(10 December 2023) US stocks pushed higher last week as Friday’s strong jobs report provided more evidence for a market-friendly soft landing. The S&P 500 was fractionally higher on the week at 4604 while the Nasdaq-100 gained half of one percent to 16,084. This bullish outcome was in keeping with expectations as I thought the late week Mercury-Jupiter alignment could offset any early week selling from the Mars-Rahu alignment.
The market continues to have very different rate expectations compared with the Fed. Even after Friday’s jobs report, the market is still pricing in five rate cuts of 125 basis points in 2024 while the Fed’s most recent dot plot only shows two cuts totaling 50 basis points. Clearly, this week’s FOMC meeting could be very consequential as Powell may either choose to stick to his hawkish guns by refusing to talk about a pivot or he could shift gears and finally reflect the market’s thinking by ruling out further hikes.
As a general rule of thumb, the 2-year Treasury yield tends to move more or less in sync with the Fed funds rate. When the Fed rate is lower than the 2-year yield, it is said to have a loose bias which tends to support the stock market as liquidity flows out of safe havens and into risk assets. But when its rate is higher than the 2-year yield, it is said to be tight and can create headwinds for stocks and the economy as economic activity is dampened by the higher cost of borrowing. Currently, the Fed funds date sits at 5.37% which is significantly above the 2-year yield of 4.71%. While Friday’s job report saw a jump in yields, this week’s CPI number and FOMC statement could determine how this gap will resolve. If Powell stays hawkish and the CPI number is hot, then yields will rise and markets would be more likely to sell.
The planetary outlook remains bearish for the medium term. While the gains in early December have reflected the positive Venus and Jupiter alignments, time may be running out for bulls. With the angular separation alignment of Jupiter, Chiron and Neptune (=21 degrees) becoming exact this week, sentiment could begin to worsen soon after, although I would note that the approaching Jupiter direct station on December 30 complicates that outlook somewhat. Since Jupiter will be moving very slowly throughout December, it will never be too far away from its bullish angular separation alignment with Chiron and Neptune. For this reason, the chances for a huge sell-off immediately after the FOMC meeting seems fairly low since Jupiter-Chiron-Neptune will remain within fairly close range. Stocks could still form a top around the time of the FOMC meeting but it is possible that the significant sell-off that I am expecting may not occur until after Christmas…
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This week (Dec 11-15) looks mixed with increasing downside risk. The early week could see some upside as Mercury aligns with Venus on Monday. However, Tuesday’s Moon-Mars conjunction looks somewhat bearish and increases the odds of a negative reaction to the CPI report that morning. This is not a high probability bearish set up, but it nonetheless doesn’t look bullish. The Mars-Pluto alignment on Tuesday and Wednesday also looks bearish. Mercury turns retrograde overnight on Wednesday ahead of the FOMC decision. This increases the likelihood of a negative reaction on Wednesday, although as I have previously noted, Mercury is unafflicted here except for its retrograde motion so a big decline seems somewhat less likely. The Sun-Rahu alignment also leans bearish, especially since it will align with both the Mars and Moon in the NYSE horoscope…
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Photo Credit: Mike W./squeakymarmot
