I know where I’m getting out before I get in. — Bruce Kovner

1. Donald Trump Scores Decisive Win in New Hampshire Republican Primary — with his convincing win over Nikki Haley in the GOP primary, the former president showed that a dominating share of the Republican Party’s core voters are still with him and that his momentum toward the party nomination grows. With 77% of the estimated vote counted, Trump led Haley 55% to 44%, according to the Associated Press. But the New Hampshire results also signaled that Trump risks losing enough Republicans—as well as a substantial share of independent voters—to create a problem for him as a general-election candidate in November. The first task for any candidate is to unify the party. But 21% of Republicans who cast ballots in New Hampshire said they would be so dissatisfied with Trump as the nominee that they wouldn’t vote for him in November, according to AP VoteCast, a survey of primary voters. Similarly, 15% of Republicans who participated in Iowa’s caucuses last week said they wouldn’t support Trump in the general election.
2. US GDP Grew 3.3% Last Quarter, Capping Unexpectedly Strong Year — Gross domestic product increased at a 3.3% annualized rate, according to the government’s preliminary estimate out Thursday. For all of 2023, the economy expanded 2.5%. A closely watched measure of underlying inflation rose 2% for a second straight quarter, in line with the Federal Reserve’s target, the Bureau of Economic Analysis report showed. The S&P 500 opened higher while Treasury yields were lower as traders focused on the inflation figures and boosted the odds of a March rate cut.
3. Inflation’s Cooling Trend Extends Ahead of Fed Meeting — The Fed’s preferred inflation measure, the personal-consumption expenditures price index, rose 0.2% in December from the previous month, the Commerce Department said Friday. That was up from a 0.1% decline in November but still consistent with subdued inflation.
December closed out a year in which inflation declined markedly. Prices were up 2.6% on the year—well down from the 5.4% increase at the end of 2022. Core prices, which exclude volatile food and energy costs, rose 2.9% on the year, a slowdown from the prior month.
On a three-month annualized basis, core PCE inflation slipped to 1.5% in December from 2.2% in November. On a six-month basis, it was 1.9%, unchanged from November. Both figures are below the Fed’s 2% target.

The week ahead — Economic data from Econoday.com:

“Trade the market you got, NOT the one you wish you got” — LP

1. Retail sales rise 0.6% in December, topping expectations for holiday shopping — Retail sales increased 0.6% for the month, buoyed by a pickup in clothing and accessory stores as well as online nonstore businesses. The results were better than the 0.4% Dow Jones estimate. Excluding autos, sales rose 0.4%, which also topped the 0.2% estimate. On a year-over-year basis, retail sales ended 2023 up 5.6%. The numbers are not adjusted for inflation, so sales show that consumers are more than keeping up with an annual inflation rate of 3.4% as measured by the consumer price index. The CPI increased 0.3% in December, also lower than the retail sales increase.
Another measure of retail sales strength that excludes sales from auto dealers, building materials stores, gas stations, office suppliers, mobile homes and tobacco stores rose 0.8% for the month. The Commerce Department uses this so-called control group when computing gross domestic product.
2. Congress Passes Bill Keeping Government Open as Border, Spending Fights Rage — Congress cleared legislation extending government funding into March, a step that ensures federal workers will remain on the job but does nothing to alleviate underlying political pressures stemming from high U.S. debt levels, record crossings at the southern border and an enduring war in Ukraine. The Senate easily passed the measure 77 to 18, followed by the House, which approved the bill 314 to 108, sending it to President Biden’s desk with time to spare ahead of the weekend deadline. In a replay of recent votes that underscore the fragility of the GOP majority, House Speaker Mike Johnson (R., La.) relied heavily on Democrats to bring the continuing resolution across the finish line, with almost half of Republicans declining to back the measure. Thursday’s bill provides funding for the Transportation Department, the Energy Department, Agriculture Department, the Food and Drug Administration, and Veterans Affairs and military construction through March 1. The rest of the government would be funded through March 8. Under current law, funding was set to run out on Jan. 19 and Feb. 2, respectively.
3. December home sales slump to close out worst year since 1995 — Sales of previously owned homes fell 1% in December compared with November to a seasonally adjusted annualized rate of 3.78 million units, according to the National Association of Realtors. Sales were 6.2% lower than in December 2022, marking the lowest level since August 2010. Full-year sales for 2023 came in at 4.09 million units, the lowest tally since 1995.Regionally, on a month-to-month basis, sales were unchanged in the Northeast and fell 4.3% in the Midwest. Sales were down 2.8% in the South but rebounded 7.8% in the West. On a year-over-year basis, sales were lower in all regions.
4. US Consumer Sentiment Jumps, Price Outlook Hits Three-Year Low — Consumer sentiment surged 29% since November, the biggest two-month increase since 1991, the University of Michigan reported, adding to gauges showing improving moods. It’s a sharp turn after persistently high inflation, the lingering shock from the pandemic’s destruction and fears that a recession was around the corner had put a damper on feelings about the economy in recent years, despite solid growth and consistent hiring. Consumer sentiment leapt 13% in the first half of January from December, the Michigan survey said, after a sharp rise the prior month. The pickup in sentiment was broad-based, spanning consumers of different age, income, education and geography.

Market made a new high this week. History sides with further gains ahead. The S&P 500 went 512 trading days without a record through Thursday, which ranks as the sixth-longest streak since 1928, according to Ed Clissold, chief US strategist at Ned Davis Research. One year after hitting new highs, the index has risen 13 out of 14 times by a median of 13% in that span.
Below is the research from Ned Davis Research showing the stats on first new high after 1 year bullish going fowrard, on average:

The week ahead — Economic data from Econoday.com:

“It takes character to sit there with all that cash and do nothing. I didn’t get to where I am by going after mediocre opportunities.” — Charles Munger

1. SEC Authorizes Bitcoin-Spot ETFs in Crypto’s Big Breakthrough — US regulators for the first time approved exchange-traded funds that invest directly in Bitcoin, a move heralded as a landmark event for the roughly $1.7 trillion digital-asset sector that will broaden access to the largest cryptocurrency on Wall Street and beyond. The Securities and Exchange Commission, whose three-part mandate includes investor protection, authorized funds from industry heavyweights BlackRock, Invesco and Fidelity to smaller competitors including Valkyrie to begin trading late last week.
The approvals also mark a rare capitulation by the SEC following opposition that lasted for more than a decade, ever since Tyler and Cameron Winklevoss first proposed a Bitcoin ETF in 2013. BlackRock Inc.’s surprise application last June, followed by an appeals court ruling that called the denial of a different application “arbitrary and capricious,” triggered a blistering rally in the cryptocurrency as speculation that US regulators would finally give their blessing to the structure.
2. Inflation Edged Up in December After Rapid Cooling Most of 2023 — The consumer-price index climbed 0.3% in December from the prior month and increased 3.4% from a year earlier, the Labor Department said Thursday. That compares with November’s 0.1% monthly gain and marks an acceleration from that month’s 3.1% annual increase. Core prices, which strip out volatile food and energy items, rose 0.3% in December from the prior month—the same monthly increase as November and slightly faster than would be consistent with the Federal Reserve’s long-term inflation target of 2%. Core prices increased 3.9% from a year earlier, a modest slowing from November’s 4% annual increase. Thursday’s report isn’t likely to change the Fed’s near-term policy outlook.
3. PPI report shows U.S. wholesale prices declining for a third straight month — the decline in wholesale inflation last month offers a bit of relief after a hotter-than-expected increase in the consumer price index. The CPI posted the biggest gain in December in three months. A separate measure of “core” wholesale prices that strips out volatile food, energy and trade margins rose a mild 0.2%% last month, the government said. That matched the Wall Street forecast. The cost of goods fell 0.4% in December because of another decline in energy prices. Food prices also fell. The cost of wholesale services, where inflation is running the hottest, was flat in December.
4. SEC Approves Bitcoin ETFs for Everyday Investors — The SEC decision clears the way for the first U.S. exchange-traded funds that hold bitcoin to be sold to the public. Expectations of U.S. regulatory approval for such funds drove the price of bitcoin to the highest level in about two years. The digital currency traded just below $46,000 late Wednesday, up from $17,000 in January 2023. Until now, everyday investors who wanted to buy and sell digital currencies have had to either trade on crypto exchanges and incur hefty transaction fees or purchase products that track bitcoin in less direct ways. At least half a dozen bitcoin-futures ETFs are already on the market. Those funds use futures contracts to provide exposure to bitcoin price moves, though they have been criticized for often straying from bitcoin’s price.
All 11 applications filed by asset managers including BlackRock, Fidelity Investments, ARK Investment Management, Invesco, WisdomTree Bitwise Asset Management, Valkyrie and Grayscale Investments have been greenlighted to list. The new funds, known as spot-bitcoin ETFs because they buy and sell the digital currency itself, are expected to begin trading on Thursday.

The week ahead — Economic data from Econoday.com:

There isn’t a single formula. You need to know a lot about business and human nature and the numbers… It is unreasonable to expect that there is a magic system that will do it for you. — C Munger

1. Fed Minutes Suggest Rate Hikes Are Over, but Offer No Timetable on Cuts — At the meeting, the rate-setting Federal Open Market Committee agreed to hold its benchmark rate steady in a range between 5.25% and 5.5%. Members indicated they expect three quarter-percentage point cuts by the end of 2024. Officials noted the progress that has been made in the battle to bring down inflation. They said supply chain factors that contributed substantially to a surge that peaked in mid-2022 appear to have eased. In addition, they cited progress in bringing the labor market better into balance, though that also is a work in progress.
The “dot plot” of individual members’ expectations released following the meeting showed that participants expect cuts over the coming three years to bring the overnight borrowing rate back down near the long-run range of 2%.
2. U.S. Auto Sales Bounced Back in 2023 — The U.S. auto industry rebounded in 2023 with many car companies reporting double-digit sales gains, marking a return to normalcy for a sector that has been on a roller coaster since the start of the pandemic. Automakers’ results were boosted by pent-up demand and better availability on dealership lots. A six-week United Auto Workers strike this fall did little to dampen the industry’s momentum and electric-vehicle sales continued to rise, albeit at a slower rate than in the previous year. Analysts project industrywide sales of new cars in the U.S. could reach nearly 15.5 million in 2023, about a 13% increase from the prior year, once all car companies have released their figures.
3. Money-Market Fund Assets Rise to New All-Time High — Money-market fund assets rose to an all-time high, led by inflows into the government sector as investors sought to protect their cash at the end of the year. About $78.6 billion flowed into US money-market funds in the week through Jan. 3, according to Investment Company Institute data. Total assets rose to $5.965 trillion from $5.89 trillion the week prior. Retail investors have been piling into money funds since the Federal Reserve began one of the most-aggressive tightening cycles in decades in 2022. But last month, the Fed signaled that campaign is over and projected deeper interest-rate cuts this year.
4. Job Gains Picked Up in December, Capping Year of Healthy Hiring — The U.S. economy added 216,000 jobs last month, the Labor Department reported Friday. That was larger than November’s gain of 173,000, and better than forecasters were expecting. Hiring was revised down in both October and November. For all of 2023, employers added 2.7 million jobs, a slowdown from 2022, but a better gain than in the years preceding the pandemic. Hiring was broad-based last month, with healthcare and government leading job gains. Transportation and warehousing employers shed jobs. The unemployment rate in December held at 3.7%. The jobless rate began 2023 at 3.4%, matching lows not seen since the late 1960s, and remains low despite inching higher late last year.
Wages rose a healthy 4.1% last month from a year earlier. More broadly, there are signs the tight labor market conditions that prompted employers to offer robust pay raises in early 2023 continue to wane.

In a look back at 2023, data provider FactSet took a look at the biggest daily market moves in both directions.

The week ahead — Economic data from Econoday.com: