1. Moving the markets 

The stock market reached new heights today, following up on Friday’s record-breaking rally. The Dow breached the 38,000 mark for the first time ever, gaining 145 points or 0.4%. The S&P 500 also rose 0.4%, hitting another all-time high.

But not everyone is buying the bull run. Hedge funds have been betting heavily against stocks, with shorts outnumbering longs 2:1 this week and 3:1 this year. Are they in for a rude awakening?

The fate of Wall Street may hinge on the Fed’s ability to land the economy softly, easing inflation without triggering a recession. The odds of a Fed rate cut in March have dropped sharply, from 81% to 40%, in the past week. Meanwhile, the probability of no change has jumped from 19% to 58%.

Traders will be eyeing several key economic indicators this week, such as the fourth quarter GDP on Thursday and the Fed’s preferred inflation gauge, the PCE price index, on Friday. These reports will influence how the Fed shapes its monetary policy going forward.

The market got a boost today from falling bond yields, which signaled weak economic growth, but this was offset by rising oil prices, as tensions in the Middle East flared up again.

US stocks were mixed, with small caps surging at the open but fading later, while the large caps held on to modest gains. China’s market, however, tanked overnight.

Ultimately, it’s still a game of a few big players, whose momentum has been impressive. This is evident from the fact that the S&P 500, weighted by market cap, climbed steadily in January, while the equal-weighted version has fallen. This is a divergence that began a few weeks ago.

How long can it go on?

1. Moving the markets 

The market was in a good mood today, thanks to the tech sector’s strong performance. Apple led the way, gaining 3.3% after getting a thumbs up from Bank of America. The iPhone maker shrugged off a recent downgrade from Wells Fargo and had its best day in over eight months.

Meanwhile, the job market remained tight, as the latest data showed fewer people filing for unemployment benefits than expected. The 10-year Treasury yield rose to 4.14%, reflecting the economic optimism.

However, not everyone was happy. The Fed’s Raphael Bostic said he expects the central bank to start cutting rates in the third quarter, which is sooner than he previously thought, but slower than what the market wants.

The Senate also did its part, passing a bill to avoid a government shutdown. This sparked a buying frenzy in stocks, especially on the Nasdaq, which outperformed the other indexes. The MAG7 stocks (Microsoft, Amazon, Google, Facebook, Netflix, Tesla, and Apple) reached new heights, while the most hated stocks continued to suffer.

Other markets also saw some action. Bond yields climbed higher, the dollar stayed flat, oil prices rose over 2%, and gold bounced back from the $2k level.

But here’s the catch. The S&P 500 and bond yields are both at one-month highs, which is a rare and risky situation. It looks like an alligator’s mouth that could snap at any moment.

Will the market bite the bullet or dodge the bullet?

1. Moving the markets 

The stock market lost its appetite as bond prices went down and interest rates went up. The U.S. economy also showed some surprising strength, making the Fed less likely to cut rates.

ZeroHedge summed it up like this: Retail sales: hot; Housing: sizzling; Industrial Production: – not bad. The ‘real’ numbers are looking good, while the ‘soft’ surveys are tanking. Bottom line: the economy is growing too fast for the Fed to lower rates, and the market knows it.

But traders are still hoping for a miracle, and betting on a 52% chance that the Fed will start cutting rates in March.

The December retail sales report was a big boost for the economy, and a big blow for the rate-cutters. Consumers were spending like crazy, even without cars.

Retail sales rose 0.6% from November and 0.4% without autos. Economists were expecting 0.4% and 0.2%, respectively. The 10-year Treasury yield jumped to 4.11%, up 4 basis points from Tuesday, after Fed Governor Waller said the Fed might not ease as fast as the market wants.

The MAG7 stocks (Microsoft, Apple, Google, Amazon, Facebook, Netflix, and Tesla) had a bad day, losing all their gains for the year. The most hated stocks also kept falling, with no sign of a rebound.

The dollar was the big winner, thanks to the higher yields. It had the best start to a year since 2015. Gold, on the other hand, suffered from the stronger dollar, and ended the day lower.

The Fed’s next move will be crucial for the market’s direction. The Fed is in a tough spot. If Powell gives the market what it wants (6 rate cuts) in this election year, inflation will go through the roof, and everyone will be mad, especially the politicians who want to keep their jobs. If he doesn’t cut, the market will be sad, and only the bears will be happy.

What will he do?