Following a strong performance from large technology companies, the stock market experienced a notable rally in a relatively quiet pre-Christmas trading session. Tesla led the megacap surge, while Broadcom and Advanced Micro Devices also climbed following news of a US probe into Chinese-made chips. The S&P 500 closed with a gain of over 1% despite thin trading volume.
Table Content:
Tech Giants Remain Market Leaders
Market analysts observe that the recent market activity underscores the continued dominance of mega-cap tech stocks. These companies hold significant weight in institutional investor portfolios, making them a focal point for year-end buying activity. Matt Maley of Miller Tabak emphasizes the crucial role of these tech giants in driving market momentum.
Hopes for a Santa Claus Rally
Investors are anticipating a potential “Santa Claus Rally,” a seasonal phenomenon characterized by stock market gains during the final five trading days of the year and the first two of the new year. This period commenced on Tuesday, and historical data suggests a positive trend. Since 1950, the S&P 500 has averaged a 1.3% return during this timeframe, significantly exceeding the typical seven-day gain of 0.3%, according to LPL Financial’s Adam Turnquist. London Stockton of Ned Davis Research echoes this sentiment, noting the strong seasonal tendencies towards year-end.
Historical Performance and Market Indicators
A successful “Santa Claus Rally” has historically been associated with a 10.4% average annual gain for the S&P 500. However, CFRA’s Sam Stovall suggests that the “January Barometer,” which posits that January’s performance predicts the full year’s outcome, might be a more reliable indicator. Since 1945, a positive January has correlated with an average annual S&P 500 gain of 18.3%, while a negative January has resulted in an average annual loss of 1.9%.
Market Trends and Investor Behavior
The S&P 500 has remained consistently above its 200-day moving average throughout 2024, demonstrating remarkable resilience despite a lack of significant corrections. Bespoke Investment Group strategists highlight that this is a relatively rare occurrence, with only 11 similar instances since 1952. They note that the average subsequent year’s return following such periods has been a more modest 4.6%, compared to the overall average of 9.2%.
For the seventh consecutive week, Bank of America Corp. clients were net buyers of US equities, predominantly focusing on large-cap stocks and exchange-traded funds. Citigroup Inc. strategists recommend a more balanced approach for the first quarter, favoring defensive sectors and selectively targeting growth stocks with strong fundamentals and potential for margin improvement.
Corporate Developments and Economic Events
Several notable corporate events impacted the market, including a technical glitch causing a brief groundstop for American Airlines, a potential roadblock for Nippon Steel’s acquisition of US Steel, Salesforce gaining customers from Veeva Systems, Starbucks barista strikes, and Arcadium Lithium’s shareholder approval for acquisition by Rio Tinto.
Key economic events for the week include Christmas Day, US initial jobless claims, Boxing Day, and various economic data releases from Japan, including Tokyo CPI, unemployment, industrial production, and retail sales. US goods trade data is also expected.
Market Performance Summary
- Stocks: S&P 500 (+1.1%), Nasdaq 100 (+1.4%), Dow Jones Industrial Average (+0.9%), MSCI World Index (+0.9%)
- Currencies: Bloomberg Dollar Spot Index (little changed), Euro (little changed at $1.0403), British Pound (little changed at $1.2539), Japanese Yen (little changed at 157.23 per dollar)
- Bonds: 10-Year Treasury Yield (little changed at 4.59%)
- Commodities: West Texas Intermediate Crude (+1.2% to $70.10 a barrel), Spot Gold (+0.2% to $2,616.87 an ounce)
This market analysis suggests a continued strong performance for technology stocks, driving the overall market upward ahead of the holiday season. Investor sentiment remains positive, with hopes for a traditional “Santa Claus Rally” and continued growth in the new year. However, analysts caution against complacency and recommend a balanced investment approach, considering both market trends and individual company performance.
