‘Make or Break’ Week Ahead for the Markets

At market close on Friday, we wrapped up our third consecutive shortened week of trading. Despite the shortened trading week, there was still certainly plenty of trading action to digest. On the back of a stronger than expected December Jobs report, this continued to provide fuel to the recent furious rally we’ve seen in long-term U.S. Treasuries which has put serious pressure on the stock market. With the 30-Yr Treasury approaching 5% and the 10-Yr Treasury at its highest level since October ’23, this has created some headwinds for the stock market. The continued strong labor reports are signaling that the macro-economy is showing no signs of slowing. Also, since all recent inflation data has indicated that while the rate of inflation has fallen significantly from its peak, it remains stubbornly above the Fed’s target of 2.0% and without further progress, this throws expectations of further Fed rate cuts this year into serious doubt. The combination of unrelenting macro-economic growth with the re-emergence of inflation fears, this has put stocks on shaky ground. Until we get some fresh data that can break the fever of spiking Treasury yields, we expect stocks will remain under short term pressure until they get some relief. Expanding our scope, looking at market breadth and internals, we saw pretty poor breadth on Friday with all but one S&P 500 sector finish the day in the red. Furthermore, the NYSE Advance-Decline index posted a new lower low for the past three months providing additional evidence for the waning market breadth. Finally, despite the widespread selling seen in Friday’s session, looking at the NYSE & Nasdaq volumes, we had in the neighborhood of a 75-80% declining volume day between the two exchanges. While this is sufficiently declining volume, it is still far from the ‘washout’ type of day investors look for that traditionally would mark a bottom in the selling. Keeping all of these developments in mind, one bit of good news is that the S&P 500 is still in a long-term uptrend. The index is still sufficiently above it’s 200-Day moving average, even though the actual number of index members that share this technical signal is fading, with only 49% of members now meeting this mark. What this indicates is that the headline index is largely being held up by the most heavily weighted constituents of the index, so should those members break down further, we certainly could be in for a larger move to the downside. With Q4 earnings season getting under way this week, we expect this and incoming macro-economic data to likely be the catalysts that will drive the market for the next few months.

Key Events to Watch this Week

Dec. CPI & PPI Inflation Reports
Retails Sales
Q4 Earnings Continue! Major Financials On Deck

After last week’s consequential December Jobs Report swung markets wildly in the final day of trading, the stakes are still high entering this week. Now that hopes for additional Fed rate cuts in 2025 have largely dried up, this week’s two inflation reports are now carrying a much heavier weight in the mind’s of investors. On Tuesday we will get the PPI report followed by the CPI report on Wednesday morning. CPI & PPI have both begun to tick back up in the previous few month’s reports. With inflation being front and center for Wall Street yet again, should these reports surprise to the upside, expect stocks to react poorly. Additionally, on Thursday, December U.S. Retail Sales will be released. The past few months of Retail Sales both overshot to the upside as well. While this is a strong sign of continued strength in the economy, should Retail Sales reports continue to deliver blowouts, this may not be the most helpful in trying to finally tame inflation for good. As if this number of economic reports isn’t enough to be watching out for, our team is also going to be watching closely for a number of earnings announcements this week. Q4 earnings season really gets going this week and first up are the major U.S. Financials, including J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup, Inc., Blackrock, Inc., & Morgan Stanley, amongst others. These major Financial earnings will begin to be released mid-week on Wednesday morning. Kicking off Q4 Earnings season with strong reports from these players would do a lot of good to buoy a Financial sector which has sold off steeply in the past month and provide a bright spot in a tough stock market tape.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,