[Chart courtesy of MarketWatch.com]

1. Moving the markets

My somewhat humorous headline contains some truth in that hope for a Santa Claus rally is alive and well but has been met with resistance due to intensifying omicron fears with a resurgence in the number of Covid cases, which have been blamed on the variant.

To be clear, the Santa Claus rally may still materialize, as “Stock Trader’s Almanac” considers it to be the period including the last five trading days of the year and the first two trading days of January. That means, all hope is not yet lost.

Today was simply a continuation of Friday’s slam with dip buyers again being conspicuously absent. Commented Jim Paulsen of the Leuthold Group:

The downward move in markets “reflecting growing uncertainty surrounding whether the Omicron surge will bring new widespread economic shutdowns, an unexpected shelving of additional fiscal stimulus from President Biden’s Build Back Better plan, and a breach by the S&P 500 index of its 50-day moving average.”

Today, there was no place to hide, because growth, value and SmallCaps were equally hammered, as was the tech sector in general. Even the low volatility SPLV ETF was not able to withstand the selling and gave back -0.31%.

The major indexes swooned in unison and bounded off their worst levels of the session, but it was not nearly enough to even think about a green close. Interestingly, the S&P 500 closed today within 1 point of where it started the month of December, so not much has been gained or lost during this period, despite the index having just suffered its biggest 3-day drop since May.

The most shorted stocks surrendered Friday’s victory, as ZeroHedge pointed out, while the US Dollar was not able to build on its recent gains and ended up bouncing lower. Gold held steady for most of the morning, that is until the bears put another nail in the coffin and sent the precious metal down -0.81%.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

The much-anticipated Fed announcement came and went. What mattered most to Wall Street traders was that Powell’s announcement was in line with expectations and contained no surprises.

ZeroHedge clarified it this way:

• The Fed statement and economic projections saw the central bank double the pace of its asset purchase tapering to USD 30bln per month (consisting of USD 20bln Treasuries, USD 10bln MBS – this will be doubled again in January, with similar reductions likely be appropriate each month thereafter), which puts it on course to conclude asset purchases by March, from the prior landing zone of around June, although this could be adjusted if warranted.

• Its updated projections now see three rate hikes in 2022, revising up its view from one hike penciled in at the September FOMC (recall that September, the Committee was essentially split on the potential need for a second 2022 rate hike); longer-term, it has left its terminal rate view unchanged, however.

• Inflation forecasts were revised up to 2.6% for headline PCE by the end of next year (prev. 2.2%), while the core measure is seen at 2.7% by end 2022 (prev. 2.3%).

• On the labor market, the Fed sees the jobless rate return to the 3.5%-mark next year (prev. saw 3.8%), where it is likely to stay over its forecast horizon.

The early slump turned into a giant pump propelling the major indexes out of the doldrums, for sure part of a relief rally, as some analysts had expected a much more aggressive Fed announcement.

Personally, I think that this will still be forthcoming next year when inflation will not be contained as hoped and will be surging much higher.

The rebound was broad-based with 9 out of 10 S&P sectors participating, but the US Dollar reversed an early rally and dumped into the close. Gold went the other way by losing momentum early on, after a poor retail sales report, but the precious metal found some footing and ramped higher by 0.38%.

I’ll be out tomorrow but will be writing Friday’s week-ending commentary, with the $4.3 trillion in options expirations surely having an impact on that day’s volatility.

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[Chart courtesy of MarketWatch.com]

1. Moving the markets

There was simply too much uncertainty swirling around Wall Street to give the bulls any encouragement to pull the major indexes out of yesterday’s doldrums, so the bears dominated the session again.

First, there was Goldman Sachs ringing the alarm bell by stating their worry about market breadth. Zero Hedge noted that it means 51% of all market gains since April have come from just 5 stocks, and only 35% of Nasdaq companies are above their 200-day M/A, with the Nasdaq at all-time highs. Ouch!

Second, traders are nervous about Friday’s quad options expirations, the volume of which is pegged to $4.3 trillion in estimated value. This will certainly add to volatility, as will some other factors.

We will face the outcome of the Fed meeting tomorrow regarding the much-announced acceleration of the tapering of bond purchases, as well as any potential rate hikes. This will be followed by Thursday’s jobless numbers and the above-mentioned options expirations on Friday, all of which could combine to create a tumultuous week.

Given the above, and the fact that bond yields edged higher today, it’s no surprise that equities gave back some of last week’s gains with the Nasdaq and SmallCaps getting hit the hardest.

The US Dollar continued its stairstep rebound and added 0.26% for the session, while the Commodity Index, which had been on a tear since April 2020, showed signs of weakening by breaking below its major uptrend line.  

Even gold, a place to hide during times of uncertainty, offered no refuge, and the precious metal was slammed at the tune of 0.93%.

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