This is the daily notebook by Mike Santoli, CNBC’s senior market commentator, with opinions on trends, stocks, and market statistics. It’s a benign, quiet fusion at a crossroads. The S&P 500 hovers at the downtrend line everyone is watching after consecutive gains of more than 1%. Not conclusive, but constructive. The market is in two opposing streams of two completely different, but logical, outcomes: an unshakable decline into a painful recession and falling earnings from one side and a soft landing with rising healthy nominal growth and an economy adapting to higher rates and shifting towards services from consumption of goods on the other. The S&P 500 breaking above the well-known trendline would be a positive but not a game changer in itself. A run above 4,100 will break through the highs in early December and will begin the process of bending the 200-day average higher. From 4,100 onward, the usual 7%-8% retracement will still only take the index to the lower end of the higher range above 3,800. Structurally and psychologically, this will help. So far, breadth indicators have remained among the most bullish clues, though perhaps this was influenced by stronger-than-normal January momentum in washed stocks receiving bids. Bank of America tracks the cumulative breadth of 15 of the most active stocks, which have just exploded, for its value. For months, the “let’s simplify” bearish case was “stocks are in a downtrend and the Fed is tightening its deceleration.” That setup is likely to change, with the Federal Reserve slowing to a halt, GDP rising through the end of 2022 and – possibly – the benchmark index about to break its “lower highs and lower highs” pattern. lower low”. The macro debate is growing about the predictability of several leading indicators (ISM survey, regional Fed survey, consumer expectations, Treasury yield curve, central focus). NAHB management). None of the data can be ignored, but for the most part they are “soft” data for assessing perception and rate of change. Good for tracking the economy’s pace of change, but after a consumer pandemic and a period of double ordering hampered in the supply chain, the interactions with total employment, income and spending unstable. Goldman Sachs notes the recent divergence in today’s hard and soft data. Certainly, this could simply be due to a delay in policy tightening going into the hard data, but arguably the peak impact of tightening financial conditions on housing has been past and the question now is how much American businesses cut. Microsoft earnings look very important from an index influence perspective (MSFT is more than 5%), but the company has managed expectations quite carefully. Calendar-2023 earnings estimates are down more than 11% since mid-2022, and the company tends not to shock too much. It’s not clear to me that MSFT is a great clue to the rest of the industry, except perhaps the PC food chain. The overall performance of earnings reports continues to be quite upbeat. There hasn’t been a lot of outright push from large-cap companies but so far there have been some sloppy results and unclear guidance. This will continue to scrutinize the overall valuation. The S&P 500 is generally at 17x consensus over the next 12 months — not cheap. Removing the five biggest S&P 500 names or using an equally weighted S&P would bring the P/E closer to 15x. That’s not a very demanding or attractive valuation at this point. It’s worth recalling that the S&P posted a more than 25% drop last year as gross earnings remained record highs, so the weakness in Q4 isn’t quite a shock to the ice. Today’s width is blah, about 50-50. The VIX is sleeping below 20, in line with the sideways trend ahead of Friday’s PCE inflation report and next week’s Fed decision.