Daily Stock Market Articles

B.I.G. Tips - Q4 Seasonal Earnings
Mon, Jan 22, 2024

In last week's Bespoke Report, we provided a rundown of the just-started earnings season. As discussed, the pace of earnings ramps up significantly this week as there are over 100 members of the Russell 1,000 scheduled to report including the first of the mega-caps. In the table from last Friday's report below, we show those Russell 1,000 members with market caps over $100 billion that are scheduled to report this week. The two largest of these are Tesla (TSLA) and Visa (V) which are due to report on Wednesday and Thursday after the close, respectively. Of the list below, there are several interesting seasonal earnings trends in which the current Q4 reporting period has historically been the best or worst quarter of the year for stock price reactions.



Starting with the good news, below is a screenshot from our Earnings Explorer tool for the "N" in FAANG: Netflix (NFLX). The streaming giant has typically averaged declines in reaction to Q1, Q2, and Q3 earnings, but then Q4 is the lone quarter where the stock has averaged a gain on its earnings reaction day. It hasn't been a small gain either, averaging over 9% for the full day. Of course, it is worth mentioning that overall NFLX has historically been one of the most volatile stocks on earnings with an average absolute move of 12.18% for all quarters. This week's report is on the back of a Q3 earnings report in October that saw the stock rally an impressive 16% in response. Amazingly, that only ranks as the 14th strongest reaction on record!



Before NFLX reports Tuesday night, Raytheon (RTX) will kick things off Tuesday morning. Like NFLX, RTX has not been a particularly strong stock in reaction to earnings except for the response to its Q4 report. As shown below, over the past four years since Raytheon merged with United Technology, RTX has risen in reaction to every single Q4 report for an average gain of 2.41%.

 

A Lot of Debate For 10 Basis Points
Mon, Jan 22, 2024

In what is a disparity you don’t see very often, just as the S&P 500 hit an all-time high (ATH) on Friday, the small-cap Russell 2000 remains mired in a bear market as it's still more than 20% from its record high in late 2021.



For the Russell 2000, the magnitude of the index’s drawdown from its record high eclipsed 30% during this current bear market, which is a level it also eclipsed during the Covid crash and then several other times in the index’s history before that.



While the Russell 2000 lost as much as a third of its value during the most recent bear market, the S&P 500’s drawdown was less severe at around 25%. While the S&P 500 also fell over 30% during the Covid crash, declines of 30%+ from an ATH have been much less frequent which makes sense as you would expect more established companies to have less volatility.



The fact that the S&P 500 hit an ATH even as the Russell 2000 remains down over 20% from its record high has created what is an unusually large disparity between the gaps over where they’re currently trading relative to their ATHs. In the history of the two indices, there has never been another time where the S&P 500 was at an ATH while the Russell was still down at least 20%, and there is only one other period (October 1998) where more than 20 percentage points separated where the S&P 500 was trading relative to an ATH versus where the Russell 2000 was trading. The current period, where the gap widened to more than 20 percentage points (ppts), is extreme. When you pull a rubber band, you never know exactly when it’s going to snap, but you can always tell when it’s getting close enough that you don’t want to be pulling on it anymore.



What’s interesting to note about all the debate throughout the years concerning small versus large caps is that since the Russell 2000’s inception starting in 1979, its cumulative performance (not including dividends) has been a gain of 4,732%, which works out to 9.0% annualized. Over that same period, the S&P 500 has rallied 4,936%, which works out to 9.1% annualized. That's a difference of just 10 basis points annualized.

Large caps currently have the long-term lead over small caps, but the lead has shifted at multiple points over time. In just the last year, for example, the lead on a cumulative basis has changed eleven times with the most recent change occurring less than three weeks ago.

 

February 2024 Almanac: Second Worst S&P 500 Month since 1950

February is in the middle of the Best Six Months, but its long-term track record, since 1950, is not that impressive. February ranks no better than sixth and has posted meager average performance except for the Russell 2000. Small cap stocks, benefiting from “January Effect” carry over; historically tend to outpace large-cap stocks in February. The Russell 2000 index of small cap stocks turns in an average gain of 1.0% in February since 1979—sixth best month for that benchmark. Russell 2000 has had a tough January which could indicate the January Effect may not boost small caps this February.

A strong February in 2000 boosts NASDAQ and Russell 2000 rankings in election years. Otherwise, February’s performance, compared to other presidential-election-year months, is mediocre at best with no large-cap index ranked better than tenth (DJIA and S&P 500 since 1950, Russell 1000 since 1979).

 

S&P 500 Percent of Time at New Highs
Tue, Jan 23, 2024

The S&P 500 is flat on the session today as of this writing, but that doesn't take away from the fact that it has traded at record highs in each of the past three sessions. As shown below, the S&P 500 has seen several significant drawdowns in its history, but it has always eventually recovered, and it has traded at or within 1% of an all-time high just as often as it has been down 20%.



Below we break down the percentage of time the S&P 500 has traded within various ranges of an all-time high (ATH) since 1952 when the five-day trading week began. This week joins the 7% of days that have seen the S&P 500 hitting record highs. That is the third largest share behind the 12% of days in which the index has been within 1% of a record high and the 8.5% of days when it is 1% to 2% below a record close. Expanding out a bit more, the S&P 500 has spent 44% of trading days since 1952 within 5% of an ATH compared to just 40.5% of the time when the index has been down 10% or more from an ATH.

 

Six Things to Know About All-Time Highs


“Can you take me higher? To a place where blind men see. Can you take me higher? To a place with golden streets.” Higher by Scott Stapp of Creed

After a wait of more than two years, the S&P 500 finally closed at an all-time high last Friday. That’s right, the last time it hit a new all-time high was clear back on January 3, 2022, more than two years ago. This was quite a long wait for new highs, but note it went nearly eight years without a new high in the ‘70s and early ‘80s and then more than seven years to made a new high after the tech bubble implosion in the early ‘00s. Still, this recent streak was the longest since more than five years without a new high after the Great Financial Crisis.



The second thing to know about new highs is they tend to happen in clusters that can last many years. Since 1957 (when the S&P 500 moved to 500 stocks) there have now been 1,186 all-time highs. But the majority of those new highs took place during three major clusters.

1958 – ’68 281 new highs

1980 – ’00 513 new highs

2013 – current 348 new highs

In other words, only 46 new highs took place outside of these three clusters (96.4% of all highs can be found in these three clusters). How much longer this new cluster could continue is hard to say, but we’d say be open to potentially many more years of new highs before it is all said and done. Or, to quote the great musical talent Scott Stapp as seen above, we could be going higher.



Third, new all-time highs happen a lot. In fact, 7.0% of all days since 1957 closed at an all-time high, that is a new high every 14 trading days. That is a lot of new highs!

Here’s a chart showing all 1,186 new all-time highs (good luck counting them all). If you picked any random day a new high was made, the future returns aren’t too far away from average returns. A year later up 7.4% on average and up about 71% of the time isn’t spectacular, but it sure isn’t bearish either. We’ve heard from many that they are worried that stocks have gone too far too fast, but history would say this bull market probably has plenty of life left. As we will show in number five below, sometimes the wait is worth it (probably like the 10 year wait we’ve had to wait to see Creed live).



Fourth, yes, eventually there will be a new all-time high that marks the end of this bull market. But if you spend all your time worrying that each new high will be the final peak, like in ’87, ’00, or ’07, then you likely will miss out on historic gains along the way. Remember, these represent only three all-time highs out of 1,186 and even adding the previous bear markets going back to 1957 only gets you to 10 out of 1,186.

Here’s a chart I made that indeed showed the peak before the past 10 bear markets. Again, there will be a time this bull market peaks as well, we just don’t think it is now.



Fifth, time is your friend when it comes to investing and one of the strongest reasons to be bullish this year is the fact stocks just went so long with out a new all-time high. I found 13 previous times the S&P 500 went at least a full year without a new all-time high and then made one. The good news is stocks were higher a year later 12 times and up nearly 12% on average and even more looking at median returns. In our recently released Outlook ’24: Seeing Eye To Eye we noted we expected stocks to gain between 11-13% and this study fits right in that area.



Here’s a table with all the exact dates and returns. The bottom line is better-than-average returns going out one year is perfectly normal.



The sixth and final thing to know about new highs is once we finally made one after a bear market, the trend higher usually remained your friend. After the 25% bear market of 2022 bottomed in October ’22, it officially took more than 15 months to make a new all-time high.

The really good news for the bulls here is looking at the past 10 bear markets showed that a year later stocks were higher nine times when new highs were eventually made. Yes, 2007/08 was the one time this didn’t work, but we don’t see many signs of a pending major financial crisis is on the horizon and expect to see higher prices a year from now.



To sum it up, are we six feet from the edge (like Scott Stapp sang on One Last Breath)? We don’t think so, as this bull is alive and well, but I just had to make one final Creed reference.

 

Please Don’t Stress Yourself About “M2”


If you’re wondering what I’m talking about, read on, but maybe grab a cup of coffee or your favorite beverage. M2 is a measure of money in the economy, and right now it’s falling, which has led to any number of overhyped worries, including a deflationary recession and/or a stock market crash, as people are perceived to have “less money” to spend or invest.

BUT, the short answer to the question “should we be worried about falling M2” is no.

The long answer should perhaps start with what exactly M2 is. Think of it like a Russian doll, with M2 consisting of something called M1 plus something additional, while M1 consists of something called M0 plus something additional.

• At the first level we have M0 (or monetary base): currency in circulation (cash) + reserves (“bank money”)
• Then we have M1: M0 + checkable deposits + savings deposits
• Above that is M2: M1 + time deposits (like CDs) + retail money market funds

A key part of M2 is “deposits,” and it turns out deposits are falling. Deposits at commercial banks have fallen 2.1% over the year through December, while M2 has fallen 2.3%. Historically, the rate of change of M2 has closely tracked the rate of change of deposits, as you can see in the chart below. The correlation between the two lines is 0.89, and about 0.97 since 2009.



More recently, deposits and M2 surged after the pandemic hit. From February 2020 through December 2020, M2 rose 39%, while deposits rose 34%. Since then, through December 2023, M2 and deposits have fallen 3%. We’ve never actually seen such a steep decline in M2, or deposits.

To get to the question of why M2 is dropping, we need to understand why deposits are falling. But for that, let’s track back to why deposits surged in the first place after the pandemic hit. By May 2021, deposits were up 23% year over year, well above the historical average of about 6%. From February 2020 through December 2021, deposits surged from $13.4 trillion to $17.9 trillion, an increase of $4.5 trillion. Since then, deposits have fallen $0.6 trillion to $17.3 billion.

There were three main reasons why deposits surged after the pandemic. And the reversal of these is what’s leading to a fall in deposits (and thereby, M2).

1) There was huge initial spike in commercial and industrial loans
When the pandemic hit, a lot of businesses drew upon their commercial and industrial (C&I) credit lines in order to build cash buffers in the event of a brutal recession. When a business draws upon its credit line, an equivalent amount of money gets deposited in that business’s bank account. Voila! Money is “created out of thin air” by the bank. When a bank makes a loan, it deposits an equivalent amount of money in the borrowers’ bank account. This is a useful reminder that most of the money creation in the economy is done by banks when they make loans, and loans create deposits as opposed to deposits being “lent out.”

C&I loans jumped about $0.7 trillion to just over $3 trillion between March and May 2020. These credit line draws then collapsed over the following year as the economy normalized, and businesses were able to pay back what they borrowed. As you can see below, commercial and industrial loans started to pick up again in late 2021 and early 2022 but plateaued after that as interest rates surged.



2: Deposits surged due to the Fed’s bond purchases, and that’s reversing now
The Federal Reserve (Fed) re-upped their bond-buying program, i.e. Quantitative Easing (QE), in March 2020 after the pandemic hit, and that led to a surge in deposits as well.

Here’s an example to understand why deposits increase when the Fed buys long-term government bonds (and mortgage-backed securities). Say, the Fed buys $1 million of Treasury bonds – but instead of buying them from the Treasury directly, they buy it from a pension fund. However, the Fed did not print $1 million worth of currency and swap it with the pension fund for Treasuries. What it did print was “reserves,” which are bank money that banks use amongst themselves to settle balances. The Fed used banks as an intermediary during QE. In our example, the Fed credited the pension fund’s bank account with a deposit of $1 million – which is a $1 million liability of the bank (as are all deposits), and a $1 million asset for the pension fund. It then credited $1 million reserves with the pension fund’s bank – which is a $1 million asset for the bank and equivalent liability for the Fed. The picture below highlights the process (via the Bank of England). You can see what happens to each entity’s balance sheet:



For each entity, here’s what happened:

• Pension fund: It still has a $1 million asset on its books, albeit a short-term deposit instead of a long duration Treasury bond.
• Fed: It “financed” its purchases of the $1 million Treasury bond by creating bank money, i.e. reserves.
• Bank: It added $1 million of assets (reserves) and $1 million of liabilities (deposits). So, there was no overall change in net worth but the bank’s balance sheet expanded.

As you can see, reserves weren’t “free money” for the bank, since an equivalent deposit was created at the same time. This is how QE increased deposits in the banking system. Reserve balances surged from $1.7 trillion in February 2020 to $4.2 trillion in December 2021. Since then, the Fed has reversed its bond buying program, and is now engaged in “Quantitative Tightening” – bringing reserves down to $3.2 trillion, driving deposits, and M2, lower in the process (a reversal of what I went through above).



3: Consumers increased liquid savings in 2020/2021 amid the pandemic, and that’s reversed (a bit)
The pandemic saw household bank deposits surge, thanks to…

• Reduced consumption, which sent household savings rates surging
• Covid relief payments in the form of stimulus checks, the child tax credit, and PPP loans
• Covid relief measures such as deferred rental and student loan payments

As a result, household deposits (checkable, time, and savings deposits) surged by over $4 trillion between Q4 2019 and Q4 2021. But this has pulled back by about $1.3 trillion since then (through Q3 2023). Now, a chunk of it has migrated to money market funds, which are paying a lot more interest than they did just a couple of years ago. Household assets in money markets have risen by $0.8 trillion since the end of 2021 (note that this is “counted” as part of M2).

Taking all of this into account – checkable, time, savings deposits, and money market fund shares – the drop since 2021 Q4 is about $0.5 trillion. This also means households still have a chunk of liquid assets left, around $1.8 trillion more than you’d have expected based on the pre-pandemic trend (2017-2019).



In summary, M2 is falling because deposits are falling because pandemic era (2020-2021) trends are reversing:

• The Fed has reversed Quantitative Easing, thereby draining deposits (and reserves) in the banking system.
• There is no more fiscal stimulus, or other measures, which is what ballooned household deposits.
• Households are no longer saving as much as they did during the pandemic.

Instead of M2, Look at Bank Lending
Rather than looking at M2 to understand how much money creation, or “destruction,” is happening, a much more straight-forward approach is to look at the entities that create most of the money in the system, i.e. the banks (in addition to fiscal deficits). As I pointed out above, banks create money “out of thin air” when they make a loan. And no, a bank loan officer doesn’t take yours (or my) deposit and lend out some fraction of it. Instead, the act of creating a loan results in a deposit being credited to the borrowers’ bank account.

So, let’s look at bank lending.

The good news is that bank lending grew in 2023 by about $250 billion, despite the crisis around the failure of Silicon Valley Bank last March, which created concerns about the banking system. The bad news is that loan growth eased from a 12% year-over-year pace at the end of 2022 to just over 2% at the end of 2023, well below the 1990-2019 average of around 5.5-6%.



At the same time, keep in mind that GDP growth in 2023 is likely to clock in at 2.5-3%, above the prior decade trend. Because of that, the economy didn’t need credit to keep its engines moving. Instead, strong incomes, thanks to a strong labor market, and government spending (including defense and state and local government spending) boosted the economy. As we move into 2024, easing interest rates, and continued demand in the economy, is likely to boost loan growth, which would be a tailwind for economic growth.

All this to say, there’s a lot going on an economy, especially one as dynamic as the US economy, and you have to look at the totality of data rather than just one seemingly simple indicator like M2.

 

Nonstop Nasdaq
Wed, Jan 24, 2024

The mega-cap Tech-heavy Nasdaq 100 is up nearly 1% today as of this writing, which leaves it up 4.5% already in 2024. It's been about a month now since the Nasdaq 100 took out its prior all-time highs from late 2021, but as shown in the chart below, the index is already 5.9% above those prior highs as the breakout continues.

Two more noteworthy stats:

The Nasdaq 100 is now up 64% during its current bull market that began on 12/28/22.

And, since the COVID Crash low that the Nasdaq 100 made on 3/20/20, the index is up a whopping 150%.



Below is a table showing historical bull markets for the Nasdaq 100 since the index came to be in the mid-1980s. The current bull market is its 16th using the standard 20%+ rally definition, and this bull is now right at the median when it comes to gains and length. As shown, the current bull has seen a gain of 64.3% over 392 days. The median gain for all Nasdaq 100 bull markets is a gain of 64.5% over 407 days.

When it comes to the average bull market, however, the current bull has a ways to go. Because of two very lengthy bulls that saw 600%+ gains in the 1990s and 2010s, the average bull market looks much different than the median bull market. As shown in the table, the average Nasdaq 100 bull market has seen a gain of 163.2% over 799 days -- which is basically double the length and 100 percentage points stronger than the median bull.

 

Sliding Down on the Market Cap Ladder
Wed, Jan 24, 2024

There are any number of ways to illustrate the disparate performance of individual stocks based on market cap this year, but the chart below really drives the point home. The blue lines show the YTD performance of each stock in the S&P 500 starting with the largest in terms of market cap on the left all the way down to the smallest companies on the right. YTD, the second-best performing stock in the S&P 500 - Nvidia (NVDA) – is also the fifth largest company in terms of market cap. Besides NVDA, the only two other stocks up at least 15% YTD are Palo Alto Networks (PANW) and Juniper (JNPR). While just three stocks are up over 15%, seven are down over 15%, including Archer Daniels Midland (ADM) and Boeing (BA) which is down nearly 19%.

While the blue line shows the performance of the individual components, the red line shows the rolling 20 stock performance where the leftmost point on the line represents the performance of the 20 largest stocks in the S&P 500. As shown, the group of 20 stocks with the strongest YTD performance this year is right near the top of the market cap list (stocks 5 through 24 which includes NVDA and AMD). While there are exceptions, the main trend this year has been that the further you move down the market cap ladder, the weaker the YTD returns. The 20 smallest stocks in the S&P 500 also have the worst performance of any other point in the series. Not only that, but 17 of the 20 smallest stocks in the S&P 500 are down YTD, including each of the smallest sixteen.



Breaking the S&P 500 into deciles based on market cap further illustrates this pattern. While 78% of the 50 largest stocks in the S&P 500 are up YTD with an average gain of 3.65%, less than a quarter of the 50 smallest stocks in the index are up YTD, and the average performance of those 50 stocks is a decline of 4.18%. If 2024 is going to be the year of broadening, it's getting off to a slow start.

 

Typical February Performance: Weakness After Mid-Month Peak

Over the last 21-years the first trading day of February was bullish for DJIA, S&P 500, NASDAQ, Russell 1000 and 2000. Average gains on the first day range from 0.39% by DJIA to 0.75% by Russell 2000. After a strong opening day, strength has tended to fade until around the seventh trading day. From there until around the 12-trading day all five indexes have historically enjoyed gains. But those gains have not held until the end of February with a peak occurring around mid-month. By the end of February, only NASDAQ and Russell 2000 have remained slightly positive while DJIA, S&P 500, and Russell 1000 turn negative.

 

Shorts Keep Falling
Thu, Jan 25, 2024

After the close yesterday, the first update on short interest readings of the new year with data through January 12th was released. As we noted at various points earlier this year, breaking down the Russell 1,000 into deciles shows that by far the worst performing stocks this year have been those that entered the year with the highest short interest levels. As shown below, the 10% of stocks in the Russell 1,000 that began the year with the highest short interest as a percentage of float are down an average of 8.18% YTD. That compares with an average gain of 1.11% for the decile of the least shorted names. While all other deciles have also fallen so far to kick off the new year, their losses are not nearly as large; mostly in the low single digits (across all Russell 1,000 members, the average year to date decline is currently 1.6%).



Breaking things down by industry further illustrates the story. As shown in the first chart below, the industry groups that currently have the highest degrees of short interest through mid-month are retailers, autos, and durables and apparel stocks. Those are also three of the sectors that have averaged some of the largest declines year to date. In fact, autos is down the most with an impressive 11% decline.

Meanwhile, insurance, utilities, and banks typically have the lowest levels of short interest. Performance is a bit more mixed here, but the group with the lowest average short interest reading, Insurance, is also the industry whose stocks have averaged the largest move higher so far this year. In fact, it is actually one of the few areas of the market to be sitting on a gain. As for Utilities, while also possessing low levels of short interest, the average stock has posted a large 5.3% decline.



Between this first short interest report of the year and where things stood at the end of last year, the average Russell 1,000 member did in fact see short interest rise marginally. In the table below, we show the 25 members that saw the largest increases. At the top of the list is recent IPO Instacart/Maplebear (CART). At the end of last year, short interest was already elevated at almost 29% of float. Since then, shorts have continued to pile in. Now over 40% of float is short, the most of any Russell 1,000 member. Ironically, in spite of the general underperformance of highly shorted names year to date, CART is actually headed into the final days of January up 5.67% in 2024. The next largest increase came from mobile game maker Playtika (PLTK). Short interest for this company has risen from just under 9% up to 15.4%. Unlike CART, this stock has experienced worse performance this year with a 13.5% decline. Of the list below, that is some of the weakest performance albeit there are far worse declines and higher current levels of short interest. Lucid (LCID) and Medical Properties (MPW) have seen declines of 30%+ YTD and more than a quarter of their float is shorted.

 

Blue Chip High Fliers and Dogs
Thu, Jan 25, 2024

Within the blue-chip S&P 100 (the largest stocks in the US), there are currently ten stocks that are up at least 40% over the last two years and 20% over the last three years. Below is the list of these names sorted alphabetically. For each stock, we also include its market cap, its dividend yield (if it pays one), its next-year estimated P/E ratio, and of course, its 2-year and 3-year percentage change.

On average, these ten stocks have a dividend yield of around 1% and a forward P/E ratio of 27.9. Over the last two years, they've averaged a gain of 86.5%, while they've rallied an average of 123.7% over the last three years. While stocks like Advanced Micro (AMD), Broadcom (AVGO), and NVIDIA (NVDA) made the list, it's not all Tech stocks. It also includes names like Costco (COST), General Electric (GE), Eli Lilly (LLY), and T-Mobile (TMUS) made the list as well.



While the NVDA's and Eli Lilly's (LLY) of the investment world have been on fire recently, there are also plenty of well-known blue-chip stocks that have been beaten down over the last few years. You can probably name a few off the top of your head, but below is a list of the eleven stocks in the S&P 100 that are down at least 20%+ over each of the last two and three years. This list is a who's who of big-name companies that have been taken to the woodshed since early 2021. It includes names like Disney (DIS), General Motors (GM), 3M (MMM), Nike (NKE), Pfizer (PFE), Target (TGT), Tesla (TSLA), and Verizon (VZ).

A good thought exercise is to decide where you would rather put new money to work in the equity market right now. Would you go with the ten big winners above that have seemingly endless upside momentum, or would you rather go with the beaten-down blue-chips below that can't seem to get out of their way? Of the two baskets, which do you think will outperform over the next year; the next two years; or the next three? We have our own opinion on the topic here at Bespoke, but the basket you decide on probably speaks volumes about the type of investor you are as well.

 

Regional Fed Forecasts Fall Short
Mon, Jan 29, 2024

Today's data slate was light with the only release of note being the Dallas Fed's monthly manufacturing survey. The results were disappointing to say the least as the headline number came in at -27.4, more than twice as low as expectations of -11.8. The huge miss relative to forecasts is not exactly new though. Earlier this month, the Kansas City survey and New York Fed survey likewise came in well below estimates.

Using data from our Economic Indicator Database, below we show the average spread between the actual release value and economist forecast of each regional Fed manufacturing survey (Empire, Philadelphia, Richmond, Kansas City, and Dallas) since 2011. As shown, this January has seen outright massive misses. Only two other months have seen readings disappoint to wider degrees: December 2018 and March 2020. In tonight's Closer we will provide an updated look at our Five Fed Manufacturing Composite which creates a composite of each of these reports to gauge national manufacturing activity.

 

Powell: Only Game in Town?
Tue, Jan 30, 2024

The FOMC kicks off its first monetary policy meeting of the year this morning with a decision tomorrow, but with universal agreement that there will be no change in rates, what Chair Powell says in his 2:30 PM ET press conference will be the primary focus of investors around the world. Some would have you believe that the prospects for the market this year rest entirely on Powell's words, so that if he's dovish, there's hope for the bulls, but if he comes out as hawkish, all hope will be lost.

A hawkish tone by the Fed Chair would likely be seen as a negative short-term development for the market, but at the same time, the relationship is not as binary as many seem to believe. The chart below compares the performance of the S&P 500 to the market pricing for the probability of a rate cut at the March meeting (based on Fed Fund Futures) since last October. While equities bottomed and started to rally in late October, it wasn't until late November that the odds for a rate cut in March started to increase and move out of their range (red-shaded area). By that time the S&P 500 was nearly 10% above its low and 3.5% above the high end of its October range. From late November through late December, both the S&P 500 and the odds of a rate cut rose in unison with each other, but pricing for a March rate cut peaked on 12/22. On that day, the S&P 500 closed at 4,754.63, and since then, the odds of a March cut have been cut in half to 44.6%. Over that same period, the S&P 500 is up over 3.5%. If the Fed was driving the bus, how come the market hasn't been going along for the ride lately?