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  • Writer's pictureJade Rossback

Holiday-Shortened Trading Week

Economic & Earnings Commentary

We embark on a holiday-shortened trading week this Tuesday — Happy Holidays, all! — feeling a little sleepy still; we don’t expect high trading volume today or through the end of the year, per normal seasonality. That said, this time period would constitute a “Santa Claus Rally,” should indices continue to climb higher. This may be a tall order; in just the S&P 500 alone, 10 of the past 13 trading days have moved higher, and it’s +732 points from late-October lows.

The S&P only spent a very short time in the red in 2023 — way back in early January. It took a few months after this to gain traction, but once the rising tide of A.I. business began to lift all boats (with technology interests), we were off to the races. With only four trading days left, the S&P is above +25% for the year, slightly below the robust 2021 year of the Great Reopening, and a nice bounce-back from -18% in 2022. Over the past 10 years, the S&P has averaged +14% gains.

What’s expected for 2024? Clearly more good things, although some market participants feel some of the good news in the next year is already being priced into the market currently. Although the current expectation is for three interest rate cuts in the coming 12 months, the Fed has not promised anyone these cuts will be coming any sooner than this summer. Data dependency will be key, but strong economic prints going forward will likely put Fed rate cuts on the back burner.

Case-Shiller Home Prices for October have just come out this morning, with +5.7% on the 10-city survey and +4.9% on the 20-city — compared with +4.8% and +3.9%, respectively, the previous month. These are impressive numbers for the housing market, especially considering October 30-year fixed mortgage rates were at multi-decade highs, +8%. For last month, these rates have come down to sub-7%, which would stand to reason that Case-Shiller numbers should remain strong a month from now.

Housing has indeed been challenged by high mortgage rates, and last week’s lower Existing Home Sales reflect this. (Pending Home Sales numbers for November will be out later this week.) But for October Case-Shiller numbers, the key is regionality: Detroit led home price gains, +8.1%, followed by +7.2% for San Diego and +7.1% for New York City. On the weak side, Portland, OR, sale prices fell -0.6%.

Aside from more housing data this week, we’ll also get a look at inventory levels, trade balance, and, of course, Weekly Jobless Claims. Jobs Week is next week, with JOLTS data, ADP (ADP) private-sector payrolls, and the big Employment Situation report a week from this Friday. That will also be a holiday-shortened trading week, with New Year’s Day coming next Monday.

Thus, any Santa Claus rally from here would likely be a resuming of bullish narratives followed over the past couple of weeks. Which is fine, ultimately: even if we’re flat from here through the final week of trading for the year, it’s been a healthy 2023 overall.

Market News

Wall Street closed mixed on Friday as market participants gauged key inflation data and expected the Federal Reserve to cut interest rates in 2024. The Dow ended in negative territory, while the S&P 500 and the Nasdaq Composite finished in the positive zone.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) declined 0.1% or 18.38 points to close at 37,385.9. Notably, 22 components of the 30-stock index ended in positive territory, while eight ended in negative zone.

The tech-heavy Nasdaq Composite finished at 14,992.97, rising 0.2% due to the strong performance of the large-cap technology stocks. The major gainer of the Nasdaq Composite was ANSYS, Inc. (ANSS) after jumping 18.1%. ANSYS currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The S&P 500 gained 0.2% to finish at 4,754.63. Out of 11 broad sectors of the benchmark, 10 ended in positive territory, while one finished in red. The Consumer Staples Select Sector SPDR (XLP), the Materials Select Sector SPDR (XLB), and the Health Care Select Sector SPDR (XLV) rose 0.8%, 06%, and 0.5%, respectively, while the Consumer Discretionary Select Sector SPDR (XLY) declined 0.7%.

The fear-gauge CBOE Volatility Index (VIX) was down 4.5% to 13.03. 9.63 billion shares were traded on Friday, lower than the 20-session average of 12.52 billion. The S&P 500 posted 39 new 52-week highs and no new lows; the Nasdaq Composite recorded 176 new highs and 64 new lows.

Investors Gauge Inflation Data

The core personal consumption expenditures (PCE) price index, which is a key measure of inflation used by the Federal Reserve, showed a slight increase of 0.1% in November, taking the year-over-year rise to 3.2%, just below the expected 3.3%. On a six-month basis, core PCE increased 1.9%, suggesting that the Fed is approaching its inflation target.

Regarding PCE, which includes food and energy costs, there was a decrease of 0.1% from the month but showed a year-on-year increase of 2.6%. This report indicates that inflation is progressing toward reaching the Fed’s desired target of 2%. As a result, investors speculate that there might be potential for interest rate cuts in 2024. The Federal Open Market Committee has already indicated its intention to halt any rate hike and expects to implement cuts next year.

Weekly Roundup

During last week, the S&P 500 experienced a 0.8% gain, the Nasdaq surged by 1.2%, and the Dow recorded a modest uptick of 0.2%. Overall, these major indices have been a positive week, reflecting optimism in the financial markets.

Economic Data

The U.S. Census Bureau and the U.S. Department of Housing and Urban Development jointly reported that new home sales for November decreased to 590,000 units sold. The October number was revised to 672,000 from the previously reported 679,000.

The U.S. Census Bureau reported that durable goods orders for November had increased by 5.4%. For October, the number was revised down from the previously reported 5.4% to 5.1%.

*Content provided by Zacks Investment Research. An American company dedicated to the production of independent research and investment-related content. It was founded in 1978 by Len Zacks, based on his insights while pursuing his Ph.D. at MIT.

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