The State of Markets: “Equities: Pullback Underway? Or BUY the Dip?”
The headwinds from rising bond yields (and dollar strength) overwhelmed equities this week. Most notably, yesterday’s nonfarm payroll number was strong (+256k), and well above expectations (+165k). That added to the (widespread) view in markets that the US economy is in good health. Linked to that, the rates market priced out cuts at the front end, the US 10 year yield made a new local high, and the dollar closed higher (e.g. with the DXY up 0.4% yesterday). With that tightening of financial conditions, the US equity market sold off (with the S&P500 trading back at around/towards the bottom of its recent trading range – see chart below).
The key question, therefore, is: Will equities find support at the bottom of their range? Or is there more downside ahead in coming weeks? And, indeed: Is a pullback now underway? We outline our views on those questions in recent research (e.g. see this week’s ‘Daily Risk Appetite’ & ‘Tactical Asset Allocation’ publications). Of note, our view on the 1 – 4 month outlook for US equities was updated in this week’s ‘Tactical Equity Asset Allocation’ publication, available below for subscribers (or for a trial click: https://www.longvieweconomics.com/individual-subscriber).
Next week’s macro data will be watched closely and includes the US CPI inflation report for December (due on Wednesday). Other key US data includes NFIB small business optimism (Tuesday); retail sales (Thursday); and US housing starts and building permits (Friday). The Q4 earnings season begins in earnest next week – with key banks reporting, including JPMorgan, Wells Fargo, Goldman Sachs, Citigroup, and BNY Mellon (all on Monday); followed by Bank of America, Morgan Stanley & US Bancorp (Thursday). Please see below for a full list of key macro data, events, and earnings reports.
Key chart: S&P500 futures candlestick chart, shown with 50 day moving average
Upcoming important data/events this week:
Events: |
Fed publishes Beige Book (Wed, 7pm). |
Monday: |
N/A |
Tuesday: |
US NFIB small business optimism (Dec, 11am); US headline & core PPI (Dec, 1:30pm). |
Wednesday: |
US headline & core CPI (Dec, 1:30pm). |
Thursday: |
US retail sales (Dec, 1:30pm). |
Friday: |
Chinese GDP (Q4, 2am); US housing starts & building permits (Dec, 1:30pm). |
Key earnings: |
JPMorgan, Wells Fargo&Co (Mon); UnitedHealth, Bank of America (Thurs); Truist Financial (Fri). |
Key Research
Tactical Equity Asset Allocation No. 252, 7th January 2025:
“Bull Market is Tiring - BUT US Equity Uptrend Remains Ongoing For Now (Stay Tactically OW)”
We have laid out in recent publications why we think this bull run in US equities (since October 2022) is starting to look tired. Low participation (breadth and volume), rich valuations and evidence that most investors are ‘All In’ are at the heart of that argument. Despite that, we continue to recommend STAYing tactically overweight (for now). Some further mileage/upside remains in this bull market according to the message of the models and our assessment below.
In particular, the price action in US equities has been robust in the past two months. Indeed, as model SELL signals have unwound, the equity market has traded sideways (and not rolled over), as it’s been supported by sector rotation.
Key North American macro data & events:
Events: |
Speeches by the Fed’s Schmid in Kansas City (Tues, 3pm), Williams at NY Fed event (Tues, 8:05pm), Barkin in Annapolis (Wed, 2:20pm), Kashkari participates in a Q&A (Wed, 3pm), Williams gives keynote remarks (Wed, 4pm) & Goolsbee at a Midwest Economic Forecast Forum (Wed, 5pm); Fed publishes Beige Book (Wed, 7pm). |
Monday: |
US NY Fed 1 year inflation expectations (Dec, 4pm); US Federal budget balance (Dec, 7pm). |
Tuesday: |
US NFIB small business optimism (Dec, 11am); US headline & core PPI (Dec, 1:30pm). |
Wednesday: |
US Empire manufacturing (Jan, 1:30pm); US headline & core CPI (Dec, 1:30pm); Canadian existing home sales (Dec, 2pm). |
Thursday: |
US Philadelphia Fed business outlook (Jan, 1:30pm); Canadian housing starts (Dec, 1:30pm); US retail sales (Dec, 1:30pm); US imports and exports price (Dec, 1:30pm); US New York Fed service sector business activity (Jan, 1:30pm); US weekly jobless claims (1:30pm); US business inventories (Jan, 3pm); US NAHB housing market index (Jan, 3pm). |
Friday: |
US housing starts & building permits (Dec, 1:30pm); US industrial & manufacturing production & capacity utilisation (Dec, 1:30pm); US total TIC flows (Nov, 9pm). |
Key earnings: |
JPMorgan, Wells Fargo&Co, Goldman Sachs, Citigroup, BNY Mellon (Mon); UnitedHealth, Bank of America, Morgan Stanley, PNC Financial, US Bancorp (Thurs); Truist Financial Corp, Schlumberger (Fri). |
Fig B: US headline & core CPI (Y-o-Y %)
Key European macro data & events
Events: |
Speeches by the ECB’s Lane & Rehn at AFF in Hong Kong (Mon, 3:15am), Holzmann at Euromoney conference in Vienna (Tues, 8am), Villeroy in Paris (Wed, 8:30am) & Vujcic in Vienna (Wed, 8:35am); ECB publishes account of December meeting (Thurs, 12:30pm). |
Monday: |
N/A |
Tuesday: |
Italian industrial production (Nov, 9pm). |
Wednesday: |
German wholesale price index (Dec, 7am); French headline & core CPI (December final estimate, 7:45am); Spanish headline & core CPI (December final estimate, 8am); German GDP (2024, 9am); Eurozone industrial production (Nov, 10am). |
Thursday: |
German headline & core CPI (December final estimate, 7am); Italian core CPI (Dec, 9am); Eurozone trade balance (Nov, 10am). |
Friday: |
ECB current account (Nov, 9am); Eurozone headline & core CPI (December final estimate, 10am). |
Key earnings: |
N/A |
Fig C: Eurozone industrial production (Y-o-Y %)
Key UK macro data & events
Events: |
Speeches by the Bank of England’s Breeden in Zurich (Tues, 8:30am) & Taylor at Leeds University (Wed, 4:30pm). |
Monday: |
N/A |
Tuesday: |
N/A |
Wednesday: |
Headline & core CPI, RPI & PPI (Dec, 7am); Land Registry house price index (Nov, 9:30am). |
Thursday: |
RICS house price balance (Dec, 12:01am); monthly GDP estimate, industrial & manufacturing production, goods trade balance & construction output (Nov, 7am). |
Friday: |
Retail sales (Dec, 7am). |
Key earnings: |
N/A |
Fig D: UK RICS house price balance (index)
Key Asia-Pacific macro data & events
Events: |
Speech by the BOJ’s Deputy Governor Himino in Kanagawa (Tues, 1:30pm); market holiday in Japan on account of Respect the Aged Day (Mon). |
Monday: |
Australian headline CPI (Dec, 12am); Australian Indeed job advertisements (Dec, 12:30am); Chinese imports/exports, & trade balance (Dec, 2am); Japanese bank lending (Dec, 11:50pm). |
Tuesday: |
Japanese M3 money supply (Dec, 11:50pm). |
Wednesday: |
Japanese machine tool orders (Dec, 6am); Japanese PPI (Dec, 11:50pm). |
Thursday: |
Australian employment data (Dec, 12:30am). |
Friday: |
Chinese new & used home prices (Dec, 1:30am); Chinese GDP (Q4, 2am); Chinese activity data (industrial production, retail sales, fixed asset, property investment & unemployment rate – Dec, 3am). |
Key earnings: |
N/A |
Fig E: Chinese real GDP growth (Q-o-Q %)
Last week:
Longview on Friday, 10th January 2025:
“Four Reasons US Growth Looks Set to Disappoint in 1H2025”
Tactical Equity Asset Allocation No. 242, 7th January 2025:
“Bull Market is Tiring - BUT US Equity Uptrend Remains Ongoing For Now (Stay Tactically OW)”
The SHORT VIEW (& market positioning), 9th January 2025:
“The January Effect… a.k.a. Is it correct that ‘So January Goes, so Goes the year’?”
Prior week:
N/A