The US stock market experienced mixed results on Thursday, the first trading day after Christmas, disrupting the anticipated Santa Claus rally. While the Dow Jones Industrial Average managed a slight gain, both the S&P 500 and Nasdaq Composite saw minor declines. This performance follows two consecutive days of gains, raising questions about the strength of the traditional year-end market surge.
Table Content:
A Stuttering Santa Claus Rally
The Santa Claus rally, a period typically characterized by strong market performance in the last five trading days of December and the first two of January, got off to a robust start on Christmas Eve. The Dow surged nearly 400 points, and the S&P 500 recorded its best Christmas Eve performance since 1974 with a 1.1% gain. However, the momentum faltered on Thursday, with the Dow gaining a modest 0.07% (+28.77 points), while the S&P 500 dipped 0.04% and the Nasdaq Composite fell 0.05%. Historically, the S&P 500 averages a 1.3% gain during the Santa Claus rally period.
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This year, investors hoped the rally would solidify the market’s strong performance throughout 2024 and set the stage for a third consecutive year of significant gains. As Adam Turnquist of LPL Financial noted, a positive Santa Claus Rally often correlates with a strong January and an average forward annual return of 10.4% for the S&P 500. Conversely, weaker performance during this period tends to predict flatter returns in January and a lower forward annual return of around 5%.
Economic Indicators and Market Sentiment
Beyond the Santa Claus rally, other economic indicators influenced market sentiment. Recent jobs data revealed a surge in continuing unemployment claims to 1.91 million, the highest level in over three years. This suggests persistent challenges in the labor market despite initial jobless claims for the week coming in below expectations at 219,000. The mixed market performance reflects the uncertainty surrounding these conflicting signals.
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Market Close on Thursday, December 26, 2024:
- S&P 500: 6,037.59, down 0.04%
- Dow Jones Industrial Average: 43,325.80, up 0.07% (+28.77 points)
- Nasdaq Composite: 20,020.36, down 0.05%
Other Market Developments:
Several other significant developments impacted the market landscape on Thursday:
- Concerns arose about the potential for reduced AI spending to trigger a downturn for chip manufacturers, particularly impacting suppliers like Nvidia.
- Goldman Sachs analysts highlighted potential risks to US corporate profits stemming from a trade war with China.
- Toyota’s stock surged 9% following a report indicating the company’s ambition to double its profitability.
- Citi expressed optimism about a resurgence in healthcare stocks in 2025 after a lackluster performance in the current year.
Conclusion: Uncertainty Clouds the Outlook
The interruption of the Santa Claus rally introduces uncertainty into the market outlook for the remainder of the year and into 2025. While the Dow managed to maintain a slight upward trajectory, the declines in the S&P 500 and Nasdaq, coupled with rising continuing unemployment claims, suggest potential headwinds. Investors will be closely monitoring upcoming economic data and market performance in the remaining trading days of the year for clearer signals about the direction of the market in the new year. The interplay between the Santa Claus rally’s historical trends and current economic realities will be crucial in shaping investor sentiment and market performance in the coming weeks.
