1. Moving the markets 

The S&P 500 barely budged today, but it was enough to inch closer to a new record high. Wall Street is hoping to end 2023 with a bang, after a stellar fourth quarter that erased the losses of the previous one.

The S&P is up 11.7% for the quarter, its best performance in three years, and the three major indexes are on track to post their ninth consecutive weekly gains.

But not everything is rosy in the market. Traders are betting on rate cuts and lower inflation in 2024, which may turn out to be wishful thinking. Today’s economic data was disappointing, with lower inventories, higher jobless claims, and weaker home sales.

The market was mixed, with small caps, cryptos, and oil losing ground, while the dollar, the Dow, and bonds yields rose. The Mag7 stocks managed to squeeze out a positive close, but junk bonds diverged from the S&P 500. Gold briefly hit $2,088 overnight, but couldn’t keep the momentum, as oil dropped below $72 and closed at its lowest in a week.

Some analysts are warning of a possible correction, especially if the S&P reaches $4,900. How deep and how long is anyone’s guess, but one thing is certain: volatility is waiting in the wings, ready to pounce. Will the market end the year with a whimper or a bang? Tune in tomorrow to find out.

1. Moving the markets 

The major indexes barely budged from their flat lines, as the S&P 500 flirted with its all-time high and missed it by a hair.

Traders were itching to see a new record, but they knew it could be followed by a cold shower or a retreat. Stocks were enjoying the “Santa Claus rally,” a festive period that spans the last five trading days of the old year and the first two of the new one. The S&P 500 has averaged a 1.3% gain over this time, based on data from the Stock Trader’s Almanac dating back to 1950.

But not everyone was feeling jolly. Some Wall Street skeptics feared that the market was too giddy, and that the Federal Reserve might spoil the party by delaying rate cuts. The market was betting on a more than 70% chance of a cut at the Fed’s March meeting, but it didn’t help that 90% of stocks in the S&P 500 were trading above their 50-day moving average, indicating a frothy market.

Recent bullish sentiment data also showed signs of euphoria, which could expose investors to nasty surprises. Stocks may have been snoozing, but the session was far from dull.

The dollar plunged to its lowest level since July, while bonds, Swiss franc and cryptos soared, and the “Magnificent 7 stocks” got hammered in the morning. The 2-year yield dropped, as money fled to safer assets.

The dollar’s downfall was gold’s glory, with the shiny metal closing at a new record high, signaling more uncertainty and inflation ahead in 2024.

While the Fed’s policy can sway the market, as we’ve seen before, it’s the global liquidity that fuels the fire, even when the fundamentals are weak, as this chart shows.

Will the market keep the festive spirit, or will it face a hangover?

1. Moving the markets 

The stock market kept up its momentum from last week and kicked off the final week of the year with a bang. The S&P 500 edged closer to its all-time high, as investors shrugged off the holiday blues and low trading volume.

The upbeat mood was fueled by signs of easing inflation, which is getting closer to the Fed’s 2% goal. This also raised hopes of interest rate cuts in 2020, which would be music to the ears of many traders. Some are calling this a “goldilocks” scenario, where everything is just right: low inflation, steady growth, and no more rate hikes.

The optimism was supported by some solid economic data, including rising home prices, a strong National Activity index, and a positive Fed Manufacturing index. These indicators helped lift the US Surprise index, which measures how the economy is performing relative to expectations.

The bulls also got a boost from some short squeezes, which forced bearish traders to cover their bets and push up the prices of some of the most hated stocks. The tech sector also saw some action, as some of the most unprofitable companies soared to new heights. Here’s a chart from ZeroHedge that shows the madness.

The bond market was relatively calm, with yields staying flat for the day. The 2-year yield had some wild swings, though, as the dollar weakened, and gold regained its shine above $2,070. Oil prices also jumped back above $75, as supply concerns outweighed demand worries.

The only sour note in the economic data was a drop in consumer confidence, which contrasted with a rise in personal spending. Apparently, Americans are racking up $1 trillion in credit card debt to buy things they don’t really need or want or, are they in survival mode?

How long can this go on?