Do the Fundamentals and Technicals Now Align in the US Stock Market?

Peter's Market and Economy Rap for Week Ending December 22, 2023

BE SURE AND CHECK OUT MY XMAS PRESENT TO YOU AT THE END OF THE POST!

Hi.  Peter Navarro here with this week’s market and economy wrap for the week ending December 22, 2023.  But before we get started, let me wish all of you a Merry Christmas and happy holiday as we move into what may well turn out to be one of the most tumultuous years politically – and perhaps economically – in American history.

We as Americans all deserve better than what we are getting now from both the White House and U.S. Congress, not to mention our weaponized Department of Justice and FBI.  At least in a democracy, we will have the opportunity to throw these rascals out this year; and I urge everybody out there reading this or listening to this to get involved.

Okay, let’s get down to the needy and gritty of what happened this week in the economy and markets.  The S&P 500 continued its hot streak with a modest gain.  Except for an absolutely weird options expiration day on Wednesday which led to a massive one-day pullback, the week offered few other surprises.

On the economic indicator front, the Federal Reserve’s favorite inflation indicator, the PCE Index, fell for the first time in 2020 and provided further evidence that inflation and price pressures are continuing to cool.  On an annualized basis, the core rate decelerated from 3.4 percent to 3.2 percent; and this month’s inflation reduction came in right at expectations so the market underwent little change on Friday’s news.

The Wall Street betting money continues to be on a reduction in interest rates, but after getting out on their skis last week in talking about such possible rate reductions, a gaggle of Federal Reserve officials tried to walk the whole thing back.  Good luck with that.

The broader context for all of this as traders and investors try to figure out how to deploy their cash is the combination of technical analysis and fundamental analysis that most of the very best traders rely upon.

To refresh our memories, technical analysts are chartists who look first and foremost at market trends, and within such trends, look at other technical indicators ranging from momentum and moving average crossovers to relative accumulation and distribution.

Add all this up now, and it is very clear that the S&P 500 has established a strong upward bullish trend.  The trend is so strong that the market is in a overbought condition so that traders expect at least a small pullback at some point but not one begin enough to reverse the trend.

As for the fundamentals, those in the bullish camp see both real GDP growth and inflation trending down in such a way as to yield the proverbial Goldilocks soft landing formula.  GDP growth must come down from its lofty, overstimulated heights – the hope is that it settles into a nice 2 to 3 percent groove without falling into recession.

Inflation must continue to trend downward fast enough to facilitate the Federal Reserve relaxing its interest rates stranglehold on key sectors of the economy.  So far, with this bullish trend that caught a lot of folks by surprise, including myself, the market majority, which now clearly favors the bulls, is bull hugging this bullish fundamental spin.

Despite being awash in all this bull, I’m not quite convinced that the fundamentals yet align with the technicals.  Both the Federal Reserve and White House/Congress have put our financial system so out of whack, that the bill must come due.

The federal government is facing a massive need to borrow more money, and interest rates still remain high enough that the service on our government debt will continue to rise, inevitably to a crippling rate.  Not only does the government have to refinance short-term debt as it comes due.  It has to borrow new funds to pay the rapidly growing debt.

The Federal Reserve balance sheet is likewise in trouble; and the only way it can get out of that trouble is by taking steps that will tighten money – not loosen it.

Other things loom on the horizon – the Israel-Hamas Tango in Gaza is already disrupting shipping lanes sufficiently to trigger a supply-chain shock both in terms of price and possible shortages.  The Chinese economy – the communist Chinese economy, that is – continues to show increasing signs of weakness which could lead not just to financial ripple across the world but also a possible wag the dog invasion of Taiwan as Xi Jinping, the dictator of China, tries to take the eye off our ball.

At any rate, historically, the first week of the new year is very very important when it comes to determining the trend the first six months of the year.  Look next week for a possible downward move of the market as portfolio managers book their profits for the year. 

That won’t necessarily be a sign of a downward move in the market trend, but simply ordinary Wall Street behavior.  It will be the following week you will want to keep your eye on.

Okay.  That’s it for the week.  As my Christmas present to all of the loyal followers of this market wrap, I’m offering free enrollment in either my strategic microeconomics or strategic macroeconomics course that you can take online.  Together, both courses represent a nice $40 value and really are worth a whole lot more if you take the economic lessons in them the heart.  So please don’t look this gift horse in the mouth. 

Just click on these links – don’t wait, only open for five days from Dec 22.

For Strategic Microeconomics, CLICK HERE: 

For Strategic Macroeconomics (best for investors), CLICK HERE:

And again Merry Christmas and happy holidays.  Peter Navarro.  Out.