December 21, 2023
Good morning,
The equity market threw investors a curve ball yesterday. With only 90 minutes left in the trading day, the S&P 500 was predictably up +0.5% with bonds enjoying another intra-day rally of their own. And then, without any obvious catalyst (headline, company announcement, data release), S&P 500 Futures plunged -2% to close the day down -1.5%. Bonds, not incidentally, held their gains.
News agencies scrambled for an explanation – pre-holiday late afternoon low volume, zero-day option expiration (Friday), an overdue pullback after the market’s spectacular run toward a record high, late reaction to FedEx warning (a real reach) – you get the picture. No single reason, probably a combination of all (except the FedEx garbage). I think this sums up yesterday afternoon best: the market is very overbought, it is in a melt-up period, and oftentimes in melt-ups, things can get sillier before stocks really do have a pullback. The best support I can offer for this summation is that it was not a multi-asset sell-off. Bonds didn’t blink and held their earlier day gains.
Regardless of the exact reason, yesterday’s price action makes it clear that nothing ever moves in a straight line. Especially when the Federal Reserve and markets are at such odds over the path of rates in 2024. Let’s enjoy the relative calm for markets likely to last another week or so through year-end. I suspect there’s plenty of volatility coming in January.
I wish you all Happy Holidays, a very Merry Christmas, and a very Happy New Year.
In prayer for all that,
Mike
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