The price action in 2024 suggests we’re either coming out of a recession or in a bubble.

If there was a recession last year, I didn’t notice. So… bubble? Maybe.

“Bonds master, stocks servant,” BofA’s Michael Hartnett wrote, describing a typical environment in the latest installment of his popular weekly “Flow Show” series. “Except in bubbles and deflation,” he quickly added.

A monumental bond rally in November and December was the proximate cause for a raucous year-end stock surge, but in 2024, equity performance can’t be attributed to falling bond yields.

As discussed at some length here last week, late-year outperformance for cyclicals, equal-weighted benchmarks and lesser quality corners of the market gave way in January to a more “normal” conjuncture wherein the mega-caps (which is to say “tech”) led stocks higher.

Although markets weren’t enamored with results from Alphabet and Microsoft this week, investors were apparently pleased with Meta and Amazon, setting the stage, perhaps, for another run higher in the so-called “Magnificent 7.”

I should quickly note that yields fell sharply this week ahead of US payrolls thanks to i) renewed regional bank jitters tied to commercial real estate, ii) generally dovish data and iii) the perception that Jerome Powell’s (bad) poker face risks a hard landing. But measuring from the last day of 2023 to January 26 (i.e., the eve of FOMC week), 10-year US yields were more than 25bps higher in 2024, and yet the Nasdaq 100 was running to new records.

The figure above annualizes yield-change and big-tech performance for Q4 2023 and Q1 of 2024 through January 29. The point, obviously, is to present a stark juxtaposition.

“Yields down = Nasdaq up’ big time in Q4, but the script flipped to ‘Nasdaq up = yields up’ in the first four weeks of 2024,” Hartnett wrote, in the same weekly mentioned above.

That price action (2024’s) “occurs either post-recession (2009) or during bubbles (1999),” he went on.

Incidentally (or not) AI is beginning to look bubbly. Note also from the familiar bubble chart (above) that nothing (nothing) compares to Bitcoin when it comes to sheer mania magnitude.

As for whether another regional bank meltdown has the potential to dent sentiment, Hartnett said that unlike the mini-crisis in March of last year, the zeitgeist now says “bank deflation is contagiously liquidity-positive for risk assets.”

Unless, of course, any follow-on bank drama elicits wider credit spreads or somehow knocks on into the broader macro via a negative payrolls print.