An interesting start of the year:
1 SP500 equity market sold off by 1.69% and tech sector sold off by twice as much;
2 yield went up across the yield curve, and long bond (TLT) sold off by similar % as equity (SPY);
3 USD strengthed against other currencies. GLD down a tiny bit.
Three dominating themes this week imho:
1 delayed profit-taking (not selling winners until 2024 kicked in to delay paying cap gain tax for a full yr) led to equity weakness; this is especially obvious in Mag 7 and other tech names;
2 labor market remain tight and relatively strong (Thur claim numbers and Fri NFP numbers) and 162 bps cuts by EOY24 was silly to begin with. 20 bps of that was squeezed out this week and market still priced in 145 bps cut in 2024. There are 15-20 bps more to go by Jan FOMC.
3 econ growth numbers showing some softening (Friday ISM) but no recession in sight yet. But economy is chugging along.
Next week:
New-year capital inflow still not exhausted yet. Equity valution at 19.5 PE is expensive. Higher rate puts pressure on pricing. Fed talk will walk back cuts priced in by market towards their own 75 bps. So macro (bearish) will fight with (bullish) seasonal inflow. Remains a tug of war between those two forces.
Market remains in the "bad econ news is good news for assets" mode. Next week we have CPI (Thursday) and PPI (Friday). Market wants to see cool numbers. A hot number likely will lead to selloff.
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