WASHINGTON – The current, sneaky Santa Claus Rally continues on Wall Street Wednesday afternoon. After bumping around a bit during this morning’s opening trades, all three major averages remain slightly up at approximately 3:15 ET, 45 minutes from the closing bell. Almost inexplicably, we watch stocks rally again as major averages threaten new all-time highs. It’s something we seem to see nearly every day now as 2019 draws to a close.
The technicals behind the stock rally
For technical analysts, there are at least some traditional reasons why stocks rally and markets remain buoyant as we close out the year. CNBC duly notes the following fun facts.
“The yield curve, which flashed the biggest recession signal in more than 10 years and sent shock waves through the financial markets just a few months ago, is now signaling things are just fine. In fact, it’s saying things are more than just fine, it’s pointing to a faster economy ahead.
“The spread between the 2-year Treasury yield and that of the 10-year note climbed to 28.7 basis points on Wednesday, its highest level since November 2018. This move is called a steepening by financial pros and a reversal from the inversion (short-term rates rising above long-term yields) that triggered fears.”
Among other things, US markets have already incorporated the likelihood – rightly or wrongly – of a China “lite.” That is, a US-China “Phase I” trade deal that at least restores some motion to the forward progress that can hopefully lead to some significant dealing in whatever “Phase 2” might include.
The GM and Boeing bogeymen
Perhaps more surprisingly, although economic growth has slowed somewhat, there are at least two purely mechanical reasons for this positive action. Namely, the lengthy GM strike (now ended), and the unfolding implosion of Boeing, courtesy of its disastrous (and fatal) botch in releasing its new 737 MAX jetliner without adequately testing a sophisticated part of the plane’s new navigation system.
The GM (trading symbol: GM) strike messed up the company’s third quarter, along with some negative bumper car action in its supply chain. That in turn slowed or halted production by many of the company’s suppliers, leading to some additional layoffs there, compounded by the effective GM “layoffs,” self-induced by the union via its strike decision.
Likewise, Boeing’s (BA) recent decision to suspend production of the 737 MAX, at least for now, is already causing a more telling bumper car reaction among that company’s suppliers that will likely carry into Q2 2020 at least.
But the rally persists
Both these events will continue to exert significant downward pressure on production numbers. Even so, with US megabanks, real estate, and now even oil stocks (to an extent) in rally mode, it seems that traders have decided that the economy will remain on at least a slow roll through at least the first half of 2020. This despite all the media rumblings this past summer and fall, that America would soon get clobbered by a horrible Trump Recession. Yet we continue to watch stocks rally. Whatever…
And now for Deep State fighter, Donald Trump
Which gets us to President Trump. He’s expected to get the bad news from the Democrats’ run-amok House vote sometime today to impeach him. But it appears that even more than China, GM and Boeing troubles, Mr Market has now decided to discount even the likelihood of a Senate Trial for the president.
That’s because, according to even the most radically anti-Trump polling organizations, the President has already won public opinion in the impeachment issue. Which considerably boosts his chances of retaking the White House in Election 2020. And perhaps even carrying the House once again, while holding the Senate. Which is another reason why we continue to watch stocks rally.
Moneybags’ love-hate relationship with President Trump
Once again, the whole scenario is weird. The moneybags who control Wall Street still refuse to even consider voting for Trump, let alone supporting him with $$$$. But, they’re having fun making lots of money as a result of his MAGA drive. That’s clearly working despite the desperate attempts of the international Deep State to wipe out his presidency.
And, since the bigwigs like to make money, they’re not likely to do anything to dislodge President Trump from office. Yet they still won’t help him. (Which could change if either Fauxahontas or Cardiac Event Bernie gets the Democrats’ nomination this summer.) But the prospect of Trump sailing through a perfunctory impeachment vote and win in the Senate and a big election win this fall against the flailing Democrats? That has moneybags and small investors alike salivating at the prospect of Trump II.
This, in point of fact, may actually be why the market continues to rally against at least a momentarily flat economic background.
Options expiration fun dead ahead
Other news contributing to a potentially big-time Wall Street Merry Christmas for America’s bigwigs and Scrooges alike is that this Friday marks the end of another wild and crazy options expiration week as noted in an open “Ord Oracle” column over at the invaluable Stockcharts.com.
“This week is December option expiration week, which has been higher 78% of the time. Today’s rally marks the fifth higher day in a row. Five days up in a row suggests the market will be higher within five days by an average gain of 1%, 87% of the time. Five trading days from now is next Tuesday, which would give a target near 323.20 on the SPY and 3230 on the SPX. The anniversary of last year’s low was December 24. Yearly anniversaries of important highs and lows can mark important reversals. Next Tuesday is December 24.”
Actually, recent market action looks a bit anemic to me. But after a big 2018 end-of-year wipeout in my accounts, I’ll take a big, year-end Santa Claus Rally. Any way I can get it.
Let’s see how we close today, and then try to prepare for tomorrow. Stocks can’t always go straight up, so some kind of correction might be in order when we least respect it.
But hopefully, not until we open our Christmas presents.
Surprise! Sellers hit the tape starting at roughly 3:45 p.m. ET. Wednesday afternoon, sending the Dow and the tech-heavy NASDAQ into slightly negative territory at the 4 p.m. closing bell. Rally is likely pausing a bit already. Perhaps that’s due to option positioning. But we might also be due to profit taking in the once-again red-hot tech sector. We’ll see how things go tomorrow.
– Headline image: This 1901 political cartoon depicts a great bull (J.P. Morgan). He’s blowing market bubbles and partying hearty with fellow investors. Party time on Wall Street today? (Photo via Wikipedia, now in public domain.)