Market Milestones and Economic Indicators: A Broad Perspective

1) 50,000 – On Friday, the Dow Jones Industrial Average closed above 50,000 for the first time in its history.  Given that the index has been around since the 1800s, that’s quite some time.  There is significance to that too.  Now, a single index, on its own, never tells the full story.  If the Dow were making new highs in isolation, we should be skeptical. New highs without confirmation are rarely something to celebrate.  But when the Dow is doing this alongside other key measures of the market, that changes everything.  What's the average stock doing?  Well, on Friday, the equal-weight index (RSP) closed at new all-time highs as well.  That tells us the gains aren't being driven by a handful of mega caps.  The average stock in the S&P 500 is participating.  Moreover, the S&P Mid-Cap 400, which represents companies between small caps and large caps, also closed at new all-time highs.  These aren't the market darlings.  Not the biggest names.  Not the smallest, either.  So, one more question…What's the median stock doing?  The Value Line Geometric Index tells us what the median stock is doing.  And on Friday, it closed at new multi-year highs as well.  Strength is not isolated.  It's broad.  It's persistent.  And it's coming from multiple angles.  So, for now, it still pays to fade media noise of fear, uncertainty, and doubt (FUD) coming from all different directions.

2) USD – Friday should give us another slowing CPI report.  WED we have non-farm payrolls, which should also be soft.  The US Dollar Index usually responds to that first and so far this morning that appears to be the case.  The Index (DXY) is dropping below trend resistance this morning.  If it can stay there, it’ll be a bearish transition from a more neutral state, and a bearish Dollar is usually consistent with rate cuts and soft jobs numbers.  The US 2YR Yield is also suggesting those reports may be slowing and, if that holds true, then rate cuts are likely.  Remember, the 2YR is the Fed front runner.  The 2YR Yield is down this AM along with the longer-dated yields higher.  What does that point to?  Q1 goldilocks of growth accelerating and inflation decelerating.

3) VIX – VIX failed Friday right where you’d want to see it fail…right at the top of trend resistance.  Potential issues?  Sure, there always are.  And these days “The Flows” from systematics like volatility control funds and CTAs often dictate short-term market movement.  So the question is what kind of Systematic Selling might we see due to 1-month realized VIX breaking out slightly vs. 3-month.  When that condition happens it tends to trigger selling by those Volatility Control strategies.  Not unimportantly, the Nasdaq’s volatility metric (VXN) is still elevated and currently in a more neutral state trading inside its trend range. A sustained drop below 23.58 on VXN and we could see the Nasdaq start to catch up from its current YTD losing streak.  VXN is signaling overbought here, so the probability lies on the side of a volatility deceleration for the Nasdaq…maybe similar to what we saw towards the end of NOV.