1. Moving the market

The markets opened sharply lower today, with bullish sentiment notably absent as the major indexes fell more than 1.5%.

However, they managed to bounce back from their worst levels of the day. Despite the light trading volume typical of a holiday-shortened week, traders found no clear catalyst for the market’s movements. Even lower bond yields couldn’t prevent the bears from dominating.

Although the major indexes are still below their record highs, they have posted some of the best year-to-date gains since 2021. The S&P 500 and Dow are up over 25% and 14%, respectively, while the Nasdaq leads with a gain of over 31%.

Nevertheless, concerns are growing that year-end profit-taking has sapped upward momentum after recent losses, suggesting a possible pause following the significant upswing.

Surging bond yields, despite the Federal Reserve’s efforts to lower them, have contributed to recent market weakness. It remains to be seen if this trend will continue to negatively impact markets as we enter 2025.

Soft survey data continued its post-election decline, while Pending Home Sales exceeded expectations but diverged from rising interest rates.

Mega-cap tech stocks took an early dive but rebounded thanks to dip buyers, nearly breaking even. Bitcoin followed a similar path, dropping early but staging a strong recovery to close in the green.

Bond yields finally fell, with the 10-year yield sliding to 4.54%, a small but encouraging improvement. The dollar also recovered from a significant drop, which ultimately cost gold a positive close.

As we approach the last trading day of the year, will the bulls find something to cheer about despite a lackluster December?

1. Moving the market

The major indexes went through moderate declines early in the session as the markets absorbed recent gains from the holiday week, commonly referred to as the Santa Claus rally.

This phenomenon typically occurs during the last five trading days of the year and the first two days of January. Historically, the S&P 500 has averaged a return of 1.3% during this period, significantly outperforming the market’s average return of 0.3%, according to LPL Research.

This rally is primarily driven by retail investors, as many institutional investors are not active during this time. Therefore, this positive period does not necessarily indicate what will happen in January and February.

In economic news, weekly jobless claims improved slightly from 225,000 to 219,000. However, continuing claims rose to 1.91 million, the highest level since November 2021, signaling potential economic weakness.

Today, the most shorted stocks saw a squeeze higher, but this was insufficient to keep the major indexes in positive territory after a midday rebound, except for Small Caps.

Bond yields fell after an early rise, and the dollar edged slightly higher. Gold defied the trend, gaining 0.71% on the day, while Bitcoin lost its Christmas Eve gains, joining crude oil, which fell back below $70.

With only three trading days left in the year, will the bulls be able to complete the Santa Claus rally?

1. Moving the market

Despite an early dip, the markets quickly rebounded, with major indexes closing in the green and keeping hopes of a Santa Claus rally alive.

This solid recovery followed last week’s turmoil, during which the Dow endured a 10-day losing streak and plummeted over 1,100 points on Wednesday. This drop was triggered by the Federal Reserve’s announcement that fewer rate cuts would be planned for 2025 than previously anticipated.

Early in the day, weak economic data dampened sentiment, as the Consumer Confidence Index for December fell to 104.7, its lowest level since September and below the expected 113.

However, even worsening Economic Surprise data and softening survey data couldn’t hold back the bulls. The rebound continued, despite the low liquidity typical of the pre-Christmas period.

The tech sector led the day’s gains, with heavyweights Tesla, Meta, and Nvidia each adding at least 2%. Bond yields rose, the dollar recovered from Friday’s losses, and gold moved in the opposite direction. Bitcoin remained steady over the weekend but declined in today’s session.

Tomorrow will be a shortened session on Wall Street, and I won’t be providing a market commentary. However, I will return on Thursday to close out the week with the usual reports.

Merry Christmas!