Weekly Performance
| S&P 500 | -1.52% |
| Equal Weight S&P 500 (RSP) | -0.83% |
| NASDAQ | -3.25% |
| DOW | -0.59% |
| Russell 2000 (VTWO) | -3.75% |
Talk of the Tape
Although rate expectations were largely unaffected, Friday’s Payrolls dampened enthusiasm for stocks. Otherwise, the rotation out of the Magnificent Seven into other sectors with better risk-reward prospects continued.
The Week Ahead
| Monday | Tuesday | Wednesday | Thursday | Friday |
|---|---|---|---|---|
| – | – | – | CPI | PPI Big Bank Earnings: – J.P. Morgan (JPM) – Wells Fargo (WFC) – Citi (C) – BlackRock (BLK) – Bank of America (BAC) |
Macro Movers
Consumer Price Index (CPI): The CPI for December is set to release on Thursday. As a major inflation report, it is important for the market. The spotlight will be on core metrics, anticipated to come in at 0.2% MoM and 3.8% YoY.
The market has priced-in six rate cuts. CPI needs to print near or below expectations to sustain these ambitious rate expectations and prevent the Fed from reconsidering rate hikes. An upside surprise could challenge these expectations, causing a sell-off.
Micro Movers
The money center banks – as usual – have the honor of starting the first earnings seasons of 2024. Their commentary will be more consequential than their results. Wall Street views these institutions as harbingers due to their tight relationships with a diverse base of households and businesses. Good commentary implies good earnings. Bad commentary implies bad earnings.
Gorilla Tactics
This will be a new segment where I share actionable opportunities.
While I have a few in mind, I prefer patience at the start of the year. I want to see how the narratives from the previous year fare in the new. When 2022 became 2023, Wall Street was bullish on the healthcare and energy sectors. Within three months, these favorites were already falling flat.
As 2023 came to a close, Wall Street embraced two narratives. I am skeptical of both.
First, the rate cut narrative. The market has priced-in six rate cuts versus the Fed’s projection of three. If high inflation data leads the market to prices-in an outcome closer to the Fed’s projection, then the averages will move down. I do not see a way around it. We saw it play out Friday morning: the market stumbled as Payrolls showcased an economy too strong to cut.
Second, the “broadening out” trade, where money is expected to shift from the Magnificent Seven to explore new opportunities with better short-to-intermediate term upside in the other 493 S&P 500 stocks. While this trade is underway, I suspect investors will be quick to abandon the 493 for the Seven if upcoming earnings do not produce a variety of new winners for investors’ portfolios.
In summary, I believe the market is a little ahead of itself. As a result, I will exercise patience until stock prices and valuations are more attractive.
Gorilla With Glasses 
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