Control Panel: Year-end rally

The year-end rally that I forecast a month ago has arrived. Seldom have we seen a prettier Control Panel. In addition to the charts, the economic fundamentals have moved in a positive direction that supports the bullish trend into 2024.

For Much of the World, Inflation Will Be Normal in 2024—Finally

Inflation could be back in central banks’ comfort zones by the end of 2024 after multidecade highs in North America, Europe

By Gwynn Guilford, The Wall Street Journal, Dec. 24, 2023

Call it a Christmas miracle: Inflation around the globe is slowing way faster than expected. If economists are right, that gift will keep on giving next year, bringing inflation back to normal levels for the first time in three years. … Falling inflation should cushion economic growth in two ways: by bolstering household purchasing power and enabling central banks to cut interest rates… [end quote]

The Federal Reserve pays closest attention to the Trimmed Mean PCE Inflation Rate, which fell to 3.64% in October 2023.

The Bureau of Economic Analysis reported that the Personal Consumption Expenditures Price Index fell into a range only a touch higher than the 2% the Fed has been targeting.
Change From Month One Year Ago
November 2023 +2.6%
October 2023 +2.9%
September 2023 +3.4%
August 2023 +3.3%

The tight labor market is very gradually loosening. (Or maybe that’s just noise.)

The good news has produced a tremendous rally in stocks and bonds. SPX had a golden cross in mid-November.

The Treasury yield curve has plummeted along its entire duration (except very short durations which are pegged by the fed funds rate).

The trade is strongly risk-on as stocks and junk bonds are rising faster than Treasury prices, even though Treasury prices are also rising. The Fear & Greed Index is in Extreme Greed.

Gold and silver are rising as the USD is plunging. Oil is stable within its channel. Natgas is dropping.

Although the market is partying, some negatives should bring caution.

The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the fourth quarter of 2023 is 2.3 percent on December 22, down from 2.7 percent on December 19. After recent releases from the US Census Bureau, the US Bureau of Economic Analysis, and the National Association of Realtors, the nowcast of fourth-quarter real personal consumption expenditures growth decreased from 3.0 percent to 2.4 percent.

The Conference Board Leading Economic Index® (LEI) for the U.S. declined by 0.5 percent in November 2023. The US LEI continued declining in November, with stock prices making virtually the only positive contribution to the index in the month. Housing and labor market indicators weakened in November, reflecting warning areas for the economy. The Leading Credit Index™ and manufacturing new orders were essentially unchanged, pointing to a lack of economic growth momentum in the near term. Despite the economy’s ongoing resilience—as revealed by the US CEI—and December’s improvement in consumer confidence, the US LEI suggests a downshift of economic activity ahead. As a result, The Conference Board forecasts a short and shallow recession in the first half of 2024.

More notes of caution: the so-called “Magnificent Seven” stocks are driving the rally in the SPX and now represent a ridiculously inflated 30% of its value. The rest of the stock market is stagnant. The CAPE is in bubble territory.

The markets are priced for perfection. The bond market is ignoring the massive Treasury issuance that will be needed in 2024 and beyond.

The METAR for next week is sunny. As always, the METAR is a short-range forecast.



How exactly are we defining “plunge” in this case?

Here’s a chart of the dollar index.


The real issue is the 10 year. When will that bottom? Will FED rate cuts affect the bottoming? Will the failure in the commercial paper mean yields rise in 1H24?

If you traded in bonds is now a better time to sell?

If you sell bonds, what are you going to do with the proceeds? Unless you are selling to deliberately rebalance into a different asset (such as stocks) you won’t be able to find bonds with as high a yield as only a month ago. That’s why I set up a ladder of bonds and hold.


A drop for 107 to 102 of the DXY over a period of three months, while not a crash, is a significant drop. The USD is still (other than the, even stronger Swiss Franc) relatively strong on an historical basis. Traditionally, this has been a significant headwind for equity prices, but the retreat of the DXY creates a scenario which continues to inflate the equity balloon.

To be honest, I have not seen the macro landscape previously act the way it has over the past few years. Undoubtedly, this was caused by the vast pile of money thrown at the economy during the COVID years as well as the societal trauma which, once removed, has caused an over-compensation of mania (much in the way that the “Roaring Twenties” was a reaction to the simultaneous ending of the First World War and the Spanish Flu pandemic. While we will eventually have to pay the Piper, the timing of the rubber-band breaking is beyond my pay-grade - but come it will.

Eat, drink and be merry - and, in that vein, I would like to wish all the regulars at METAR a coming year of good health, happiness, prosperity and calm seas.

(Who is preparing to head south to play with penguins)


Hi Wendy,

Are you thinking that 2024 would continue the bullish trend? Or do you think that the market is still on a very uncertain backdrop, with a choppy performance and break at some point. More importantly, do you see any parallels between now and the prior recessions? To me, this entire thing seems so bizarre that it may well do our health a lot of good to just buy index, and shut the computer and come back 5 years later! If it drops, well, it means we have bigger things to worry…If it goes up, great!! I just wish I can make the decision and move on. To those who enjoy this market, it is an amazing place to be…and for those who had already lost a lot, it is !@#$ May The Force Be With All Of Us This New Year! Happy Holidays everyone!



@Inspired2learn these are all good points.

As my older brother, @OrmontUS , wrote, this economy has unique features due to the combination of Covid and the extreme measures taken by both fiscal and monetary authorities.

I am uneasy because the CAPE shows such a bubble that the SPX may take many years to recover.

If that wasn’t the case, I would feel comfortable predicting a small recession in 2024 that wouldn’t seriously impact the stock market.


Of course the market is having an end-of-year rally.

Uncle Sam wants to maximize my 2024 RMD. :scream:


And, of course, things can change. As an example, the UAE has decided to cut back on the use of petroleum products as demonstrated by the following link::

Take a look =>

Merry Christmas,
(Still waiting for Santa)


It would take sophistication to figure out future commercial loan failures in the 1H24. We would need some insights as to accurately what the expected banking write-offs will be.

This leads to the question will yields peak higher with a meltdown in the bond market? Looking for entries then.

Asking about time to sell I am assuming market timing.

Anyone selling on Wall Street will say no one can time the markets. Of course, if we took that seriously we would not think in those terms and would not time the markets. The next thing Wall Street says is get a professional manager…who by definition is not timing the markets. What is the timing of the market? Buying low and selling high. As yields fall into this week when are bond yields peaking? I think close now. But do not bet on that. We are not at extremes to market things as a full top or bottom.

I think in the mix of events we may see a top in bond valuations followed by a significant rise in yields as a buying opportunity.

Not intended as advice. Due diligence in all investing is necessary. Do not take anyone’s word for it. Readers are responsible for their losses. This is just talk.

Of course the biggest problem with this the FED is cutting rates. Will the defaults matter more? I have not roughly figured out the calculous yet. I went into this year not liking 1H24. Thinking the equity markets will tank. But now the FED thinks it can cut rates.

Don’t fight the FED? No wager on this?

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