Morning Wrap: ASX 200 futures flat, S&P 500 ends 9-week win streak + 3 signs of market exhaustion

The S&P 500 and Nasdaq snapped a nine-week winning streak as markets pull back from overbought conditions, short-sellers cop almost US$200 billion in paper losses in 2023, Mark Zuckerberg has sold almost half a billion in Meta stock over the past two months, stronger-than-expected US jobs data puts March fed pivot in doubt and a recap of recent market indicators.

Let's dive in.

S&P 500 SESSION CHART

S&P 500 marginally higher amid choppy conditions (Source: TradingView)

MARKETS

• S&P 500 higher but off session highs of 0.72%

• S&P 500 and Nasdaq both snapped nine-week winning streaks

• US 10-year yield up six in the last seven sessions, reclaiming the 4.0% level

• Path of least resistance has been a lower start to 2024 amid overbought conditions and stretched positioning

• Consensus currently expects ~12% S&P 500 earnings growth in 2024 

• Latest flow data shows investors poured US$123bn into money markets (Bloomberg)

• Traders make aggressive options bet on spike in Treasury yields (Bloomberg)

• End of QT could offer tailwind to bond markets (Reuters)

• Strategists expect Treasury rally to resume after current rest (Bloomberg)

• Goldman strategists say US corporate earnings may exceed forecasts (Bloomberg)

• Yen slump to deepen as markets adjust US and Japan rate expectations (Bloomberg)

• Short-sellers accumulated almost US$195bn in paper losses last year, erasing some two-thirds of US$300bn made during 2022 market selloff (Bloomberg)

• Latest EIA stockpile data show fuel stocks building substantially (Reuters)

• Bitcoin remains volatile as investors wait for ETF approval (CNBC)

STOCKS

• OpenAI in talks with publishers about deals to license their content (Bloomberg)

• McDonald's CEO says Middle East tensions will leave a meaningful impact (Reuters)

• Mark Zuckerberg sold ~US$500m in Meta stock over past 2 months (Bloomberg)

• Amazon captured ~30% of all online orders in final days of holiday shopping (Bloomberg)

CENTRAL BANKS

• Markets see BoJ moving more cautiously following this week's earthquake (Nikkei)

• Markets see growing bets on further PBOC easing in 2024 (Bloomberg)

• Investors pull back rate cut forecast after this week's jobs data (FT)

• Dallas Fed's Logan says Fed can't take further hikes off the table given easing financial conditions (Reuters)

GEOPOLITICS

• Biden administration to keep many of Trump's China tariffs, still considering lowering duties on some consumer goods (Axios)

• Blinken heads to Middle East amid Red Sea crisis and attack on Iran (Bloomberg)

• Islamic State claims responsibility for deadly explosions in Iran (Reuters)

• Israel's defence minister says no plans for Israeli civilian control of Gaza (FT)

• Washington says North Korea provided Russia with ballistic missiles and launchers for war in Ukraine (Reuters)

• US officials concerned Israel may soon launch major military operation in Lebanon (Washington Post)

ECONOMY

• Healthy US December payrolls puts March Fed pivot in doubt (Reuters)

• US economy cranks out 216,000 jobs vs. 173,000 expected (Reuters)

• US services sector slows in December (Reuters)

• Canada's job growth stalls in December as wages accelerate (Reuters)

• Eurozone inflation accelerated in December for first time in six months (FT)

• US 30Y mortgage rates ticks up slightly, first rise in 10 weeks (Bloomberg)

Does January Matter?

January is a reasonable good predictor of the year based on S&P 500 data going back to 1928, according to Bank of America.

• When January is up, the year is up 80% of the time with an average return of 13.2%

• The rest of the year (February to December) is up 78% of the time with an average return of 8.7%

• When January is down, the S&P 500 tends to finish up only 46% of the time with an average return of -0.7%

• For the rest of the year, it is up 60% of the time with an average return of 3.0%

That said – the January barometer has not been as accurate in recent years.

• The S&P 500 finished lower in January nine times between 2003 and 2021, down an average -3.7%

• The market finished the rest of the year higher in eight of the nine occurrences, up an average 11.5%

Where Are We Now

Markets are in the midst of a pullback after a powerful run up between November and December. The pullback will offer valuable feedback as to whether or not the rally has more legs to run. Will we get a calm 3-5% pullback where the selling stabilises and stocks start to consolidate? Or will things unravel and we experience the all-too-familiar tumble?

Some of the recent sentiment and positioning data may suggest that the recent strength was worth selling into. These include:

• CNN's Fear & Greed Index briefly hit 'Extreme Greed' levels between December 15-26. It has since pulled back slightly to 'Greed'

• Bank of America's Bull & Bear Indicator is up to 5.3 last week, up from 5.0. This marks the highest reading since November 2021

  • The indicator ranges from 0 to 10 where below 2 is considered extreme bearish and a buy signal

• NAAIM Exposure Index hit 102.7 on the last trading day of 2023. This marks the highest level since November 2021

  • The National Association of Active Investment Managers represents average exposure to US equity markets reported by its members

Interest rate futures are also beginning to ease.

• The likelihood of a rate cut in January has more than halved to just 6.7% from 20.7%

• The base case still shows 6 rate cuts for a total of 150 bps in 2024

• The base case is more than double the 3 rate cuts forecasted at the Fed's latest meeting

So where to from here? Here are a few upcoming data points to pay attention to:

• Australia's monthly inflation data on Wednesday is expected to print 4.4%, down from 4.9% in October

• US inflation data on Friday morning is expected to print 3.8%, down from 4.0% in November

• US Q4 earnings season will kick off on Friday, led by their major banks. This will provide an important read through amid consensus expectations that S&P 500 earnings will grow 12% in 2024

• ASX reporting season kicks off in February and Citi analysts expect earnings for the market to fall 2.1% in FY24. The decline will be led by a 9.2% drop in earnings from the resources sector as well as a 3.2% drop in bank earnings. The rest of the market is expected to remain robust, with 6.6% growth for FY24e

ASX corporate actions occurring today:

• Trading ex-div: Turners Automotive (TRA) – $0.05 

• Dividends paid: Danakali (DNK) – $0.27

• Listing: Kali Metals (KM1) at 12:00 pm

Economic calendar (AEDT):

• 6:00 pm: Germany Balance of Trade