Will Santa Claus Stop At Broad & Wall? – by Justin Vaughn

(Justin Vaughn, Editor, Options Trading Report)

50 years ago, Yale Hirsch recorded in his “Stock Trader’s Almanac” a history of the last five trading days in December and the first two trading days in January, the rise and fall of the S&P 500 average, called the “Santa Claus Rally.” According to the ‘Stock Trader’s Almanac,’ the stock market has edged up 1.3%, on the average for the 7 market days of December and January. During the many years of record keeping, and more than any other 7 day period, stock prices have appreciated upward 76% of the time. Strangely the Dow Jones Industrial Average has a better record when Santa Claus does not arrive! Mr.Hirsch penned the famous phrase in 1972, and it is still a year-ending and beginning phenomenon. The “Santa Claus Rally” is a tradition, positive or negative, that lives on in traders and investors minds.

Last week’s market sentiment spilled over Monday, as the indices struggled to stay even. University of Michigan Surveys of Consumers, showing the consumer sentiment index, moved slightly up to 59.7 this month, higher than economists were expecting. Joanne Hsu, director of surveys at the University of Michigan said in a news conference: “Sentiment remains downbeat at 15% below a year ago, but consumers’ extremely negative attitudes have softened this month on the basis of easing pressure from inflation.” As the week progressed, with little news that was positive, stocks fizzled, and the market flirted negatively. Investors and traders were cautiously looking for any indication that a rally might be brewing…with only a few days left for Santa to appear.

China’s severe “Covid Zero Policy” has finally been lifted, opening the country and removing all major restrictions. Chinese financial markets showed promising upward signs as did Chinese stocks listed on many leading exchanges around the world. U.S. investors were more active, as leading Chinese equities were ‘hot commodities.’ Not only has China suffered tremendous economic set-backs, but economies worldwide have been strained also. As the 2nd largest economy in the world, China’s dominance as a major economic player is unequaled. Now with the lifting of these restrictions, and the ‘heating-up’ of the tremendous manufacturing capabilities, this mammoth producer of products can once again take its place as a leading player.

Oil stayed even this past week as it traded around the $80.00 mark. Economists feel that as China emerges from a dormant economy, demand for oil could push prices higher, as analysts expect trading in the $90.00 range.

The miracle of Natural Gas…The Russian invasion of Ukraine, and the effects on Central Europe are massive as winter approaches. As the European Union cut off receiving Russian gas, and the winter months approach, supply concerns cloud where supplies will come from. The U.S. is stepping up to supply these needs, ratcheting up production and developing all aspects of logistics. As of Friday, December 16, the year to date increase has been astronomical at 76%. Production and output at nearly all LNG companies are filling the void of Russian natural gas. According to MasKenne Wood, a researcher, the European Union will handily survive the winter. Over a longer term, some analysts see supply remaining robust, “keeping Europe Warm.” As prices remain elevated and heading higher, supplies are plentiful. The rapid mobilization of the U.S. stepping up to fill a dire need is a true feather in the U.S. cap.

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Seema Shah, chief global strategist at Principal Asset Management, WSJ “2023 is the year when you will start to see the impact of all those rate increases. You can see strains are certainly building up, but the actual economic numbers are pretty resilient. We don’t think that will last.”

Jerome Powell, Fed Chief, WSJ “We welcome those better inflation reports…but I think we’re realistic about the broader project,” Mr. Powell said. Despite progress on goods and housing inflation, “the big story really will be the rest of it, and there’s not much progress there. And that’s going to take time,”

Gary Gensler, Securities and Exchange Commission Chairman, Barron’s “The markets have become increasingly hidden from view, particularly for investors.”

Katie Talati, director of research at digital-asset investment firm Area. Commenting about the recent collapse of FTX and the path ahead for cryptocurrencies. Barron’s “We’re not out of the woods. Crypto has never been alive in an environment like this.”

Andy McCorrnick, T.Rowe Price’s head of fixed income, Barron’s “If you wait until the all-clear sign from the Fed, you’ll have probably missed most of the opportunity.”