December Thoughts: Zig-zag our way to a "soft landing" = YE rally

December Thoughts: Zig-zag our way to a soft landing = YE rally
December Thoughts: Zig-zag our way to a soft landing = YE rally
December Thoughts: Zig-zag our way to a soft landing = YE rally

We discuss: We discuss how upcoming macro data might give conflicting messages on inflation/growth and thus rates could be volatile in Dec, which causes equities to zig-zag.  But ultimately, YE rally intact.

Please click below to view our Macro Minute (Duration: 5:02).

December Thoughts: Zig-zag our way to a soft landing = YE rally

It seems like retail sales Black Friday have come in +2% to +5% above last year’s levels, or a new record. In real-terms, this is sort of flat, so I would not look at strong Black Friday numbers as something the Fed has to panic about. But as we look towards markets into YE, we see a “zig-zag” but ultimately a rally towards S&P 500 4,750-4,800 SPY 0.03% .

  • The reason for the “zig-zag” is that we know rates markets (10-year) is still hyperreactive to the opposing forces of “falling goods and housing inflation” against resilient labor markets (aka “future inflation risk”). We have seen this dynamic this past year, including how FOMC members themselves react to the incoming data.
  • And in the next 3 weeks, we see this dynamic at work:
    – 11/30 Oct PCE –> likely “soft” = higher equities
    – 12/8 Nov jobs report –> could be “strong” given low claims = market over-reaction
    – post-jobs, markets recover as investors “buy the dip”
    – 12/12 Nov CPI –> too early to know (Deep Macro sees “soft”) = markets turmoil
    – 12/13 Dec FOMC rate decision –> we expect room for “dovish shift” = higher equities
  • You might wonder why we see a possible strong jobs. To us, it is mainly that the UAW strike is over. So, the undershoot last month from UAW furlough is gone. Is that too simplistic? Maybe.
  • See the “zig-zag” at play. This is just our take on how equity markets react to the reaction in rates markets. And in coming days, we will also get some technical perspective from Mark Newton, our Head of Technical Strategy, as well. But this does not rule out ultimately a YE rally towards 4,750 to 4,800.
  • The reasons to expect higher prices by YE are multiple. Here are some thoughts:
    – incoming data continues to support a “soft landing” vs recession = market too skeptical
    – key driver of interest rates likely Dec FOMC and we see room for the Fed to “dovish shift”
    – Equities finally seeing positive inflows from retail, the first time since Feb
    – the difference is that retail YTD has seen -$240 billion of outflows
    – yet, S&P 500 is on track to be ~20% = FOMO coming
    – finally, seasonally positive factors as we are in December
  • This week has some macro data and the 4 most critical (our view) are:
    – 11/27 9am ET: Oct New Home Sales  +723k
    – 11/28 Tue 9am ET: Sept CS Home Price    +0.70% MoM
    – 11/30 Thu 8:30am ET: Oct Core PCE Deflator +0.20% MoM
    – 12/1 Fri 10am ET: Nov ISM Manufacturing  47.7
  • Of these, a solid manufacturing ISM reading would be positive. This would be a case of “good news is good news” because as we look towards 2024, we do want to see economic momentum of corporates recover

BOTTON LINE: We are “dip buyer” in a December “zig-zag”

Ultimately, we are buying dips if the markets see selling pressure. For the reasons we outlined above, we see a YE rally, but the key is probably 12/13 December FOMC.

December Thoughts: Zig-zag our way to a soft landing = YE rally

December Thoughts: Zig-zag our way to a soft landing = YE rally
Source: X.com

December Thoughts: Zig-zag our way to a soft landing = YE rally
Source: X.com

December Thoughts: Zig-zag our way to a soft landing = YE rally
Source: X.com

December Thoughts: Zig-zag our way to a soft landing = YE rally
Source: Fundstrat

December Thoughts: Zig-zag our way to a soft landing = YE rally
Source: BofA Research
December Thoughts: Zig-zag our way to a soft landing = YE rally

December Thoughts: Zig-zag our way to a soft landing = YE rally

Key incoming data December

  • 12/01 9:45am ET S&P Global Manufacturing PMI November Final
  • 12/01 10am ET November ISM Manufacturing
  • 12/05 9:45am ET S&P Global Services & Composite PMI November Final
  • 12/05 10am ET JOLTS Job Openings October
  • 12/05 10am ET November ISM Services
  • 12/06 8:30am ET 3QF 2023 Nonfarm Productivity
  • 12/07 9am ET Manheim Used Vehicle Index November Final
  • 12/08 8:30am ET November Jobs Report
  • 12/08 10am ET U. Mich. Sentiment and Inflation Expectation December Prelim
  • 12/12 8:30am ET November CPI
  • 12/13 8:30am ET November PPI
  • 12/13 2pm ET FOMC Rate Decision
  • 12/14 8:30am ET November Retail Sales Data
  • 12/15 8:30am ET December Empire Manufacturing Survey
  • 12/15 9:45am ET S&P Global PMI December Prelim
  • 12/18 8:30am ET December New York Fed Business Activity Survey
  • 12/18 10am ET December NAHB Housing Market Index
  • 12/19 9am ET Manheim Used Vehicle Index December Mid-Month
  • 12/20 10am ET December Conference Board Consumer Confidence
  • 12/21 8:30am ET 3QT 2023 GDP
  • 12/21 8:30am ET December Philly Fed Business Outlook Survey
  • 12/22 8:30am ET November PCE
  • 12/22 10am ET: U. Mich. Sentiment and Inflation Expectation December Final
  • 12/26 9am ET December S&P CoreLogic CS home price
  • 12/26 10:30am ET Dallas Fed December Manufacturing Activity Survey

Key incoming data November

  • 11/01 9:45am ET S&P Global PMI October Final Tame 
  • 11/01 10am ET JOLTS Job Openings September Mixed
  • 11/01 10am ET October ISM Manufacturing Tame
  • 11/01 10am ET Treasury 4Q23 Quarterly Refunding Press Conference Tame
  • 11/01 2pm ET FOMC Rate Decision Dovish
  • 11/02 8:30am ET: 3Q23 Nonfarm Productivity Tame
  • 11/03 8:30am ET October Jobs Report Tame
  • 11/03 10am ET October ISM Services Mixed
  • 11/07 9am ET Manheim Used Vehicle Index October Final Tame
  • 11/10 10am ET U. Mich. November prelim Sentiment and Inflation Expectation Hot
  • 11/14 8:30am ET October CPI Tame
  • 11/15 8:30am ET October PPI Tame
  • 11/15 8:30am ET November Empire Manufacturing Survey  Resilient
  • 11/15 8:30am ET October Retail Sales Data Resilient
  • 11/16 8:30am ET November New York Fed Business Activity Survey Tame
  • 11/16 8:30am ET November Philly Fed Business Outlook Survey Tame
  • 11/16 10am ET November NAHB Housing Market Index  Tame
  • 11/17 9am ET Manheim Used Vehicle Index November Mid-Month Tame
  • 11/21 2pm ET Nov FOMC Meeting Minutes Tame
  • 11/22 10am ET: U. Mich. November final Sentiment and Inflation Expectation Tame
  • 11/24 9:45am ET S&P Global PMI November Prelim Mixed
  • 11/27 10:30am ET Dallas Fed November Manufacturing Activity Survey
  • 11/28 9am ET November S&P CoreLogic CS home price 
  • 11/28 10am ET November Conference Board Consumer Confidence
  • 11/29 8:30am ET 3QS 2023 GDP
  • 11/29 2pm ET Fed Releases Beige Book
  • 11/30 8:30am ET October PCE

Key incoming data October

  •  10/2 10am ET September ISM Manufacturing Tame
  •  10/3 10am ET JOLTS Job Openings August Hot
  •  10/4 10am ET September ISM Services Tame
  •  10/6 8:30am ET September Jobs Report Mixed
  •  10/6 9am ET Manheim Used Vehicle Index September Final Tame
  • 10/10 11am NY Fed Inflation Expectations Mixed
  •  10/11 8:30am ET September PPI Mixed
  •  10/11 2pm ET Sep FOMC Meeting Minutes Tame
  •  10/12 8:30am ET September CPI Mixed
  •  10/13 10am ET U. Mich. September prelim 1-yr inflation Mixed
  •  10/16 8:30am ET October Empire Manufacturing Survey Tame
  •  10/17 8:30am ET October New York Fed Business Activity Survey Tame
  • 10/17 8:30am ET September Retail Sales Data Hot
  •  10/17 9am ET Manheim October Mid-Month Used Vehicle Value Index Tame
  •  10/17 10am ET October NAHB Housing Market Index Tame
  • 10/18 8:30am ET September Housing Starts Tame
  • 10/18 2pm ET Fed releases Beige Book Tame
  •  10/19 8:30am ET October Philly Fed Business Outlook Survey Tame
  • 10/19 10am ET Existing Home Sales Tame
  • 10/19 12pm ET Fed (including Powell) at Economic Club of New York
  •  10/24 9:45am ET S&P Global PMI October Prelim Tame
  •  10/26 8:30am ET 3Q 2023 GDP Advance Strong
  •  10/27 8:30am ET September PCE Tame
  •  10/27 10am ET Oct F UMich Sentiment and Inflation expectation Tame
  •  10/30 10:30am ET Dallas Fed September Manufacturing Activity Survey Tame
  • 10/31 8:30am ET 3Q23 Employment Cost Index Mixed
  •  10/31 9am ET August S&P CoreLogic CS home price Mixed
  •  10/31 10am ET October Conference Board Consumer Confidence Tame

Key incoming data September

  •  9/1 8:30am ET August Jobs Report Tame
  •  9/1 10am ET August ISM Manufacturing Tame
  •  9/6 10am ET August ISM Services Mixed
  •  9/6 2pm ET Fed releases Beige Book Tame
  •  9/8 9am ET Manheim Used Vehicle Index August Final Tame
  •  9/8 2Q23 Fed Flow of Funds Report Tame
  •   9/13 8:30am ET August CPI Mixed
  •  9/14 8:30am ET August PPI Tame
  •  9/15 8:30am ET September Empire Manufacturing Survey Tame
  •  9/15 10am ET U. Mich. September prelim 1-yr inflation Tame
  •  9/18 8:30am ET September New York Fed Business Activity Survey Tame
  •  9/18 10am ET September NAHB Housing Market Index Tame
  •  9/19 9am ET Manheim September Mid-Month Used Vehicle Value Index Mixed
  •  9/20 2pm ET September FOMC rates decision Market saw Hawkish
  •  9/21 8:30am ET September Philly Fed Business Outlook Survey Mixed
  •  9/22 9:45am ET S&P Global PMI September Prelim
  •  9/25 10:30am ET Dallas Fed September Manufacturing Activity Survey
  •  9/26 9am ET July S&P CoreLogic CS home price
  •  9/26 10am ET September Conference Board Consumer Confidence

Key incoming data August

  • 8/1 10am ET July ISM Manufacturing Tame
  • 8/1 10am ET JOLTS Job Openings Jun Tame
  • 8/2 8:15am ADP National Employment Report Hot
  • 8/3 10am ET July ISM Services Tame
  • 8/4 8:30am ET July Jobs report Tame
  • 8/7 11am ET Manheim Used Vehicle Index July Final Tame
  • 8/10 8:30am ET July CPI Tame
  • 8/11 8:30am ET July PPI Tame
  • 8/11 10am ET U. Mich. July prelim 1-yr inflation Tame
  • 8/11 Atlanta Fed Wage Tracker July Tame
  • 8/15 8:30am ET Aug Empire Manufacturing SurveyMixed 
  • 8/15 10am ET Aug NAHB Housing Market IndexTame
  • 8/16 8:30am ET Aug New York Fed Business Activity SurveyNeutral
  • 8/16 2pm ET FOMC MinutesMixed 
  • 8/17 8:30am ET Aug Philly Fed Business Outlook Survey Positive
  • 8/17 Manheim Aug Mid-Month Used Vehicle Value IndexTame
  • 8/23 9:45am ET S&P Global PMI Aug PrelimWeak
  • 8/25 10am ET Aug Final U Mich 1-yr inflationMixed
  • 8/28 10:30am ET Dallas Fed Aug Manufacturing Activity Survey Tame
  • 8/29 9am ET June S&P CoreLogic CS home price Tame
  • 8/29 10am ET Aug Conference Board Consumer Confidence Tame
  • 8/29 10 am ET Jul JOLTS Tame
  • 8/31 8:30am ET July PCE Tame

Key incoming data July

  • 7/3 10am ET June ISM Manufacturing Tame
  • 7/6 8:15am ADP National Employment Report Hot
  • 7/6 10am ET June ISM Services Tame
  • 7/6 10 am ET May JOLTS Tame
  • 7/7 8:30am ET June Jobs report Mixed
  • 7/10 11am ET Manheim Used Vehicle Index June Final Tame
  • 7/12 8:30am ET June CPI Tame
  • 7/13 8:30am ET June PPI Tame
  • 7/13 Atlanta Fed Wage Tracker June Tame
  • 7/14 10am ET U. Mich. June prelim 1-yr inflation Mixed
  • 7/17 8:30am July Empire Manufacturing Survey
  • 7/18 8:30am July New York Fed Business Activity Survey
  • 7/18 10am July NAHB Housing Market Index in-line
  • 7/18 Manheim July Mid-Month Used Vehicle Value Index Tame
  • 7/25 9am ET May S&P CoreLogic CS home price Tame
  • 7/25 10am ET July Conference Board Consumer Confidence Tame
  • 7/26 2pm ET July FOMC rates decision Tame
  • 7/28 8:30am ET June PCE Tame
  • 7/28 8:30am ET 2Q ECI Employment Cost Index Tame
  • 7/28 10am ET July Final U Mich 1-yr inflation Tame

Key data from June

  • 6/1 10am ET May ISM Manufacturing Tame
  • 6/2 8:30am ET May Jobs report Tame
  • 6/5 10am ET May ISM Services Tame
  • 6/7 Manheim Used Vehicle Value Index May Tame
  • 6/9 Atlanta Fed Wage Tracker April Tame
  • 6/13 8:30am ET May CPI Tame
  • 6/14 8:30am ET May PPI Tame
  • 6/14 2pm ET April FOMC rates decision Tame
  • 6/16 10am ET U. Mich. May prelim 1-yr inflation Tame
  • 6/27 9am ET April S&P CoreLogic CS home price Tame
  • 6/27 10am ET June Conference Board Consumer Confidence Tame
  • 6/30 8:30am ET May PCE Tame
  • 6/30 10am ET June Final U Mich 1-yr inflation Tame

Key data from May

  • 5/1 10am ET April ISM Manufacturing (PMIs turn up) Positive inflection
  • 5/2 10am ET Mar JOLTS Softer than consensus
  • 5/3 10am ET April ISM Services Tame
  • 5/3 2pm Fed May FOMC rates decision Dovish
  • 5/5 8:30am ET April Jobs report Tame
  • 5/5 Manheim Used Vehicle Value Index April Tame
  • 5/8 2pm ET April 2023 Senior Loan Officer Opinion Survey Better than feared
  • 5/10 8:30am ET April CPI Tame
  • 5/11 8:30am ET April PPI Tame
  • 5/12 10am ET U. Mich. April prelim 1-yr inflation Tame
  • 5/12 Atlanta Fed Wage Tracker April Tame
  • 5/24 2pm ET May FOMC minutes Dovish
  • 5/26 8:30am ET PCE April Tame
  • 5/26 10am ET U. Mich. April final 1-yr inflation Tame
  • 5/31 10am ET JOLTS April job openings

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December Thoughts: Zig-zag our way to a soft landing = YE rally

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