Markets are still in a state of euphoria, stocks and bonds are up and the yield on the 10 year Treasury Bond has collapsed to 3.9%.

It’s because of Fed Chair Powell’s declaration on December 13 of a likely soft-landing victory - and so, the dove is back.

Following that declaration rally, three Fed Governors tried to dial down the euphoria over the following week.

It didn’t work.

As of Christmas Day 2023, there is according to Fed Watch an 83.5% chance of no rate cuts at the next FOMC meeting on 31 January 2024. But there’s also a not insignificant 16.5% chance of a 25-basis point cut. Hmm?

Looking further out to the March FOMC meeting, the chance of a 25-basis point rate cut goes to 78.1%, with a 6.7% probability of no cut and a 15.2% chance of a 50-basis point cut.

That, and 3 to 4 cuts next year are already priced into markets.

But then again it can change quickly based on incoming data.

And aside from inflation, PCE, payrolls and unemployment prints, the biggest and most near-term incoming data will arise out of the Q4 earnings season.

It starts in mid-January and goes for about a month, and the performance/predictions of corporate America will set the economic backdrop for the first quarter, and perhaps the first half (all other things being equal).

A lot of bets and positioning will be made between now and mid-January, so if you’re going in the water don’t step on an urchin.

In the meantime, wishing you happy holidays and a peaceful 2024!

Mike