Weekly Market Report: Jan. 26th, 2024

The chart of the week is the double top in the S&P 500:

The equal weight S&P 500 peaked back in December. Now it's making a second lower high.

Which was the same pattern at the top in 2021:

Tech bubble / Tech Earnings

This week we got earnings from Netflix and Tesla. Neflix beat while Tesla imploded spectacularly.

We also learned that Tech companies are beating expectations by cutting staff. In other words, the Tech rally is now based upon mass layoffs at the expense of growth.

"So far in January, some 23,670 workers have been laid off, the most in any month since March, according to the website Layoffs.fyi"

"The downsizing comes at the same time as investors are becoming more bullish on tech"

"While Wall Street cheers on Silicon Valley, tech companies are downsizing at an accelerating clip"

"At the large publicly traded companies, there’s an “intense focus” on profitability, margins and cost cutting"

FR: What we are witnessing is classic early stage recession action as companies layoff employees to protect their profit margins at the expense of growth. Wait until the mass layoffs spread to every other sector and today's "soft landing" denialists learn a hard lesson in economic cycle theory: When one company cuts costs it improves profits. When every company cuts costs at the same time, profits collapse.

Which gets us to the topic of next week's FOMC meeting.

"The S&P 500’s return to record territory on Friday came despite a series of speeches last week from Fed officials who cast doubt on the prospect of rapid-fire cuts this year"

FR: I predict Powell is going to follow Christine Lagarde's example this week and go full hawkish next week.

In summary, the deflation trade is ending just as deflation is about to begin. Due to rate cut FOMO, investors are now ALL IN the end of the cycle.