NFP came in at 303K vs 200K estimates, a huge beat which, combined with a decline in the unemployment rate, argues against any near term rate cuts.
ES is all over the map this morning, but has given up much of its overnight ramp and is approaching our next downside target. With CPI coming out next week and a likely military escalation in the Middle East, ES will do well to hold its 50-day moving average.
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Many bears have simply given up betting on a downside that, despite plentiful recession indicators, feels increasingly unlikely. Since the S&P 500 completed its Inverted Head & Shoulders pattern back in December, the index has piled on nearly 14% [see: A Look Ahead at 2024.] 
The many, many bulls point to a generally strong economy, healthy employment picture, and the transformative potential of AI to justify the market’s historically high valuations. The bears see things differently.
For an excellent summation of the bears’ case, take the time to read John Hussman’s Universal Capitulation and No Margin of Safety. He makes some very compelling points regarding valuations…
We’ve observed greater extremes only twice in U.S. financial history: the week ended December 31, 2021, and the week ended August 26, 1929.
Other market gurus have also rung alarm bells, from Bill Gross’ warning of “excessive exuberance” to Chris Senyek’s concerns about the “potential formation of another late-90’s-style TMT [technology, media and telecom market] bubble” to Jeff Gundlach’s admonition that “this feels a lot like 1999…there’s a lot of risk in markets that have run this far.” Even perennially bullish Warren Buffett is sitting on $168 billion in cash, and recently wrote that “markets now exhibit far more casino-like behavior than they did when I was young.”
We’ll take a look at some of the most compelling economic data and charts that should provide guidance on the remainder of 2024 and beyond.
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In a repeat of the most effective algo move of the past 10+ years, VIX broke down following the Fed’s no-news rate decision and press conference yesterday.
As always, this allowed equities to leapfrog an area of stubborn overhead resistance. 
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In his January press conference, Fed Chief Jay Powell accepted some responsibility for the sharp rise in housing prices during the pandemic.
“We’re also well aware that when we cut rates at the beginning of the pandemic, for example, the … housing industry was helped more than any other industry.”
This statement implies that, were it not for the pandemic, the current inflation picture wouldn’t be burdened by sticky, elevated housing prices. 
But, that’s just not true. The problem developed long before anyone heard of COVID-19. During both the 2000-2003 recession and (especially) the 2007-2009 recession, the Fed slashed interest rates in order to save the housing market from steep price slumps. 
The Fed’s belief that it could eliminate the natural cycles which have always existed in our economy ultimately led to even worse fluctuations. The current housing crisis was brought on by fifteen years of historically low interest rates – not just the pandemic rescue.
Now, the Fed says they don’t have the tools to fix the problem they created. That much is probably true. Runaway prices usually require a recession to bring them back to trend. But, the least the Fed could do is own up to the problem that they themselves created.
Futures are off moderately, testing the 10-DMA as we approach the open. But, of course, VIX hasn’t been hammered back below its 200-DMA yet.
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Futures are flat this OPEX morning as algos weigh the impact of higher than expected inflation, driven largely by rising oil and gas prices.
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Futures are slightly higher on the heels of VIX’s 7% collapse from yesterday’s highs (on a day when stocks were broadly lower.)
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Nonfarm payrolls soared by 353,000, more than twice the 175,000 expected. Average hourly wages also beat at +0.6% (+4.5% YoY) versus +0.3% expected. Unemployment remained at 3.7%. Forget about a March rate cut. Bulls will be lucky to get one in May.
The overnight ramp job has completely disappeared, with futures struggling to remain positive. AAPL‘s meltdown hasn’t helped.
Factory orders and Michigan consumer sentiment are due out at 10ET.
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In last month’s update on gold and silver [see: Dec 5 Update] we noted that gold and silver had reached our mid-October targets. We forecast that silver would likely drop to its 200-day moving average and continue dropping to backtest two significant trend lines at 22.
It reached 22.04 on Monday before and has bounced 2.5% this morning.
Likewise, gold reversed sharply off our 2152 target from October and dropped 160, but hasn’t quite reached our next lower target. It is an interesting development, and one which makes a statement about the USD and, possibly, inflation.
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In a move that surprised no one, the BoJ left their monetary policy unchanged unhinged. The policy statement still reflects the looney tunes, magical thinking that has always epitomized their decisions: they’ll raise rates when inflation reaches 2% – even though inflation is well above 2% and has been for over a year. 
Annualizing the past quarter, CPI is running at 5.4%. Yet, the BoJ is holding short term rates at -0.10% and the 10Y at 0%. Ultra-low interest rates have exacerbated the inflation problem for consumers, as the yen continues to hover near 30+ year lows – driving food and energy prices even higher.
However, increasingly squeezed consumers remain at the bottom of the BoJ’s priority list, along with Debt:GDP – currently around 255%. At the top of the list: the Nikkei 225 stock index – hovering near all-time highs.
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October CPI came in unchanged following a 0.4% increase in September. For the year, CPI dropped to 3.2% from 3.7% in September. Core came in at 4.0% YoY and 0.2% MoM.
Futures soared on the print.
As we have anticipated for the past several months, it was a sharp drop in gas prices which produced the equity-friendly print. From CPI Continues Falling on July 12:
As we discussed last month, the benefit from YoY price declines in oil/gas has maxed out unless prices continue to fall. In other words, central bankers might need to drive oil/gas prices even lower.
From June’s No Surprise:
It’s important to note that oil/gas mustn’t rally any further. If gas were to level out at current levels, the strong positive correlation between YoY gas prices and CPI indicate that inflation would be on the rise from now through the end of the year.
And, Powell: Inflation Not Over:
… there is little chance of inflation not bouncing back up unless oil and gas prices collapse from current levels.
The breakout in July following OPEC’s production cut was followed by an incredible increase in geopolitical risks related to the Israel-Hamas war. Yet oil and gas prices are lower than they have been in almost two years.
It might not be a big enough drop to help Americans forget the 6.7% annual increase in shelter expenses. But, it’s certainly enough to break stocks out of their latest swoon.
Mission accomplished.
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