“Paul The Bear” – Doesn’t Really Ring

It was a good weekend. Skiing was nice, soft and springlike on Saturday. On Sunday, America’s Team kept rolling and beat the Eagles and the UCONN women looked a little bit better in beating UNC. I also ate like this was my last weekend in earth and my pants are a wee bit tighter this morning.

The big employment report came out on Friday and market reaction was super muted. I guess the bulls won the day but volatility has really come in as December wears on. I got an email from a troll blasting me for being bearish which may have been the funniest email all year if not longer. As you know I came into 2023 looking for at least 15-20% on the upside with an outside chance at 30%. I looked for a Q3 pullback in the mid-single digits with bottoms in August, September and October. And yes, I was skeptical of the final low because volatility was so muted, but I certainly didn’t stay away for long.

Lately, I have been looking for a “huge” 1-2% pullback during this seasonally weak time of year and I said that there wasn’t much actionable to do with that. Whatever weakness we saw, I thought there would be another rally to new 2023 highs and then all-time highs in Q1 2024. If that’s bearish, then I am guilty as charged.

Seasonal trends begin to strengthen this week, but really get going to the upside at the end of the week. Small caps usually get even stronger this week and into January versus the S&P 500. I have been saying this for a while now, but weakness should continue to be bought. Sentiment is getting a little giddy, but it’s usually more difficult for the bears to make headway so soon after a significant low like we saw at the end of October. I was going to use the word “context” but after watching the cringe worthy testimony of the presidents of Harvard, MIT and Penn last week, I think I will move in another direction.

Since early November you can see that the Russell 2000 has rallied sharply versus the S&P 500. That is small cap leadership and a broadening of the rally. I expect more of that into 2024.

And in the small cap space, value stocks have been quietly beating up growth stocks since October, something I am loving. However, I do expect this trend below to reverse in the coming days or week.

On Friday we bought MOS, LIN, PFF, more FNCL and more IJS. We sold levered inverse Russell 2000.