Positive week with fundamental surprise (soft CPI) and early signs of sentiment capitulation = 2025 tracking well.

VIDEO: This was a positive week for markets because we saw favorable CPI readings which quell inflation hysteria and there are signs of market capitulation.

Please click below to view our Macro Minute (duration: 4:51).

So far this week, the S&P 500 is up 2% and YTD now +1.2%. This is a good week for markets, benefitting from positive fundamental surprise (Dec CPI soft) and signs of market capitulation. Overall, we believe this is encouraging and enough that we expect some investors to “dip a toe” and add risk, even if market technicals are not fully confirming:

• The rationale for expecting investors to “dip a toe” in water:
  – Inflation hysteria abating
  – S&P 500 internals probably bottomed
  – Sentiment near “capitulation” levels (not complete)
  – Technicals not fully confirmed (not complete)
  – BOTTOM LINE: “Dip toes” in the water
• The December Core CPI of +0.22% is the best reading since July 2024 (+0.17%) and reverses 3 months of rising Core CPI readings. But the reason we are encouraged is that we see this as repeatable and setting up favorably compared to a year ago:
  – Jan, Feb and March 2024 Core CPI were +0.39%, +0.36%, +0.36%
  – These are good comps and 2025 should be notably lower
• Why can’t 2025 Core CPI be as high as the Jan to March 2024 readings?
  – it is because shelter is cooling sharply
  – Dec shelter CPI MoM came in at +0.26% MoM
  – Jan, Feb and March 2024 were +0.64%, +0.42% and 0.40%
  – Shelter CPI has not posted any readings of that level since
• Thus, Jan to March CPI readings likely to be far lower, which argues the market might start pricing in more cuts than just 1 in 2025.
• As for market internals, the % S&P 500 above 50-dma fell to 16% earlier this week. This is the lowest since Nov 2023. And take a look at Nov 2023, that was a major low.
• Sentiment is showing the same thing. AAII % net bulls fell to -15% this week:
  – negative 15% is the lowest reading since Nov 2, 2023
  – that was the exact major low of 2023
  – sentiment deteriorated so sharply in the past 5-6 weeks
• In fact, the % bulls only fell to 25%, the lowest in 18 months as well. This surprised us because it shows how quickly sentiment has declined. Full capitulation is arguably not here yet as the equity put/call never surged above 1.0 for a sustained period nor have TRIN (arms index) move above 2.0. So, we see this as signs nearing the end of capitulation.
• Mark Newton, Head of Technical Strategy, does suggest the signs of a complete low are not yet in place. He would like to see Technology, and stocks like AAPL stabilize. But he acknowledges breadth could have bottomed.

• In January, there are some key barometers to watch for directional guidance for the year. And these are positive so far:
  – First 5 days positive = 82% probability FY gain
  – January MTD +1.2% = key close positive
  – Turbulence expected but overall higher

• The macro is light next week:
  – 1/20 Mon: Martin Luther King Jr. Day Holiday
  – 1/24 Fri 9:45 AM ET: Jan P S&P Global Manufacturing PMI
  – 1/24 Fri 9:45 AM ET: Jan P S&P Global Services PMI
  – 1/24 Fri 10:00 AM ET: Jan F U. Mich. 1yr Inf Exp
  – 1/24 Fri 10:00 AM ET: Dec Existing Home Sales    4.2me

BOTTOM LINE: We expect investors to be “dipping toes” into equities

2025 is set to be a tricky year and January is showing this. But the fact the market is YTD positive is a good sign. Hopefully, we get more decisive signals next week. But overall, this was a positive week with a positive development from the extinguishing of inflation hysteria (for now).

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Key incoming data January:

• 1/2 9:45 AM ET: Dec F S&P Global Manufacturing PMI Tame
• 1/3 10:00 AM ET: Dec ISM Manufacturing PMI Tame
• 1/6 9:45 AM ET: Dec F S&P Global Services PMI Tame
• 1/6 10:00 AM ET: Nov F Durable Goods Orders Tame
• 1/7 8:30 AM ET: Nov Trade Balance Tame
• 1/7 10:00 AM ET: Dec ISM Services PMI Tame
• 1/7 10:00 AM ET: Nov JOLTS Job Openings Tame
• 1/8 9:00 AM ET: Dec F Manheim Used vehicle index Tame
• 1/8 2:00 PM ET: Dec FOMC Meeting Minutes Tame
• 1/10 8:30 AM ET: Dec Non-Farm Payrolls Hot
• 1/10 10:00 AM ET: Jan P U. Mich. Sentiment and Inflation Expectation Hot
• 1/13 11:00 AM ET: Dec NY Fed 1yr Inf Exp Tame
• 1/14 6:00 AM ET: Dec Small Business Optimism Survey Tame
• 1/14 8:30 AM ET: Dec PPI Tame
• 1/15 8:30 AM ET: Dec CPI Tame
• 1/15 8:30 AM ET: Jan Empire Manufacturing Survey Tame
• 1/15 2:00 PM ET: Jan Fed Releases Beige Book Tame
• 1/16 8:30 AM ET: Dec Retail Sales Data Tame
• 1/16 8:30 AM ET: Jan Philly Fed Business Outlook Mixed
• 1/16 10:00 AM ET: Jan NAHB Housing Market Index Tame
• 1/17 9:00 AM ET: Jan M Manheim Used vehicle index
• 1/17 4:00 PM ET: Nov Net TIC Flows
• 1/24 9:45 AM ET: Jan P S&P Global Manufacturing PMI
• 1/24 9:45 AM ET: Jan P S&P Global Services PMI
• 1/24 10:00 AM ET: Jan F U. Mich. Sentiment and Inflation Expectation
• 1/24 10:00 AM ET: Dec Existing Home Sales
• 1/27 8:30 AM ET: Dec Chicago Fed Nat Activity Index
• 1/27 10:00 AM ET: Dec New Home Sales
• 1/27 10:30 AM ET: Jan Dallas Fed Manuf. Activity Survey
• 1/28 9:00 AM ET: Nov S&P CoreLogic CS home price
• 1/28 10:00 AM ET: Jan Conference Board Consumer Confidence
• 1/28 10:00 AM ET: Dec P Durable Goods Orders
• 1/29 2:00 PM ET: Jan FOMC Decision
• 1/30 8:30 AM ET: 4Q A 2024 GDP
• 1/31 8:30 AM ET: Dec PCE Deflator
• 1/31 8:30 AM ET: 4Q Employment Cost Index

Economic Data Performance Tracker 2025:

Economic Data Performance Tracker 2024:

Economic Data Performance Tracker 2023: