Key Takeaways
Markets Aiming For Eighth Week Of Gains
PCE Index Weaker Than Expected
Durable Goods Ahead Of Forecasts
Stocks are on pace for an incredible eighth consecutive week higher, something they haven’t done since 2017. Heading into Friday, the S&P 500 is higher by 0.58% for the week, following a 1% jump on Thursday that sent all eleven sectors higher. The Nasdaq Composite is up 1% this week, after a gain of 1.3% on Thursday. We’ll see if today’s Durable Goods report and Personal Consumption Expenditures Price Index (PCE) end the party or keep it going.
Heading into Friday’s numbers, economists were expecting a core PCE Index reading of up 0.2% month-over-month. The actual number came in at 0.1%. On a year-over-year basis, that number was forecast at up 3.3%, but came in at 3.2%. The PCE Indicator is the Fed’s preferred measure of inflation and these numbers show inflation continuing to come down. However, the Durable Goods report may steal the headline today.
Month-over-month, Durable Goods were up a staggering 5.4%, compared with estimates of 1.7%. The core number was up 0.5%, well ahead of the 0.2% forecast. There is a caveat to the 5.4% reading and that is last month’s number was down 5.1%. This seems to me as though a number of larger purchases were pushed off a bit and showed up this month.
Investors who were hoping for a Santa Claus rally have great momentum based on the recent rally. According to the Stock Trader’s Almanac, going back to 1972, the last five trading days of the year and first two of the new year have proven positive for stocks. In fact, according to the Wall Street Journal, the last seven years have been positive. What I find particularly encouraging about this year’s rally is the broadening base of stocks participating. Much of this year’s gains have come from the Magnificent Seven (Alphabet, AmazonAMZN
, AppleAAPL
, Meta, MicrosoftMSFT
, Nvidia and TeslaTSLA
), but these past weeks have seen a number of stocks participate. Since the end of October, the Russell 2000 is up well over 20%, reflecting the broader participation in the rally.
One of the key catalysts to this end-of-year rally has been the outlook for interest rates. With the market anticipating multiple interest rate cuts in 2024, we’ve seen a number of rate sensitive companies, especially in the tech sector, rally. The Nasdaq Composite gained nearly 20% in just the last two months as talk from the Fed shifted from “higher for longer” to cutting rates, possibly as early as March. That talk has sent interest rates lower with the 10-year closing below 3.9% on Thursday after being above 5% back in October.
Looking at some individual stocks this morning, shares of NikeNKE
are lower by 11% in premarket trading. After the close on Thursday, the company reported earnings and a bearish outlook. Nike said it expects softer sales moving forward and will look to cut costs by $2 billion. That news has also dragged shares of Footlocker down 10% premarket. The outlook for retail sales is a bit murky at the moment. Here at tastytrade, we’re seeing some longer-term bearish positions being put on in stocks such as FedExFDX
and UPS. Both those companies have become derivatives of the retail sales market.
U.S. Steel shares have pulled back a little less than 5% since Monday. Japan’s Nippon Steel said they would purchase the U.S. company for $55/share; however, the Biden Administration and a group of lawmakers are calling for a closer scrutiny of the deal. Also happening today, early this morning, Bristol Myers announced they would purchase Karuna Therapeutics for $14 billion. That’s a premium of more than 45% from where Karuna closed on Thursday.
Heading into trading today, I expect this morning’s PCE and Durable Goods numbers to lead to some early morning activity, but then I wouldn’t be at all surprised if volume quickly dries up heading into Christmas. I expect volume to remain subdued next week as well. However, that doesn’t mean the markets can’t chop around a bit and as I’ve mentioned before, it’s when things are quiet that an otherwise unimportant story can suddenly become important.
Finally, I just want to take a moment to wish everyone a Merry Christmas and Happy New Year. I’ll be taking the next week off but will be back after the start of the new year. I hope you’re able to find time over the next week to spend with your family and all the people you love!
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
