Shooting For 8 Weeks Of Stock Market Gains

Key takeaways

• Markets eyeing eighth week of gains
• PCE index is weaker than expected
• Durable goods ahead of forecasts

Stocks are on track to rise for the eighth straight week, something they haven't done since 2017. Heading into Friday, the S&P 500 is up 0.58% for the week, following a 1% jump on Thursday that pushed up to the eleven sectors. . The Nasdaq Composite is up 1% this week, following a 1.3% gain on Thursday. We'll see if today's durable goods report and the personal consumption expenditure (PCE) price index put an end to the party or keep it alive.

Heading into Friday's numbers, economists were expecting a core PCE index reading of a 0.2% month-on-month increase. The actual figure was 0.1%. Year over year, that figure was forecast to rise 3.3%, but it came to 3.2%. The PCE indicator is the Federal Reserve's preferred measure of inflation and these figures show that inflation continues to decline. However, the durable goods report may grab today's headlines.

Month-over-month, durable goods rose a staggering 5.4%, compared to estimates of 1.7%. The core figure rose 0.5%, well above the 0.2% forecast. There is one caveat to the 5.4% reading and that is that last month's figure was down 5.1%. This seems to me like a series of bigger purchases were delayed a bit and showed up this month.

Investors who were hoping for a Santa Claus rally have a lot of momentum based on the recent rally. According to the Stock Trader's Almanac, since 1972, the last five trading days of the year and the first two of the new year have been positive for stocks. In fact, according to the Wall Street Journal, the last seven years have been positive. What I find particularly encouraging about this year's rally is the increasingly broad base of participating stocks. Much of this year's profits come from the Magnificent Seven (Alphabet, Amazon
AMZN
Apple
AAPL
Goal, Microsoft
MSFT
Nvidia and Tesla
TSLA
), but in recent weeks several actions have been seen participating. Since late October, the Russell 2000 has risen well over 20%, reflecting the broader participation in the rally.

One of the key catalysts for this year-end rally has been the outlook for interest rates. With the market anticipating multiple interest rate cuts in 2024, we have seen a number of rate-sensitive companies, especially in the technology sector, recover. The Nasdaq Composite gained nearly 20% in the past two months alone, as Federal Reserve talks moved from "higher for longer" to cutting rates, possibly as early as March. Those talks have pushed interest rates down, with the 10-year bond closing below 3.9% on Thursday after being above 5% in October.

Looking at some individual stocks this morning, Nike stock
OF
They are 11% lower in pre-market operations. After Thursday's close, the company reported results and a bearish outlook. Nike said it expects weaker sales in the future and will look to cut costs by $2 billion. That news also sent Footlocker shares down 10% in premarket trading. The outlook for retail sales is a bit murky right now. Here at tastytrade, we are seeing some long-term bearish positions on stocks like FedEx.
FDX
and UPS. Both companies have become derivatives of the retail sales market.

US Steel shares have fallen just under 5% since Monday. Japan's Nippon Steel said it would buy the American company for $55 per share; However, the Biden Administration and a group of lawmakers are calling for closer examination of the agreement. Also happening today, early in the morning, Bristol Myers announced it would buy Karuna Therapeutics for $14 billion. That's a premium of more than 45% from where Karuna closed on Thursday.

Looking ahead to today's trading, I expect this morning's PCE and Durable Goods numbers to generate some early morning activity, but I wouldn't be at all surprised if volume dries up quickly heading into Christmas. I expect volume to remain moderate next week as well. However, that doesn't mean the markets can't move a bit and as I mentioned before, it's when things are quiet that an otherwise unimportant story can suddenly become important.

Finally, I just want to take a moment to wish everyone a Merry Christmas and a Happy New Year. I'll be taking next week off but will be back after the start of the new year. I hope you can find time over the next week to spend with your family and everyone you love!

comments by verytrade, Inc. for educational purposes only. This content is not, and is not intended to be, trading or investment advice, nor a recommendation that any product or investment strategy is suitable for any person.