'Tactical' analysis - is more pertinent than 'technical' analysis, at least for the moment. So far we ascertain this 'B' wave (finally delivered in the wake of an overwrought 'ascending wedge' S&P upside blow-off) has prospects of at least more evolution, given known variable that could impact fundamentals.

Freepik

'As goes the first week of the first month goes the year', has history beyond a recognition as an 'adage', however this is a convoluted Election Year prone to have a friendlier Fed, but a confounded electorate with mixed perspectives as well. The latter isn't entirely clear yet, and the former (Fed) isn't very dovish as the members opined when interviewed after the so-called 'Powell Pivot'. So it may motivate them if economics slip, but with Oil firmer and S&P finally with an overdue retracement underway, this may take some time to find footing.

There is a view (mine) that S&P multiples were and are extended, but unsure whether this expected stumble early in 2024 subdues most everything outside of the stocks that participated in the upside romp during Q4 of 2023. So far it's indeed constricting enthusiasm in anything, including suppressed small-caps.

This is also possibly a combined disillusionment with the slow adoption of EV (not surprised, Nation not geared for it, while it is adopting a compromise that is defined by hybrid vehicles), and related slowing of Semiconductors. Ah ha.. that leads to another subject, which is AI. If there is going to be serious rising litigation against Microsoft, ChatGPT and variations, and reticence to use it in many way, then there is vulnerability to the Broadcoms, Nvidia(s) and so on. Plus lots of the stocks simply hit the entry into a new tax-gain selling year.

Market X-Ray: 

I'm not thinking AI is just hype, but do think lead stocks in the sector were overdone.

S&P:

Is this a pause in uptrend or the start of something far nastier? Yes a pause, but coming-off an 'ascending wedge' pattern, it portends more work to be done before ability to revive upside with any real gusto. Likely a pause, though we wouldn't mind if there was more of a crunch on mega-caps, with limited impact (just erosion or independent action) in the mass of stocks.

Today we got the FOMC Minutes, suggesting a 'lower target range' later this year was at least discussed at the Meeting, and the market basically liked that but sold the rebound based around that perception. Bond players are focused more on when and where the Curve inverts, that timeline is a bit further out.

Fed discussions around the topic were more minimal than economists/pundits make it sound. There was no discussion of the number of cuts or timing in the FOMC meeting. In other words, it wasn't a discussion 'with depth' on the topic but a simple statement about the uncertainty and even higher rates. But that's reflected by the comments from Fed-heads after the FOMC and nowhere do they talk about 6 rate cuts beginning in March, which is a popular presumption among pundits and economists. It may be so, it just wasn't said so by the Fed.

I really believe factors 'other than' the Fed will influence this year, however it's a time when most think 'rate cuts' depend on inflation progressing toward the level of disinflation (or just slowed pace of higher prices) allowing the Fed cuts that might have more to do with the political than economic backdrops.

By the way, pundits are debating when to buy more mega-caps. Probably not too soon is my view, however I dispute their bullish rationalizations based on ideas like 'these stocks went up for a reason, so they must be higher later'.

The Russell 2000 selling at twice discounted levels compared to S&P, basically suggests the decent smaller stocks at low valuations ironically are less risky speculations that anyone buying meg-caps.

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