It was another strong move yesterday into the closing bell, and it got the market on the cusp of a major breakout point: 4,100 on the S&P 500.

Energy (XLE) led the way, followed by Consumer Discretionary (XLY) as Consumer Staples (XLP) brought up the rear – the only declining sector.

Shift Continues

The surge in Consumer Discretionary against Consumer Staples has picked up even more steam creating the second gap opening this year. To a degree, this is about the overvaluation of Consumer Staples coming into the year. Still, it’s mostly a proxy for confidence, as I have been pointing out those safe haven sectors are hemorrhaging buyers.

The Heat Map

There was a lot of red in Health Care (XLV), along with Consumer Staples (XLP) as those mega-cap names kept powering higher.

For the year, monster moves have already happened. It’s obvious the market is getting ahead of itself. Perhaps the next test isn’t a breakout, but how limited profit-taking will be when it happens. I think it would be limited, and the only thing that could break this market is the Federal Reserve. 

Make no mistake. Powell & Co. are trying to figure out how to derail this thing.

But the Cumulative Advance-Decline Line is surging – hitting a net of 186 (the New York Stock Exchange (NYSE) & the NASDAQ Composite (COMP) yesterday, and it’s a good proxy for where the market is heading.

Portfolio Approach

We are taking profits on a position in Technology this morning in our Hotline Model Portfolio.

Today’s Session

Personal income and spending numbers came in mostly in line with estimates. The story to me is people are reacting to slower personal income growth.

Month to Month	Actual	Consensus	Prior
Personal Income	0.2%	0.2%	0.4%
Personal Spending	-0.2%	-0.2%	0.1%

The savings rate has climbed to 3.4% in December from 2.9% in September.

Powell’s Inflation Gauge

Inflation eased in December and seemed to be making sustained strides lower. Powell should be smiling.

PCE Year to Year	Actual	Consensus	Prior
Headline	5.0%	5.0%	5.5%
Core	4.4%	4.4%	4.7%

 

PCE Month to Month	Actual	Consensus	Prior
Headline	0.1%	0.0%	0.1%
Core	0.3%	0.3%	0.2%

Highlights

• Headline 5.0%, lowest since September 2021 and peaked June 2022
• Core 4.4% from 4.7%, lowest October 2021

We are waiting on Michigan Sentiment data and Pending Home Sales.

Watching Intel (INTC), which laid an egg last night- total disaster just as the semis we trying to build head of steam.

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