Seasonal:
Bullish. December is the #3 month for DJIA, S&P 500 and NASDAQ. It is also the second month of the “Best Months” and best three consecutive month span. Performance is modestly softer in post-election years. Santa Claus Rally begins on the open on December 27 and runs until the close on the second trading day in January.
Fundamental:
Mixed. According to the Atlanta Fed’s GDPNow model, Q4 growth is forecast at 8.6% as of its most recent update on November 24. However, inflation is running at multi-decade highs and covid-19 cases are trending higher which could pull activity lower. Q3 corporate earnings have largely been a homerun but comparisons will begin to get tougher. October’s jobs report was solid, but a sizable chunk of the gains may have been temporary holiday-related positions that may not last.
Technical:
Consolidating. After breaking out to new all-time highs in early November, DJIA and Russell 2000 have retreated. S&P 500 and NASDAQ have fared better with both reaching new highs the week before Thanksgiving prior to the early Thanksgiving week retreat. S&P 500 and NASDAQ remain above their respective 50-day moving averages, but DJIA and Russell 2000 fell through their 50-day moving averages during the Black Friday selloff. For the rally to resume in earnest, DJIA and Russell 2000 need to find support. Key levels to watch appear to be DJIA 35600 and Russell 2000 at 2300. A meaningful breach of these levels could weigh heavily on S&P 500 and NASDAQ.
Monetary:
0 – 0.25%. At its regularly scheduled meeting at the start of November the Fed did as was widely anticipated, it announced that bond purchases would be tapered. They announced hard numbers for November and December but left subsequent monthly adjustments open and data dependent. Fed Chairman Powell will remain which; depending on how you view the Chairman may be a blessing or a curse. At a bare minimum his reappointment does rule out the uncertainty of someone new taking his place. Overall, even with the reduction in bond purchases, Fed policy remains highly supportive and we believe bullish for stocks at this time.
Psychological:
Correction. According to Investor’s Intelligence Advisors Sentiment survey Bullish advisors jumped to 57.2%, Correction advisors retreated to 21.4% while Bearish advisors stood at 21.4% as of the November 17 release. The jump in bullish sentiment was supported by a breakout to new all-time highs and perhaps an early sampling of holiday spirit. With the rally stalling, sentiment eased slightly over the last week to 56.6% Bulls and 21.7% each for Correction and Bears. It is common for sentiment to remain elevated during the holiday season as it has typically been a bullish time for stocks.
DEC
2021