On this date in 395, Roman Emperor Theodosius I passed away, splitting his Empire into Eastern and Western halves. His sons, Arcadius (East), and Honorius (West) would each inherit half of an empire that would never be re-united. Fitting, given the nature of UK Prime Minister Theresa May's address today.

Davos, Brexit, and the Donald

Just how big a deal is Davos? To be honest, the World Economic Forum would be hard pressed to match all of the annual hype with actual substance. That is not a knock, it's just that powerful global political and business leaders gather here every year to rub elbows and push their agendas. Expectations always end up being rather high. This year could be more interesting than most years, however. Both the U.K.'s "Brexit" referendum and the presidential election of Donald J. Trump in the US have occurred since the last gathering in the Alps.

You'll notice that I wrote more interesting, and not more important. Certainly, this recently changed and yet still-evolving global environment is currently focused on events in London and Washington. Those policy-changing events are the dog that will wag the tail. These business folks and economists gathering in the mountains?? Well, this year, gang, they end up being the tail. Today, U.K. Prime Minister Theresa May is making clear her intention to lead that nation out of the EU's single market. This is not really a surprise, but it is a hard reality for some businesses, not to mention Scotland. This signal from Britain, along with Friday's sweeping handover of power in the United States, will drive the conversation in Switzerland this week.

There Be Squalls Ahead

The week ahead is fraught with danger, or opportunity. That depends on one's mindset, not to mention how one is set up. The inauguration of the new U.S. president, and "Brexit" chatter are just the tip of the iceberg. The German ZEW survey for economic sentiment disappointed this morning. More quarterly corporate earnings results are expected all week, not only the financial space. Then there's the ECB policy announcement on Thursday morning. Now, that we've brought up central banking, did I mention the ever-intruding presence of Fed speak? Right now, we're tracking eight public appearances by Fed speakers over the next four days, to include a pair by the Chair herself. This group will have to bend their words around tomorrow's release of December's Consumer Price Index. Oh joy.

Trader Focus, Sample Allocation Tweak

The investing public is becoming increasingly concerned over just how difficult the president-elect's reflationary policies will be to implement, and just how effective, or quickly that implementation will be to execute. As progress is expected to be slower than first expected, the U.S. dollar has lost the incredible post-election momentum that had pushed the DXY well above the 103 level. These concerns, coupled with all of today's "Brexit" chatter, have pushed traders into safe-haven assets such as sovereign debt and gold. It becomes increasingly possible that while any selloff seen this week in the equity space will not likely represent a true reversal in trend, we may have seen some short-term violence, at least for some sectors. That said, it becomes likely, in my opinion, that there have been trade-able short-term lows made in those assets inhabiting the realm considered to be somewhat safer.

You may recall that when painting our sample allocation model a few weeks back, we left 2.5% of portfolio readily deployable. While these allocations are strictly meant to just let you know what I am thinking, and your decisions remain just that, your decisions, I am probably going to nudge my allocation for gold up to 6% from the current 5%. You may also recall that in my year-end allocation note I was "mildly uncomfortable with a bond allocation of 12.5%, and that if I were to adjust that in the first quarter, it would be in a northerly direction." Well, that was indeed quick. I am likely to take that slice of my portfolio from that 12.5% up to 14%. This will leave cash at 20%, and equities at 60%. The debt portfolio remains spread across the sovereign, municipal, and corporate varieties.

Macro

08:30 - Empire State Manufacturing Index (January): Expecting 8.4, December 9.0. October was the last time that any of the five major regional manufacturing surveys released every month by the Federal Reserve districts actually printed in a state of headline contraction. The ISM headline number has hit the tape in expansion for four months running as well. A rebirth in U.S. manufacturing? I wouldn't go that far. After all, Industrial Production has continued to decline. We'll see that number (for December) tomorrow. Regardless, there's no doubt that the sector has at least bottomed, partially thanks to WTI crude's stabilization. That aids performance in the southwest (Dallas). Today, we look for a third consecutive month of growth in the New York region; however, Unfilled Orders, Number of Employees, and Hours Worked all contracted from November into December, so there are sub-components that could negatively impact the headline to keep an eye on.

08:45 - Fed Speaker: New York Fed Pres. William Dudley will speak on consumer behavior from New York City. As the sitting regional president in New York, Dudley holds a permanent voting position at the FOMC, and has been particularly good at telegraphing policy intentions to the marketplace. Remember, he is the one who said the case for a September hike was becoming "less compelling" last year. There will be a Q&A session post-speech.

10:00 - Fed Speaker: Federal Reserve Governor Lael Brainard is set to speak from Washington, DC on fiscal policy and its relationship to, and impact upon monetary policy. Brainard is considered to be something of a perma-dove in central banking circles, and like Dudley, is a permanent voting member of the FOMC. She did not, however, dissent against the consensus in December when the committee decided to increase the fed funds rate.

10:00 - Economic Speaker: Outgoing Treasury Secretary Jack Lew will speak on tax reform, international trade, and the economy in what might be considered an "exit interview". This event is scheduled to be televised on CNBC's "Squawk on the Street" show

18:00 - Fed Speaker: San Francisco Fed Pres. John Williams is scheduled to speak on the economy from Sacramento, California. Williams does not vote on policy this year, but is considered to be influential, and is also believed to have the ear of the Fed Chair. After this evening's speech, Williams will answer questions for both the audience, and the media.

Sarge's Trading Levels

These are my levels to watch today for where I think that the S&P 500, and the Russell 2000 might either pause or turn.

SPX: 2281, 2274, 2267, 2260, 2254, 2245

RUT: 1383, 1376, 1370, 1365, 1357, 1348

Tuesday's Earnings Highlights

Before the Open: (CMA - Get Report) ($0.69), (MS - Get Report) ($0.65), (SNV - Get Report) ($0.53), (UNH - Get Report) ($2.07)

After the Close: (CSX - Get Report) ($0.48), (AMD - Get Report) (-$0.02)

At the time of publication, Stephen Guilfoyle was long CSX, although positions may change at any time.