Stocks near record highs, Dollar sell-off continues
* US data generally better than expected including Services and Manufacturing data
* US small caps continue to surge higher as indices near record highs
* Gold prices rallied back above $2,065 as Red Sea tensions linger
* Crude oil jumped with WTI back above $76, first time since December 1st
FX: USD is hovering just above a five-month low after its technical breakdown a few sessions ago. Trading was thin with several markets including the UK, Australia, Hong Kong and Germany on holiday. Today’s second-tier US data added to the favourable narrative for risky assets. Friday’s low on the DXY is 101.42.
EUR moved beyond its recent multi-month top at 1.1040. The soft dollar helped the world’s most popular currency pair. US prices (core PCE deflator) fell in November for the first time more than three and a half years last week. The single currency is on track for over a 3% gain this year.
GBP edged higher in quiet trade. Cable closed above 1.27 for the first time in a week.
USD/JPY traded in a very narrow range. It remains below the 200-day SMA at 142.90.
AUD advanced to recent highs above 0.68. The summer highs around 0.69 are being eyed up by bulls. USD/CAD dropped sharply through 1.32 on stronger oil and risk appetite.
Stocks: US equities advanced higher and close to record highs. The S&P 500 added 0.42% to settle at 4,774. The tech-dominated Nasdaq 100 finished 0.60% higher at 16,878. The Dow was up 0.43% at 37,545. All S&P 500 sectors were higher with energy rallying the most. The benchmark index is up for a ninth consecutive week. Expectations that the Fed will begin cutting rates in March are high. Intel surged over 5% after news of a $3.2bn grant to build a chip plant in Israel.
Asian futures trade in the green. Japanese shares ended higher as shipper gains outweighed retailer losses. Narrow ranges were seen with a lack of obvious catalysts.
Gold moved higher for a third straight day and is into its third consecutive positive week. Resistance sits around recent highs at $2070/5.
Day Ahead/Chart of the Day – Santa rally eyeing up record highs in S&P 500
After a stellar year, US stocks are hoping to hit fresh all-time highs with a Santa rally. Of course, 2023 has seen the “Magnificent Seven” take all the plaudits as they have propelled the S&P 500 to the dizzy heights. The key benchmark hasn’t actually notched a record close in nearly two years.
The classic Santa Rally, according to research going back to 1950, is specifically the last week of December and the first two trading days of the new year. This period has produced a positive return for the S&P 500 nearly 79% of the time. No other similar duration of trading sessions is more likely to be higher. The statistics also indicate that this seven-day span has averaged a 1.3% gain which is the third-best seven-day run of the year.
Of course in some years, stock markets have performed poorly. For example, the 2010s saw the average Santa rally dip. So seasonality and calendar theories are not a guaranteed way to make profits as it is tough to predict what will impact markets in any given year, especially when volumes are light. But bullish momentum appears strong coming in to the final few sessions of the year.