Closing Thoughts for the Week

Investors hoping for a continuation of the stock/bond rally that characterized most of the past two months of 2023 have probably been pretty disappointed. Staples are a bit more of a pure defensive play and if those keep breaking out, it’s a bad sign for a lot of last year’s leaders. Friday’s reaction to the non-farm payroll report was really interesting and not in a good way.

The last week of 2023 went about as I expected - gentle gains with little volatility. It creates a better opportunity set for the equity market as a whole if more of it is participating and that’s what we’ve been seeing over the past two months. Now, that’s the good news, but here are the challenges I think the markets and the economy are still facing heading into 2024.

The decline in core PCE, the Fed’s preferred inflation measure, should help confirm the notion that the Fed will likely commence with rate cuts in the first half of the year. Small-caps had yet another big week and appear to be in the midst of the breakout that would be a significant mile marker for this rally. I’m still watching Treasuries and gold closely here.