Weekly Market Update
Hopes of a Santa Claus rally met a rather emphatic “Bah humbug” as an encouraging start to the week lost steam and the Federal Reserve, as they love to do in 2022, poured cold water on the recent stock and bond market rallies. The week started on a relative high note, as Tuesday morning’s consumer price index (CPI) for November came in materially below expectations, 7.1% versus expectations of 7.3% year-over-year headline CPI growth, and the S&P 500 rallied as much as 2.7% in the first half hour of trading. However, a repeat of the S&P 500 bouncing over 5.5% in a single day after October’s soft CPI on November 10th did not come to fruition and the morning strength ebbed into the afternoon. Then came Wednesday’s policy announcements from the Federal Reserve followed by Chair Jerome Powell’s press conference. As expected, Mr. Powell did his best Ebenezer Scrooge impression while the Fed hiked short-term interest rates another 50 basis points (0.50%), but fears of a policy mistake seemed to grow Thursday and Friday, and the S&P 500 has started December with two weeks of weakness, although still materially above levels from a month ago.
As a result, some investors may head into the week before Christmas with diminished expectations of a Santa Claus rally. However, a “Santa Claus” rally, as defined by the publication that discovered the phenomenon, the Stock Trader’s Almanac, actually does not include the first two weeks of December. The official term, which has produced positive returns 34 of the past 45 years for an average return of 1.4% (per CNBC), is measured from the last five trading days of the current year through the first two days of the new year. Therefore, while investors might be bracing for coal, don’t count out Kriss Kringle just yet.
Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder
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