In many ways, the Heat Map (below) is the most impressive and encouraging I’ve seen this year. The ‘Mag Seven’ stumbled, yesterday, and almost everything else stepped up.

Energy (XLE), Real Estate (XLRE), and Materials (XLB) enjoyed a solid session.

Small-Caps - Big Move

The first thing that comes to mind after the Russell 2000 posted-a-strong session is Lucy pulling the football, just as Charlie Brown swung his leg to kick an imaginary game-winning field goal.

Super Micro Computer (SMCI) is responsible for more than half the exchange traded-fund (ETF) gains this year. Close to 40% of the components in the Russell 2000 are zombie companies that need cheap funding to stay alive.

I’m impressed and intrigued.

The Russell 2000 has held at the 50-day moving average and is on the cusp of crossing a significant resistance point.

A.I. Mania

We are seeing shares of any company that mentions Artificial Intelligence (AI) get a big boost. It feels like the old dot.com period, but this is different.

A.I. is an efficiency game changer that will improve the bottom line. But the hype is getting over the top, so stay in the game and ‘keep your head on a swivel.’ 

Today’s Session

The Producer Prices Index for December is out this morning and came in much hotter than expected. This continues to throw cold water on an avalanche of Fed rate cuts. The street and talking heads are circling the wagon, as usual, but this is a yellow flag moving to a red flag.Year to Year

• Headline PPI +0.9 consensus +0.6%
• Core PPI +2.0% from +1.8% consensus +1.6%

Month to Month

• Headline PPI +0.3% from -0.1% (revised from -0.2%) consensus +0.1%
• Core PPI +0.5% from +0.1 (revised from 0.0%) consensus -0.1%

Final Demand

Final demand ex-food, energy, and trade +0.6% from +0.2% consensus +0.1%.

Options Expiration

Options have added to the “madness factor” of the market and today sees expiration of $2.4 trillion in notional value.

Fed Rate Cuts

The CME FedWatch tool sees only three rate cuts in 2024.

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