Oil, The Fed, Yields, Inflation: As January Goes, So Goes The Year
Just a quick update
“As January goes so goes the year.” Old saying on wall street.
The S&P 500 saw a 1.6% increase in January, resulting in a positive outcome for our January Barometer for the year 2024. Originally introduced by Yale Hirsch in 1972, this barometer has made only 12 significant errors since 1950, boasting an impressive 83.8% accuracy rate. The underlying idea is that the performance of the S&P 500 in January tends to set the tone for the rest of the year. Notably, nine of these 12 errors occurred after 2001, and when you include the eight flat years in the analysis, it maintains a robust .730 batting average.
Source: Stock Traders Almanac (Jeffrey Hirsh will be on the show next week)
In the oil market, there have been significant upward adjustments to US oil demand figures for yet another month. According to the EIA, the total consumption for November is now reported to be 20.71 million barrels per day, which is approximately 910,000 barrels per day higher than the earlier estimate based on weekly data of 19.80 million barrels per day. This revision primarily stems from increased gasoline and diesel demand, which collectively make up approximately half of the upward adjustment. No stops hit yet but we are getting close to them. Be patient here the market moves wildly around fed days. We took profits or closed on our USO/CL calls. The positions will be held until we get our signal.
@AyeshaTariq She posted it and said it perfectly. (You should give her a follow)
We've got the first point with the release of the FOMC statement. They've dropped the tightening bias in the statement - deleting the words "additional policy firming".
They've pushed back on rate cuts though with the words: "The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent."
The meeting yesterday should not have taken anyone by surprise, as we have consistently expressed our stance on the matter, emphasizing that they will keep this quiet until they can’t anymore. I think we will see cuts this year but they certainly are not going to talk about it publicly. If we do see a rate cut in march I think it will only come if we start seeing some pain in the market.
Yields-We remain long bonds across the curve. (Yields are the inverse of bonds) Here is the case for cuts in March.
The Federal Funds rate currently stands at 5.25%, indicating a relatively high benchmark interest rate. Core inflation is tracking at a 1.9% trend, reflecting the ongoing price stability. In the short term, the real yield, adjusted for inflation, is at a significant 3.35%. Furthermore, even for the long term, real yields remain above the 2% threshold. They will HAVE to cut rates at some point. I am just not sure of when but if yields keep falling it will be soon.
No change to our signals at the moment.
But, this is what I have been talking about for an entire year… If the fed actually slows down. Inflation will come roaring back!
What is the market trying to tell us?
Stay informed. Stay resilient. Against all odds.
Warm regards, Jason Perz
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