1-17-24-SPY

Chart: SPY 1-year daily

The market is trading in an erratic mode, trying to find its footing after 2023. No real surprise, a period of consolidation is warranted and needed for the market to move higher. The markets are overbought, and until the trough is worked off, we expect a halt to progress for a short period of time. The HCM-BuyLine® is positive, and we are bullish, but we expect gains to be primarily made after the second quarter and into the later part of the year.

This is consistent with our 2024 year-ahead outlook, where we expect the bulk of gains to be made in the second half of 2024. That is because the first half has many unknowns that the market likely struggles with. But the two biggies:

  • Soft or hard landing → today’s weak Empire regional survey = fuels fear
  • When does Fed cut? → equity markets will get anxious about timing
1-17-24-TLT

Chart: TLT 1-year daily

We reduced exposure to bonds early this year as the bond market started to turn over, and we have cash waiting for a bond trade to set up. Interest rates have climbed just a bit with some mixed news on inflation in the last two weeks. We do expect the bond market to be very active this year, and we do see a lot of opportunity in this area.

CPI inflation surprised to the upside in December, largely driven by persistent shelter price growth. Services ex-energy and shelter inflation, or the super-core, Chair Powell’s preferred gauge of underlying price pressures, also picked up at yearend and continues to run at about double its pre-pandemic pace. While inflation has made great strides down from its peak in 2022, it ended 2023 well above the Fed’s target of 2.0%. Given some upside risks from a rebound in existing home prices, tight labor markets, and geopolitical conflicts that may raise transportation costs and disrupt supply chains, the disinflation path ahead will likely be slower and choppier. This is not conducive to a Fed rate cut in March. We continue to expect the first cut to come in Q2, most likely in May.

The Consumer Price Index (CPI) increased 0.3% in December, the most in three months, and above the consensus of 0.2%. Energy and food prices were up 0.4% and 0.2%, respectively. Excluding energy and food, the core CPI also rose 0.3%, matching expectations.