Good morning! Three weeks left in 2024 and the stock market is on track to cement a banner performance — regardless of the macro outlook.

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Stocks’ historically unusual year

In investing, like physics, momentum does not slow without a fight. 

Safe to say this year’s stock market rally isn’t about to let a little heat from inflation throw it off course. 

The November Consumer Price Index report comes due Wednesday. Estimates from the Federal Reserve Bank of Cleveland see it accelerating to 2.7% year-over-year. Core inflation, which strips out food and energy, is forecasted to hold steady at 3.3% year-over-year. 

If those predictions hold, the following three statements will be true: 

While it’s true markets will fixate on the inflation report above all else this week, nothing in it will derail the recent strength in asset prices.

Investors have helped fuel the S&P 500 to 57 record highs and a 28% gain in 2024. At the current pace, Carson Research projects the benchmark index to secure 61 all-time closes before the year wraps up — hot inflation or not. 

Dating back to 1874, the S&P 500 has only notched a 20-30% annual return 14% of the time, which means this year already marks a historic anomaly.

It’s breached the 30% level just over 7% of the time. 

And bitcoin — which flip-flops between a risk-asset and a safe-haven trade depending who you ask — continues to hover at $100,000. 

In any case, Friday’s jobs report effectively confirmed that the Fed will cut interest rates 25 basis points this month. 

Taking the data at face value, the US added 227,000 jobs in November, higher than the forecast for 214,000.

The Labor Department also reported unemployment ticked up to 4.2%. 

“On the one hand, there’s clearly more slack in the job market than a year or two ago,” said Bill Adams, chief economist for Comerica Bank. “That argues for more rate cuts.”

“On the other hand, wage growth continues to run faster than in the pre-pandemic period, which could sustain inflationary pressures in labor-intensive industries — that argues against them.”

All told, the state of play here is full of contradictions. 

The economy looks resilient, but the labor market is indeed getting weaker. 

Inflation continues to move in the wrong direction, but the Fed’s about to lower interest rates.

Financial markets are acting like there’s no risks, and almost everyone on Wall Street expects that exuberance to carry into 2025. 

Even veteran economist Dave Rosenberg — a long-standing equities bear — said he’s now reevaluating his view of the market.

The classic way of analyzing financial markets, he told clients Friday, may no longer apply to the new era of AI and Big Tech dominance. 

“While we may be in a bubble, it may take years to find out, as was the case with the Internet in the mid-to-late 1990s,” Rosenberg said. “Keep in mind that back then, the Greenspan Fed was busy raising rates while today’s Powell Fed is cutting rates, and the only question is how much there is left in the easing cycle.”

Comments or feedback? Reply directly to this email or let me know on X @philrosenn.

Elsewhere:

🏦Trump says he won’t boot Powell. The president-elect told NBC on Sunday that he doesn’t have plans to replace the Fed Chairman come January 20: “I think if I told him to, he would. But if I asked him to, he probably wouldn’t.” (Bloomberg)

🔔Key earnings come due this week. Oracle kicks off on Monday, followed by GameStop on Tuesday, Adobe on Wednesday, and Broadcom and Costco on Thursday. Economic data including CPI, PPI, and jobless claims are also slated for release. 

⏰ Bitcoin Investor Week is on the way. Wall Street can’t get enough of the asset and institutions are piling in at record levels. That’s why Anthony Pompliano is hosting a conference February 24-28th in New York covering everything to know. Notably, it’s a Wall Street conference focused on bitcoin, rather than a bitcoin conference focused on Wall Street. More details here.

Rapid-fire:

Traders see 87% odds of a 25-basis-point rate cut this month, according to Kalshi, the biggest US prediction market:

Last thing:

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