Is the Santa Claus Rally Getting Snatched?
2024 has opened on a sour note. S&P 500 futures are lower by about 0.7%. Not a huge move, but that's good enough to erase nearly all the gains since the close on December 21. Recall that the technical Santa Clause Rally period is the last five trading days of the old year and the first two sessions of the new year. As it stands, the S&P 500 Trust ETF (SPY) is up just fractionally from the final trade on Thursday, December 21 as apparent profit-taking is taking place after a +26% total return year finished up last Friday.
Where is support on the chart of the SPX? A 3-year zoom of the index reveals that the August 2022 peak was 4637 and the July 2023 high was 4607. The rising 50-day moving average is all the way down at 4503 as of this morning. You have to go about 10% lower to find the 200-day moving average. For now, the intraday all-time high notched on the second trading day of 2022 appears safe at 4818.62. A modest January pullback to retest the low 4600s seems absolutely doable, particularly considering the bevy of macro data we are about to receive this week, namely the December employment report.
Then comes the Q4 corporate earnings season, which gets underway on Friday, January 12. Earnings expectations for the full year are stout – strategists expect SPX EPS to rise from an estimated $221 of operating per-share profits in 2023 to $245 this year. With inflation ebbing, I expect more scrutiny to be paid to top-line figures from the world’s biggest companies. Also, lower interest rates could make share buybacks more doable, along with an uptick in M&A activity. For now, keep your eyes on the Santa Claus Rally as there have been just six negative SCR stretches since 1990, according to Ryan Detrick at Carson Group, and four of those years went out to have negative full-year returns.
Where is support on the chart of the SPX? A 3-year zoom of the index reveals that the August 2022 peak was 4637 and the July 2023 high was 4607. The rising 50-day moving average is all the way down at 4503 as of this morning. You have to go about 10% lower to find the 200-day moving average. For now, the intraday all-time high notched on the second trading day of 2022 appears safe at 4818.62. A modest January pullback to retest the low 4600s seems absolutely doable, particularly considering the bevy of macro data we are about to receive this week, namely the December employment report.
Then comes the Q4 corporate earnings season, which gets underway on Friday, January 12. Earnings expectations for the full year are stout – strategists expect SPX EPS to rise from an estimated $221 of operating per-share profits in 2023 to $245 this year. With inflation ebbing, I expect more scrutiny to be paid to top-line figures from the world’s biggest companies. Also, lower interest rates could make share buybacks more doable, along with an uptick in M&A activity. For now, keep your eyes on the Santa Claus Rally as there have been just six negative SCR stretches since 1990, according to Ryan Detrick at Carson Group, and four of those years went out to have negative full-year returns.
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