“This leads one to question whether the leaders (or laggards) continue to lead (lag) in the year ahead,” the Bespoke strategists said. “Looking at the past, the picture is not exactly favorable for that sort of rotation in either direction.”

The market is “sitting on big gains” and most participants just want the year to end to register those gains, according to Tom Essaye, a former Merrill Lynch trader who founded The Sevens Report newsletter.

“But I’ve been in this industry long enough to know that when everyone seems to be leaning on one side of the proverbial canoe, it pays to move to the middle.”

Warnings about a market that’s flashing overbought signals have been raising concern about a pullback, with some market observers saying that traders have gone too far, too fast in pricing in a dovish Fed pivot.

While the recent ebbing of inflation is positive for the Fed, some other figures showing economic resilience could fuel consumer spending — working against the central bank’s aim to slow the pace of growth. That poses risks for the bond market heading into the new year.

Falling yields have driven the dollar lower in 2023, sending currencies around the world to multi-month highs and boosting returns on foreign-currency debt. The euro, the yen and the pound are at their strongest levels in at least four months, while the Swiss franc is at the highest since 2015.

The drop in Treasury yields has effectively relaxed financial conditions in the US and “are hardly compatible with sustainably low inflation,” said Ipek Ozkardeskaya, a senior analyst at Swissquote.

“The rally in the sovereign space looks overdone — hence the rally in stocks and the selloff in the US dollar look overstretched,” she wrote in a note.

About a week ahead of the all-important US jobs report, traders were unfazed by data showing initial jobless claims rose to 218,000. Economists forecast a still-healthy 170,000 increase in December payrolls, consistent with resilient labor demand that has been key in powering the economy.

Elswehere, oil retreated for the fourth time in five sessions as rising inventories at the key US storage hub in Cushing, Oklahoma, partly offset a drop in national stockpiles to paint a mixed picture for demand.

This article was provided by Bloomberg News.

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