'A unanimity of negativity'  was itself a huge risk going into the New Year. It's actually not so much the slightly softish pace of wage growth (though it helps), but the crowded short-side of the ledger - an uber-bearish bias - that made this a fabulous Friday exceeding (briefly) the high end of our S&P target range.

My sense was that S&P would rally after the NFP data; regardless whether it was slightly better from a market standpoint (things slowing a tad) or not; just 'relief' could (and did) set-in-motion a rally rather than decline into a weekend.

It's still sort of a hybrid market between questionable expensive stocks and a broad swath of already-pummeled stocks that include dubious survivability in a lot of cases. But across the Board managers and technicians were bearish for the most part; and even those that were skeptical weren't willing to buy 'yet'.

We believed a rally that rebounded the big stocks might not be sustainable for a long time, but would occur. We believed the bargains in 'likely survivors' for the smaller stocks were worthy of nibbling in hopes 'some' will make it. And I thought this was simply set up to scramble the shorts.

In sum: People are locking in yields; evaluating their excess bearishness we warned about; and we got our rally into the weekend. It might not be the most impressive ever; but it will do, and is a lot more significant that most looked for and all of this was set-up over the chop of the last two weeks.

A celebration of lower wage growth is oversimplification; but fine. That's why I thought it would rally regardless of how the day started. And more; especially if we first get a bit of a setback Monday; although it might extend, dip and then move to a high above what we achieved today.

The Fed likely isn't deterred from more 'small' hikes; one data-point (Friday's) doesn't make a trend; but the handwriting has been on the wall that the Fed's going to go far in this direction (higher) as they previously did in the other (lower). They likely know it; and need things to be stable enough so that they proclaim 2% or even a slightly higher inflation rate as 'satisfactory'. By the time you get to the optimal levels (if ever) the market would be discounting U.S. recovery.

The bond market is telling you inflation is going to come down; we have said so for months; and believed it peaked last June; along with the S&P low then. We believed the internal market topped-out almost two year's ago; with S&P and NDX 'masking' huge distribution for over a year and a half; with historic insider selling concurrently going on, which few seemed willing to point out to investors, as being behind corporate executive enthusiasm for buybacks.

Well we pointed that out; anticipated the collapse of crypto long before what is a more current disaster for those later sucked-into the essentially a ponzi play or similar (and we have called the moves but 'never' considered crypto for real as an investment; but said if you wanted to play Blockchain, stick with IBM).

I don't know if we have 'insider buying' preceding this move; but I perceived it might be occurring. 

But I did think it was a bit like Fall of 2018 and required 'buying' not 'selling' during the purges of yearend and shuffle in the first days of the New Year; all of which setting-up some sort of strength that might carry to early February in a perfect scenario; though who knows. Things could get over-excited and we do have continued skepticism, which actually helps a case for 'range stability'.

Bears are very active opposing this rebound, and I understand what they're saying about a 'hard landing in risk assets'. I say we had a true 'bubble break' beneath the mask of S&P strength back in 2021; the buyback binge 'hook' to given an illusion of strength when supportive valuation was entirely absent in so many big-cap stocks; and now we can understand even further erosion in a few; however people are shorting and downgrading far too late in the action.

There may not be a 'trending' market; but it's been the time to upgrade some, not downgrade; especially when some 'mega-caps' get pounded on earnings; if indeed they do. And of course that will depend on individual sectors, issues, and technical behavior. Obviously avoiding the former darlings of the Covid or stay-home era, which can rebound but are really over-the-hill tired favorites. (I feel over-the-hill at times come to think of it; but like my SL that survived last week's accident... we are 'energizer bunnies' and just keep on going. 'Hilda' .. my SL's nickname .. will get some filler plus a facelift, and she will endure.)

Seriously; we go forth in this year while many analysts are 'hating' on the US economy. Banks are cleaning up their balance sheets; the backdrop isn't a big lay-up for Bank Stocks; but relative performance and prospects really vary. It's not my favorite; but it helps to have Banks, Oil and  yes,  Semiconductors alive.

Investors are giving the Fed cover to slow the pace of hikes; but continue just a bit. I have said recently that I didn't understand why so much bearishness in a situation where 'obviously' most Fed hiking had to be behind not ahead. So it may fiddle a bit more; but for now .. consolidate and move to ~4100 S&P?

Bottom line: they say the market was caught 'off-sides' for Friday - well, not if it agreed with me. I don't need the Fed to pivot 'yet' but I did need the bears to retain their negative conviction long enough to trigger (and thus fuel) upside. I have warned about this prospect for days; so there's really no surprise here.

Overwhelming pessimism still prevails (good!)  and we might not get removal of Fed inhibitions or valuation criteria ..  but in essence this is helping the Fed,  as it strives to 'win'. Winning means holding interest rates at 'business normal' levels (5 ish) for quite some time without punishing the economy more than of course they already have. Oil and Food prices mean more to inflating-fighting than the Fed in this, and I've already given the Oil (support just below here) as well as Food (not much lower on pullback due to next Summer's heat waves; and that includes horrible heat in Europe in July and August of 2023 per my best weather forecaster, a cousin near Bordeaux tearing over the vineyards).

Maybe I've been slightly melancholy (forgive me); but it's been quite a week of reflection and evaluation; more so after the prior week's accident; and less so in terms of the market, which still holds the 'inverse Head & Shoulders' bottom which is the 'erratic complex bottom' construction talked about for months.

More By This Author:

Market Briefing For Friday, Jan. 6
Market Briefing For Wednesday, Jan. 4
Market Briefing For Tuesday, Jan. 3