Market Update: Thursday, December 23, 2016

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  • Stocks tread water as holiday mindset settles in. (10:20am ET) U.S. markets are flat in early trading, appearing likely to continue this week’s trend of little action on low volume. Yesterday’s session saw the major indexes move modestly lower; retail stocks led the Nasdaq (-0.4%) to underperformance relative to the S&P 500 (-0.2%), while telecom (+1.0%) and energy (+0.5%) led sector performance. Asian stocks were mostly lower overnight, with the Shanghai Composite dropping 0.9%; the Nikkei was closed for a holiday. European indexes are little changed in afternoon trading; the STOXX Europe 600 is up 0.1%, while Italy’s MIB (+0.8%) outperformed for the second straight day. Finally, WTI crude oil ($52.82/barrel) is down by 0.3%, COMEX gold is up slightly to $1,134/oz., and the yield on the 10-year Treasury is down 2 basis points to 2.53%.

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  • European bank clarity. At least we are starting the New Year with a clean slate on some of the European bank problems. The two major firms with outstanding litigation issues, Deutsche Bank and Credit Suisse, have settled with the Department of Justice, agreeing to pay to consumers a combined $12.5 billion in fines and compensation related to the mortgage crisis in 2008. Both stocks were up early this morning, but only marginally, as the final settlement was in line with expectations, and perhaps even a little more punitive in the case of Deutsche Bank.
  • Quiet week ahead. The week between Christmas and New Year’s Day is typically a quiet one for economic data and events, and next week’s calendar fits that pattern. In the U.S., reports on manufacturing in December from the Richmond and Dallas Federal Reserve Banks, reports on home prices and pending home sales, consumer confidence, the weekly report on initial claims, and the first look at the trade deficit in November are all on tap. Overseas, aside from the November bank lending data, there is very little on the European data calendar. Japan will release data on industrial production, housing, retail sales, CPI, and employment, as it does in the last week of every month. China will release key PMI data for manufacturing on New Year’s Eve and New Year’s Day. There are no major central bank meetings or speakers scheduled for the U.S. or abroad next week.
  • How slow have things been? Volume is normally light and things are historically slow this time of year, but this year is even slow for the slow time of year. Incredibly, the S&P 500 has traded in an intraday range of less than 0.35% for the past three days. Using reliable intraday data back to 1970, this is the first time this has ever happened. Looking at all four days so far this week, every day has had an intraday range of less than 0.45%. The last time we saw that happen four days in a row was right before New Year’s Eve in 2014.
  • Here comes Santa. As we mentioned yesterday, today is the official start of the well-known Santa Claus Rally. This historically bullish time-frame for equities is the last five days of the year and the first two days of the following year. Going back to 1950[1], during these seven days the S&P 500 has been up an average of 1.4% and higher 77.3%. What is worth following closely this year though is if Santa doesn’t come. Looking at the past two years, these normally bullish seven days were red, which led to substantial drops in January at down 3.1% and 5.3%, respectively. In other words, Santa not coming was a warning sign. Be aware that these seven days haven’t been lower three consecutive years since 1946, 1947, and 1948. We took a closer look at this phenomenon early this week on the LPL Research blog.
    [1] Please note: The modern design of the S&P 500 stock index was first launched in 1957. Performance back to 1950 incorporates the performance of predecessor index, the S&P 90

 

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