Santa Claus Rally in the S&P500?

Last week, to absolutely nobody’s surprise, the S&P500 closed with another gain, a small gain but a gain nonetheless. This time, the increase was +0.28%. Volume was very light, and volatility hovered near all-time lows. The low volume and low volatility was also not surprising because this was the week before the Christmas and New Year holiday weeks.

The technical picture hasn’t changed much in the last several weeks. On the weekly charts, the S&P500 looks like it’s enjoying a parabolic blow-off topping run. When it ends, nobody knows. But until it does, the clear trend is not only to the upside, but also at a very steep trajectory. On the daily charts, while the trend is undoubtedly bullish, there is a bit of a slowdown in momentum given the relatively small percentage increases over the last few weeks. That said, it’s too early to read any sort of reversal into this momentum slowdown on the daily charts.

The most recent data on the US economy continues to show that the economy is limping along slowly, certainly not about to slow down anytime soon, but also not about to take off with strong and robust growth. Last week, durable goods orders, both headline and ex-transportation, missed badly. Initial jobless claims surprisingly came in weaker than expected. Third quarter GDP registered a weaker reading than economists had predicted. The Chicago Fed National Activity Index missed. Personal income missed. Consumer sentiment as well as the Kansas City Fed manufacturing index also both missed. On the positive side of the story, the housing market index beat expectations, and so did housing starts and existing home sales. The FHFA house price index registered a beat, and so did the Philly Fed business outlook survey. Leading indicators beat consensus estimates. Personal spending recorded a beat, and so did new home sales.

All in all, the US housing market continues to show resilience, even as prices have returned to….or in some cases exceeded….former all-time high levels reached in 2006. At the same time, many other aspects of the economy, such as real wages, continue to struggle to improve.

Finally, in the last week of the calendar year, it’s not going to surprise anyone if the S&P500 records yet another week of weekly gains. This is the week between Christmas and New Year’s when many investors and traders go on vacation….and historically during this week, the risk asset markets have tended to creep higher, not by much, but upwards nonetheless.

Let’s see what the new year brings us, starting with the first week of 2018, which begins next week.

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