The HCM-BuyLine® has turned positive on a short, intermediate, and long-term basis after giving a very strong buy signal. Several other indicators have also been close or have turned positive. We have sent out new allocations for our 401(k) Optimizer participants, along with readjusting our allocation in other investment areas such as annuities. Thus, until/unless there is some type of meaningful pullback under 3949, dips in the next 1-2 days should be buyable into/post FOMC for rallies back over 4100.

The equity comeback of the past three months has been broadening out globally, with the U.S. market now participating to a greater extent and the performance of risk-on proxies becoming more decisive relative to the performance of risk-off proxies.

I have enclosed this week’s strongest sectors for your review:

Inflation pressures continued to recede in December but are still elevated. The PCE Price Index edged up 0.1%, the least in five months, largely due to lower energy prices. The core PCE Price Index rose 0.3%, in line with the consensus

On a y/y basis, PCE prices posted 5.0%, down from 5.5% in the prior month, and the lowest inflation rate since September 2021. Core PCE inflation eased to 4.4% from 4.7% in the prior month, the lowest rate since October 2021, and matching the consensus. The deceleration supports a continued downshift in Fed rate hikes. We expect a 25 bp rate increase at the FOMC meeting next week.

The main contributor to the deceleration was goods inflation, particularly durables. Durable goods prices were up just 1.4% y/y, the least since February 2021, and a steep drop from the cycle peak of 10.6% y/y in early 2022. Services inflation, which is stickier, was unchanged from the prior month at 5.2% y/y. It has ticked down from its cycle peak of 5.5% y/y last October, but it is still near its highest level since 1985. Housing and utilities prices, which accounts for more than a quarter of the services price index, are still posting above-average monthly gains. They were also up 8.4% y/y in December, the most since October 1982, keeping upward pressure on services inflation.

Personal consumption expenditures (PCE) fell 0.2% in December, below the consensus estimate of -0.1%. This was the second consecutive decline in spending and the most in a year. It suggests that demand is slowing under the pressure of higher interest rates and still elevated inflation.