discounted prevalent fears. If anything we are please that there is almost unanimous negativity; even while Goldman is capitulating. There are late to do so; but ultimately yes it's correct for later in 2023, although we certainly have to allow for interim setbacks.

It's been a bifurcated move; but interesting 'value over growth' generally; with the very stocks many on Wall Street were hiding in (chiefly dividend plays) on the defensive or lagging the overall move, except for 'stars' like Chevron (CVX) with its buyback that we're not thrilled about, but won't complain about price.

China is reopening and that's a plus ... the real danger might be 'if' Russia will launch an invasion of Ukraine in a multi-pronged way including from Belarus this Spring, but that's something to ponder a few weeks from now. Thanks for the tanks to Ukraine; although it does compel Putin to ponder what he dislikes and that's 'peace' of some sort, lest he lose all of what he tried to conquer.

Notice that Goldman Sachs 'chief strategist' threw in the towel on any kind of bear market unfolding; which means that the 'monkey-see/monkey-do' crowd may well capitulate and get optimistic. Just in time for some sort of shakeout.

There's really no change in my view that rebounding stocks would exhaust the 'January Effect' phase of recovery; and face a contraction particularly during pre/post FOMC first-half of February. However likely in bullish macro contexts that we view a couple of rolling pullbacks. Most money managers missed this entirely, and so I suspect they'll be looking to buy a pullback, not sell 'for' that.

In sum: it doesn't take rocket science to see an oversold VIX, and short-term overbought S&P, so again you have bulls and bears alike mostly piled-up on the bearish side of the ledger. 

Like the S&P and most stocks that have run-up, allow for a rest but recognize you still have a large crowd, perhaps majority, that aren't really doom & gloom types, but expect lower prices, and like the Goldman strategist, find higher as the outcome, and then at some point have to get on board, or under-perform.

Pundits are convinced we're 'not in the clear' by any means; and sure that's a given, which by the way affirms that once we are 'in the clear' S&P will be lots higher. We can only say we've had a solid snapback in the market; and while fading the tech-rally will be popular, that view is really really on the back of an amusing anecdote, Goldman getting bullish 'after' the upside move. So yes I agree (already opined) for a shakeout; but perhaps a post-Fed upside romp that will depend on whether they do 25 BP or 'zero' change like Canada. Yes a 50 BP hike would tank things short-term; however doubtful that prospect.

Selection: we want to remain value-heavy; and realize a growth rally may also happen again this year; because there will be relief we're getting past hikes by the Fed and learning to adjust and live with 'real' normal interest rate ranges I have discussed before that the 5-6% level is normal for business historically; so people were spoiled by zero or negative (adjusted) rates; and that merely pumped liquidity; compelled stock buying beyond reason and the buybacks of course, which led to excess. So, no euphoria here; but don't expect despair.

Bits & Bytes: note there will be a few earnings calls in speculative stocks in the next couple weeks. We'll try to stay attuned a bit; although most will not be reporting fabulous results. Rather it will increasingly be guidance that matters; especially so with disruptive interlopers where prior results aren't relevant.

Bottom-line: S&P and NDX likely to have a rest soon; but again, that's within context of our overall stability trend. Most everyone seems to see the trend as 'obviously negative'. Nope that was 2021; most of 2022; not this and won't be, barring general war in Europe depending on stupidity on the part of Putin.

Complex bottom in the 2022 Fall basically, and discounted prevalent fears. If anything we are pleased that there is almost unanimous negativity; even while Goldman is capitulating. They're late to do so; but ultimately yes it's correct for later in 2023, although we certainly have to allow for interim setbacks.

For now erratic efforts to hold above breakout points; might even decline a bit ahead of the Fed's decision; then a relief rally would catch many off-guard.

More By This Author:

Market Briefing For Thursday, Jan. 26
Market Briefing For Wednesday, Jan. 25
Market Briefing For Tuesday, Jan. 24