Instead of joining every other pundit in predicting what won't happen in 2024, I would like to point out that 2023 is not over just yet...
This has been the largest % weekly gain to a 52 week high since 1998. The S&P 500 has been up 8 weeks in a row, counting this week. And yet we just learned that fund managers are the most bullish since the start of 2022. Which happens to be the last time the market peaked out and crashed from this exact same level. Can anyone explain why it is that media pundits can't check the charts to see what happened the last time fund managers were this bullish? Instead, they do the opposite and write as if it's a bullish fact that so many "experts" are bullish.
Ok, so instead of explaining to bulls the difference between a hard landing and a soft landing - which would be gratuitous on my part - I will instead focus on the precarious technical indicators that attend this current market.
The market is now overbought on every metric - momentum, breadth, and volume. Which is why I am calling this the "Santa Pause" rally. We are now to believe that this record overbought condition will not only continue next week, but into 2024 as well.
"Bank of America also found that 66% of the fund managers it polled expect the world economy to experience a so-called "soft landing" in 2024"
"The bank's own head of US equity strategy is expecting stocks to perform well in 2024"
Herein lies the problem - this is the FIRST time the Fed has "pivoted" to a dovish stance with the market already fully overbought. Prior to last week's FOMC, the market was already 6 weeks straight-line overbought because the market has been front-running this Fed pivot for ALL of 2023. However, when the FOMC turned inexplicably dovish, the market exploded higher to an even more overbought stance. At the beginning of December, Powell had called talk of rate cuts "premature". But then two weeks later, the FOMC put three rate cuts on the table for 2024. It's pure Idiocracy.
What this means is that the Fed has over-lubricated an already over-heated market. It's unclear why they would do such a thing, except to continue their unbroken streak of policy errors which began in 2021 by saying they would be "lower for longer". And then in 2022 they raised rates by the most since 2007 while keeping their balance sheet still almost 2x pre-pandemic. And then now, with this ill-fated dovish "pivot".
All of which gets us back to the pre-pandemic conditions in which the Fed had already pivoted and was using QE to address the "repo" crisis. By the end of 2019, they had cut rates three times in what they called a "mid-cycle adjustment", which came ten years into the longest cycle in U.S. history. So, risk assets soared and yield spreads collapsed, while the average stock went nowhere. And then we all know what happened next.
Astute observers will note that pundits were calling it a "soft landing" in late 2019. Not as soft as this one apparently.
In addition to the S&P 500 shown above, none of the other major indices have joined the price-weighted Dow Industrials at new all time highs. Here we see the Nasdaq Composite is still far below its all time high while the volume oscillator is now rolling over.
Yesterday, markets experienced a day of extreme selling, which came as a shock to bulls who are not aware such a thing existed. Pundits were scratching their head and calling it "inexplicable" selling. However, a brief glance at the NYSE volume oscillator shows that the market has tanked every time from this level during this past year.
It's only inexplicable if you are Stevie Wonder.
Here is another crazy factoid, the FANG+ are now up 95% year-to-date. And yet the majority of fund managers remain long Tech stocks for 2024:
"The most crowded trades include being long on the 'Magnificent Seven' and short on China stocks"
In summary, the REAL *smart* money trade is to fade everything Wall Street is doing right now.
And instead bet that Wall Street will explode in 2024 with extreme dislocation and the hardest landing since 1930.
At the latest.
And know one thing with absolute certainty - they don't see it coming.
