Good morning,
Welcome to the new trading year—I hope your holidays were joyous.
Few would have expected the year’s opening headlines to be dominated by the capture of Nicolás Maduro and developments in Venezuela. Markets, however, have largely shrugged. Aside from Venezuelan sovereign debt, activity has been limited. Energy markets are seeing increased inquiry, but even a legitimate regime change would unfold on a timeline far removed from anything trade-relevant.
Equities appear equally dismissive of last week’s wet blanket, suppressing gains. Futures are higher this morning—up roughly 30 bps on the S&P 500 and 60 bps on the Nasdaq Composite. Holding early gains has been a challenge lately; a change in that pattern would be a welcome signal of improving risk appetite as the year gets underway.
Did last week meaningfully alter the market’s message? Not really. The year begins with both the Tape and the Fed still on positive footing—albeit tired, and likely late-cycle. Momentum has clearly peaked, and momentum almost always peaks before price. That keeps us cautiously optimistic while closely monitoring the usual early warning signals: reversals in margin debt from new highs, waning demand measures versus supply, rising reversal breadth, and—most importantly—the Tape itself. Should that turn unfavorable, we would grow more defensive.
In short, the trend remains upward, arguing for full investment. But this is a mature bull market, and as risk managers, we remain prepared should conditions change in the coming weeks.
Be well,
Mike