Santa Claus Slump? Momentum Stalled

As the first trading days of the new year concluded, we can now definitively say that the market was delivered a Santa Claus Slump in lieu of a rally with the S&P shaving about 0.5%. This was largely a continuation of the weakening momentum witnessed across the market since the end of November. At this point, the pullback that began in December just appears to be a ‘garden-variety’ pullback and does not show any signs of a steeper sell-off quite yet. However, over the past few months, broadly, the markets have been in a melt-up mode, and we have gone quite some time without experiencing a true market correction of 10% or more. In August of last year, we were close as the S&P declined 9.7% peak to trough, but the last true correction occurred in the late Summer to early Fall of ’23. Given this fact and knowing that historically markets will experience a correction on average about every 1.5 to 2 years, seemingly the markets are due for a short-term breather in the midst of a longer-term uptrend. At present we are only about 2.6% off the S&P 500’s all-time high, so certainly we are a long way from declaring this an official correction or even saying that this is the beginning of one. We simply are pointing out that the markets have run a long way, the momentum that was providing much of this strength has faded over the past month, and the S&P 500 is now making a series of clear lower lows and lower highs. Now, with all of that said and despite the recent volatility, the market at this point is still in a confirmed long-term uptrend with the S&P 500 still trading well above it’s 200-Day moving average. Additionally, 55.2% of S&P 500 stocks are also trading above their 200-Day moving average, so a majority of the index is still in an uptrend. With Q4 earnings season set to begin along with a change in administrations occurring in the next few weeks, we expect these events to likely supply the catalysts that will drive the market’s next direction.

Key Events to Watch this Week

December Jobs Report & Consumer Sentiment
Q4 Earnings Begin! Delta Air Lines up first

In the coming week, we will have our third consecutive shortened trading week as the stock market will be closed on Thursday. Despite the shortened week, we can expect investors to be paying a great deal of attention toward a handful of macro reports as well as the beginning of Q4 earnings season. Both of the major macro reports that are due this week will be released on Friday morning. The first and likely most important will be the December U.S. Job’s Report, in which investors are hoping to see the jobs number and unemployment rate either come in at the expectation or perhaps miss slightly. With either a blowout jobs number or a significant drop in unemployment at this point in time, it would likely provide more upside momentum to long-term treasury yields which have spiked over the last few months. Investors are hoping for some relief in treasury yields as this would take some pressure off of stocks. A weaker jobs report would likely help provide this relief. The second report that will draw some attention this week will be the initial Univ. of Michigan Consumer Sentiment report for January. Over the past five months, sentiment has made a major rebound and the expectation is that trend will continue in January. This report will be watched because as fears of stubborn inflation have returned, should consumer sentiment become too exuberant, this could worsen the issue at hand, adding difficulty to the Fed’s fight to return inflation to 2.0%. Finally, Q4 earnings season gets under way this week as Delta Air Lines, Inc. is set to report their latest quarterly results on Friday before the market open. Expectations are that DAL will report Q4 EPS of $1.76 which would mark a 37.5% YoY increase. Happy New Year everyone!

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

Thanks,