SPXT - View On Wall Street: The Trend Is Your Friend

2024-02-03 01:23:01 ET

Summary

• Whether it be a bull or a bear, staying with a trend increases the odds of success.
• No surprise, the Fed left rates unchanged and is effectively in "neutral".
• The Fed futures market has been wrong on Fed policy for two years. My stance hasn't changed. I will lean to the very low end of any rate-cutting scenario.
• At some point, we will get a healthy consolidation period in the MEGA-7. This should allow other areas of the market to briefly rotate into favor and strengthen the market.

"Learn to deal with the valleys and the hills will take care of themselves." - Count Basie

Despite all of the other headlines that surround investors they will be focused on earnings. The big banks have already started to report and some of the high-profile names visited the earnings confessional this week.

Institutional investors are relatively optimistic, that the economy will remain resilient, if not robust. The probability of a recession has eased considerably as economic growth remains more resilient than expected. In the latest Bank of America Fund Manager Survey as of December, 66% of respondents said that a "soft landing" is the most likely outcome for the global economy over the next 12 months. That is now the consensus view, something that seemed next to impossible just a year or two ago.

While consensus now expects a soft, non-recessionary landing in 2024, some economists continue to believe that a very "mild recession" is still on the table. They take the other side of the consensus that says rates are going to be cut dramatically. Instead, it's still higher borrowing costs, rising credit card debt, and eventually a weaker job market that can damper consumer spending. This should drive the economy's growth rate from a 2.3% pace in 2023 to a below-trend rate of ~1.0% in 2024. It should also lower inflation, eventually building a case for less restrictive Fed policy in the coming months. Yet when we consider no one, not even the Fed's economic models forecasted the type of growth seen in the last two quarters, it makes any forecast unreliable....

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