Key Takeaways
Stocks Edge Higher Amid Light Trading And Santa Claus Rally Speculation
Weak Consumer Sentiment And Rising Bond Yields Signal Economic Uncertainty
Falling Oil Prices Reflect Global Demand Concerns, Especially From China
While overall trading volumes were light on Monday, stocks did gain a little ground as we head into the final trading days of the year. The S&P 500 gained 0.7% and the Nasdaq Composite was up 1%. Both the Russell 2000 and Dow Jones Industrial Average fell less than 0.25%. While the period between Thanksgiving and the last day of the year are generically cited as the time when markets may see a Santa Claus rally, technically speaking, that period is from Christmas until December 31st, so let’s see if Monday was an early start.
Despite the low activity, there was actually quite a bit of news worth sharing. The Conference Board’s latest reading on consumer sentiment came in unexpectedly weak at 104.7. That reading encompasses a broad set of measures, but if we drill down a bit, there was one metric that caught my attention. Confidence in near-term income, business activity and the job market fell to 81. That is a very low level and not far off from a recession signal, according to The Wall Street Journal. I want to put that reading in the context of what we’re seeing in the bond market, oil prices and China.
While the Federal Reserve has been cutting short-term interest rates, yields at the long end of the curve have been steadily climbing higher. Back in September, rates on 30-year bonds hit a low of 3.898%. In premarket activity, that rate is currently 4.785%. In other words, long-term borrowing costs have jumped nearly 1% in just three months. That is something you see happen when markets are insecure about future prospects and it is likely why, last week, the Fed signaled a slowdown in rate cuts for 2025.
If we look at oil, prices there peaked at $87.70 per barrel back in April. Since then, we’ve seen a steady decline to below $70. While I often discuss oil as a potential catalyst for inflation, there is a flip side to that as well in that a lack of demand for oil can be indicative of a weakening economy. That brings me to China.
Since the beginning of his administration, Xi Xiping has promoted a top-down economic model. Heavy borrowing, a real estate bubble that spectacularly burst and unneeded investment in both factories and infrastructure have led to what some are calling a lost decade. Despite the lack of success, China is planning to double down on its failed policies with plans to invest even more in domestic manufacturing and supply chains. Consensus opinion, and history, are not on the side of this approach. I think what we’re seeing where oil prices are concerned is a vote of no confidence in Xi’s economic prospects. Falling prices could well be a reflection of expectations for slowing demand out of China and given the stance of the Trump Administration towards China, this is definitely a macro theme worth monitoring. Should China falter too far, it would have reverberations throughout the global economy.
There are some individual names worth mentioning this morning as well. Nordstrom is being taken private for $4 billion or $24.25 per share. We’ve seen a number of retailers struggle recently, especially with higher end consumers. It was just around ten years ago that Nordstrom had a valuation of $15 billion. While this will no longer be an underlying that investors can trade, I think it’ll still remain an interesting story with respect to the broader retail segment. Also, Xerox announced it is buying privately held Lexmark for $1,5 billion. Lexmark, which primarily makes printers, was spun off from IBM back in 1991. Lexmark is currently owned by China and has been banned from doing business in the U.S. recently. While none of the companies I just mentioned are typically headline names for investors, I think the more interesting aspect to this is that we’re seeing some merger and acquisition activity, something many analysts are hoping will pick up in 2025.
One more company I want to mention is Netflix. On Wednesday, Netflix will stream two NFL football games. The first game will be the Kansas City Chiefs vs. the Pittsburg Steelers at noon CT. That will be followed by the Baltimore Ravens and Houston Texans at 3:30 PM CT. The second game will also feature a halftime performance by Beyonce. While this isn’t Netflix’s first foray into live streaming, it is their first time broadcasting the NFL and its prior attempts have not gone smoothly. As we’re seeing more and more streaming services becoming involved in live sports, the Christmas Day games could be a make or break moment for Netflix and their hopes of becoming a larger player in live streams.
For today, because it is a holiday-shortened session, I expect markets will be very quiet. There will be a couple reports released this morning including November Durable Goods and New Home Sales, however, I do not expect a lot of movement today. Markets will then be closed tomorrow before reopening for Thursday and Friday.
Lastly, I want to take a moment to wish everyone a Merry Christmas. I hope you all get some quality time with family and friends, filled with memories.
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.
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