Daily Markets: Will a Santa Claus Rally Emerge This Week?

Today’s Big Picture

Asia-Pacific equity markets ended today’s session up across the board as China’s decision to roll back Covid precautions seems to be the Christmas gift markets wanted. Japan’s Nikkei rose 0.16%, Taiwan’s TAIEX gained 0.30%, India’s SENSEX added 0.60%, South Korea’s advanced KOSPI 0.68%, and China’s Shanghai Composite closed 0.98% higher. Australia’s ASX All Ordinaries and Hong Kong’s Hang Seng were closed today as both countries continue to recognize the Christmas holiday. By mid-day trading, European equity indices are up across the board. UK and Irish markets are closed to mark Boxing Day, and U.S. futures point to a healthy open later this morning

With four trading days left in 2022, equities are attempting another positive run following the predominantly downward trend thus far in December. The trading days between the Christmas holiday and New Year’s Eve tend to be relatively quiet ones with little to no earnings or economic reports. Investors are looking to see whether the much-discussed “Santa Claus Rally” can emerge. The coming days will see some data about the holiday shopping season, but there are several underlying questions that the markets are facing down, like: How strong is the economy? Are earnings expectations too rosy for 2023? and, Is there more downside risk in the near term as the holiday season fades?

As the answers to those questions become clearer, one of the larger drivers of the stock market this year has been geopolitical tension, and it appears it will continue to be a force as we close out the year as well. Over the holiday weekend, China’s People’s Liberation Army dispatched jet fighters and other military aircraft near Taiwan. Meanwhile, questions regarding claims by Russian President Vladimir Putin that Russia is ready to negotiate with all parties involved in its war with Ukraine remain. And the potential “end wave” of Covid cases in China has emerged as many predicted, giving investors some year-end coal to chew on.

Data Download

International Economy

Retail sales in Japan rose 2.6% YoY in November, slowing for the second straight month and missing expectations for a 3.7% gain. On a monthly basis, retail trade fell 1.1% in November, reversing from an upwardly revised +0.3% in October and turning negative for the first time since June. Japan’s unemployment rate fell to 2.5% in November after standing at 2.6% in the past two months, in line with forecasts and marking the lowest reading since February 2020.

Profits earned by China’s industrial firms declined on an annual basis by 3.6% to 7.7 trillion yuan in the January-November period, as Covid restrictions which were still in place during those months disrupted manufacturing activity and supply chains. For context, that followed a 3% drop for the January-October period. Chinese health authorities plan to lift Covid-19 quarantine requirements on international arrivals early next month, taking one of the country’s biggest steps to ease pandemic restrictions.

Domestic Economy

We have several pieces of economic data out today beginning with the advanced look at International Trade, Retail Inventories, and Wholesale Inventories for November at 8:30 AM ET. At 9 AM ET, we’ll get looks at home prices, courtesy of the October data for the FHFA Housing Price Index and the S&P Case-Shiller Home Price Index.

Markets

Traders had visions of a Santa Claus rally in their heads last week but despite a midweek spike, markets went into the holiday weekend in the red, except for the Dow, which eked out an 0.86% gain. The S&P 500 and the Russell 2000 were off 0.20% and 0.14%, respectively while the Nasdaq Composite took the biggest lumps (of coal presumably) down 1.94%. Sectors were mixed with Consumer discretionary (-3.35%) and Technology (-2.26%) trading off the most and Energy looking to finish off the year strong as ever, up 3.20%.

Here’s how the major market indicators stack up year-to-date:

  • Dow Jones Industrial Average: -8.63%
  • S&P 500: -19.33%
  • Nasdaq Composite: -32.90%
  • Russell 2000: -21.57%
  • Bitcoin (BTC-USD): -63.83%
  • Ether (ETH-USD): -66.94%

Stocks to Watch

Before trading kicks off for U.S.-listed equities, no companies are slated to report their latest quarterly results. That said, we would caution readers to be on the watch for earnings pre-announcements during what is typically a very quiet holiday week for equity markets.

Mastercard (MA) found U.S. retail sales rose 7.6% YoY this holiday season from November 1 through December 24, stronger than its 7.1% forecast issued in mid-September. Preliminary data show online sales rose 10.6% YoY vs. 6.8% for in-store. In-person dining remained strong with restaurant spending up 15.1% YoY while electronics and jewelry spending fell 5.3% and 5.4%, respectively.

Target (TGT) announced new discounts beginning today with “The Target Clearance Run.” The event features special offers on thousands of popular items — including up to 50% off clothing, shoes, toys, beauty, home décor, and more.

Citing challenges in deliveries and productions, together with certain supply chain constraints, Nio (NIO) now expect to deliver now expects to deliver 38,500-39,500 vehicles in the fourth quarter of 2022 vs. its prior guidance of 43,000-48,000 vehicles.

Toyota Motor (TM) said its global output hit a record for November, but warned of an uncertain outlook due to a persistent shortage of semiconductors and spikes in Covid cases in China.

Despite forecasts of an economic slowdown, Samsung Electronics (SSNLF) plans to increase chip production capacity at its largest semiconductor plant next year. By comparison, last week memory chip rival Micron Technology (MU) said it will trim its investments in 2023 to between $7-$7.5 billion vs. $12 billion in 2022 and plans to “significantly” reduce its capital expenditure plans for 2024.

Findings suggest American travelers are more interested in traveling abroad than around the U.S. Data collected by Destination Analytics suggest 31% of Americans are more interested in international travel than domestic travel while Hopper reports 62% of 2023 flight searches made during early December were for international destinations.

IPOs

As the holiday season continues, the near-term IPO calendar is fairly light so there are no significant IPOs slated to price this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page.

After Today’s Market Close

No companies are slated to report their latest quarterly results after equities stop trading today. We would caution readers to be on the watch for earnings pre-announcements during what is typically a very quiet holiday week for equity markets.

Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar.

On the Horizon

Wednesday, December 28

  • US: Weekly MBA Mortgage Applications
  • US: Pending Home Sales – November

Thursday, December 29

  • US: Weekly Initial & Continuing Jobless Claims
  • US: Weekly EIA Crude Oil Inventories
  • US: Weekly EIA Natural Gas Inventories

Friday, December 30

  • US: Chicago PMI – December

Thought for the Day

“A vacation is having nothing to do and all day to do it in.” ~ Robert Orben.

Disclosures

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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