The State of Markets: "Santa Rally?"
The S&P500 has basically traded sideways in the first half of December. It’s therefore followed its usual seasonal pattern for this time of year, which now points to a rally into year-end. As the chart below suggests, that move higher normally begins around the 11th trading day of the month (i.e. around now/early next week).
The question is: Will this time be different (as it sometimes is)? And, which sectors will outperform? In recent weeks the cyclically sensitive parts of the market have performed poorly. The equal weighted S&P500, for example, has broken below its usual seasonal range. Long duration growth, in contrast, has made new record highs (e.g. the NASDAQ100 on Thursday and yesterday).
Events this coming week will be watched closely and may provide some answers. Most notably the Fed’s policy decision, dot plots, and press conference on Wednesday is a key (two way) risk to markets. Other central bank meetings/decisions include the Bank of England and Bank of Japan (both on Thursday), followed by the PBoC (Friday). Elsewhere there are flash PMIs for several major economies (Monday); UK CPI (Wednesday); and US personal income & spending (Friday). Please see below for a full list of key global macro data and events.
Key chart: S&P500 –> December seasonality (drawing upon December 2009 – 2023 data) shown with this month’s performance (so far)
Upcoming important data/events this week:
|
Events: |
Fed policy decision & summary of economic projections (Wed, 7pm) followed by press conference (7:30pm); Bank of England policy decision (Thurs, 12pm); Riksbank policy decision (Thurs, 8:30am); BOJ policy decision (Thurs, time tentative); PBOC policy decision (Fri, 1am). |
|
Monday: |
Flash PMIs for manufacturing & service sector for Japan (12:30am), France (8:15am), Germany (8:30am), Eurozone (9am), UK (9:30am) & US (2:45pm) – all December first estimates. |
|
Tuesday: |
US retail sales (Nov, 1:30pm); US NAHB homebuilders index (Dec, 3pm). |
|
Wednesday: |
UK headline & core CPI (Nov, 7am); US housing starts & building permits (November first estimate, 1:30pm). |
|
Thursday: |
US Conference Board leading index (Nov, 3pm); US existing home sales (Nov, 3pm). |
|
Friday: |
German PPI (Nov, 7am); US personal income & spending including headline & core PCE (Nov, 1:30pm); Eurozone consumer confidence (December first estimate, 3pm). |
|
Key earnings: |
Micron (Wed); Accenture, Nike (Thurs). |
Key Research
Longview on Friday, 13th December 2024:
“Will US Outperformance Continue? Or Will UK/EZ Step Up?”
“Because the newest layer of economic innovation is typically the most profitable, each new era is accompanied by the belief that high profit margins justify market valuations far beyond historical norms. The tendency of megacap stocks to lag the market is temporarily suspended during advances to extremes, as glamour companies gain lopsided capitalisations.”
Source: John Hussman writing in the FT, 11th Dec 2024,
https://www.ft.com/content/abec3526-32ae-493e-bf59-2d30ccb4e50f
One of the critical debates amongst investors at the moment is about whether the US is exceptional? In particular, is there good reason why it’s an expensive market, the recipient of most equity fund flows (FIG 10) and now 50.8% of the global market cap? Can its valuation, therefore, be justified? Or is it a bubble (as Hussman suggests in the quote above)?
And indeed, conversely, is Europe/the UK now uninvestable? Is there now no reason – or need – to invest in Eurozone or UK equities? Liquidity in these markets is purportedly poor, the markets are small, there are only a handful of stocks of meaningful size, the economies don’t grow (much), they are overregulated and in many countries politically challenged (e.g. France and Germany). That is certainly the common perception.
Key North American macro data & events:
|
Events: |
Fed policy decision & summary of economic projections (Wed, 7pm) followed by press conference (7:30pm). |
|
Monday: |
Canadian housing starts (Nov, 1:15pm); US Empire manufacturing (Dec, 1:30pm); Canadian existing home sales (Nov, 2pm); US S&P manufacturing & service sector PMIs (December first estimates, 2:45pm). |
|
Tuesday: |
US retail sales (Nov, 1:30pm); Canadian headline & core CPI (Nov, 1:30pm); US New York service sector business activity (Dec, 1:30pm); US industrial & manufacturing production & capacity utilisation (Nov, 2:15pm); US business inventories (Oct, 3pm); US NAHB homebuilders index (Dec, 3pm). |
|
Wednesday: |
US housing starts & building permits (November first estimate, 1:30pm); US current account balance (Q3, 1:30pm). |
|
Thursday: |
Canadian CFIB business barometer (Dec, 12pm); Canadian employment change (Oct, 1:30pm); US GDP (Q3 third estimate, 1:30pm); US Philadelphia Fed business outlook (Dec, 1:30pm); US weekly jobless claims (1:30pm); US Conference Board leading index (Nov, 3pm); US existing home sales (Nov, 3pm); US Kansas City Fed manufacturing sector activity (Dec, 4pm); US total net TIC flows (Oct, 9pm). |
|
Friday: |
US personal income & spending including headline & core PCE (Nov, 1:30pm); Canadian retail sales (Oct, 1:30pm); US Michigan sentiment (December final estimate, 3pm); US Kansas City Fed service sector activity (Dec, 4pm). |
|
Key earnings: |
Micron, Lennar (Wed); Accenture, Nike, Cintas, FedEx, Paychex (Thurs). |
Fig B: US Conference Board leading index (Y-o-Y %)
Key European macro data & events
|
Events: |
Riksbank monetary policy meeting (Wed, 8am) & policy decision (Thurs, 8:30am); Bank of Spain publishes Economic forecasts (Tues, 12pm); speeches by the ECB’s Simkus & Lagarde hold short press conference before conference in Vilnius (Mon, 7:15am), Guindos in Madrid (Mon, 8:45am), Wunsch in Brussels (Mon, 12pm), Escriva in Madrid (Mon, 12:30pm), Schnabel in Paris (Mon, 4:30pm), Kazimir in Bratislava (Tues, 9am), Rehn in Helsinki (Tues, 9am), Muller in Tallinn (Wed, 7:35am), Lane in MNI Webcast (Wed, 9am) & Nagel in Karlsruhe (Wed, 9:30am). |
|
Monday: |
Spanish home sales (Oct, 8am); HCOB manufacturing & service sector PMIs for France (8:15am), Germany (8:30am) & Eurozone (9am) – all December first estimates; Eurozone labour costs (Q3, 10am); Italian core CPI (Nov, 10am). |
|
Tuesday: |
Spanish labour costs (Q3, 8am); German IFO business climate & expectations (Dec, 9am); German & Eurozone ZEW survey - expectations & current situation (Dec, 10am); Eurozone trade balance (Dec, 10am). |
|
Wednesday: |
Eurozone headline & core CPI (November final estimate, 10am); Eurozone construction output (Oct, 10am). |
|
Thursday: |
Eurozone new car sales (Nov, 5am); German GfK consumer confidence (Jan, 7am); French INSEE business & manufacturing confidence (Dec, 7:45am); ECB current account (Oct, 9am). |
|
Friday: |
German PPI (Nov, 7am); French PPI (Nov, 7:45am); Spanish total mortgage lending (Oct, 8am); Italian ISTAT consumer & manufacturing confidence (Dec, 9am); Italian industrial sales (Oct, 10am); Italian PPI (Nov, 11am); Eurozone consumer confidence (December first estimate, 3pm). |
|
Key earnings: |
N/A |
Fig C: Eurozone consumer confidence (index)
Key UK macro data & events
|
Events: |
Bank of England policy decision (Thurs, 12pm). |
|
Monday: |
Rightmove house prices (Dec, 12:01am); S&P manufacturing & service sector PMIs (December first estimates, 9:30am). |
|
Tuesday: |
Employment, jobless claims & average weekly earnings (Nov/Oct, 7am). |
|
Wednesday: |
Headline & core CPI, RPI & PPI (Nov, 7am); Land Registry house price index (Oct, 9:30am); CBI industrial trends orders (Dec, 11am). |
|
Thursday: |
N/A |
|
Friday: |
Public sector finances (Nov, 7am); retail sales (Nov, 7am); CBI distributive survey (Dec, 11am). |
|
Key earnings: |
N/A |
Fig D: UK S&P manufacturing & service sector PMIs
Key Asia-Pacific macro data & events
|
Events: |
BOJ policy decision (Thurs, time tentative); PBOC policy decision (Fri, 1am). |
|
Monday: |
Japanese Jibun Bank manufacturing & service sector PMIs (December first estimates, 12:30am); Chinese new & used home prices (Nov, 1:30am); Chinese activity data (industrial production, retail sales, fixed asset, property investment & unemployment rate – Nov, 3am); Japanese Tertiary industry index (Oct, 4:30am); Australian Westpac consumer confidence (Dec, 11:30pm). |
|
Tuesday: |
Australian Westpac leading index (Nov, 11:30pm); Japanese imports/exports, & trade balance (Nov, 11:50pm). |
|
Wednesday: |
N/A |
|
Thursday: |
Australian consumer inflation expectations (Dec, 12am); Japanese headline & core CPI (Nov, 11:30pm). |
|
Friday: |
Australian private sector credit (Nov, 12:30am). |
|
Key earnings: |
N/A |
Fig E: Japanese Jibun Bank manufacturing & service sector PMIs
Last week:
Longview on Friday, 13th November 2024:
“Will US Outperformance Continue? Or Will UK/EZ Step Up?”
Quarterly Asset Allocation No. 60, 12th December 2024:
“Eurozone: How Bad is the Economy? Recession or Reacceleration? A.k.a. ‘North-South’ Divide Ongoing”
Quant Monthly Appendix, 12th December 2024:
“Eurozone Broad Index Sector Valuation Overview”
The SHORT VIEW (& market positioning), 10th December 2024:
“GBP: Finding Support? Positive Outlook?
Prior week:
Longview on Friday, 6th December 2024:
“What’s the Message of the Bond Market? Why is it Different from Equities?”
Tactical Equity Asset Allocation No. 251, 4th December 2024:
“This Bull Run (since Oct ’22) is Tiring! A.k.a. But Stay Tactically OW (for now)”