Stocks rally like Santa’s reindeer: Low volume, high drama, and a dose of Algo cheer

So, stocks rose on a holiday shortened trading day with markets closing at 1 pm. Volumes were anemic as many investors and asset managers were away from their desks while the ones who were at work – were not making any major decisions…. yet stocks rallied hard – because the Algo’s don’t celebrate the holidays and take advantage of the lack of volume and participation. Remember what we discussed – when volumes are low – moves can be and most usually are exaggerated so sit tight – you’re invested so you participated.

By the closing bell - The Dow gained 390 pts or 0.9%, the S&P up 66 pts or 1.1%, the Nasdaq gained 266 pts or 1.3%, the Russell added 22 pts or 1% while the Transports and Equal Weighted S&P gained 128 pts and 56 pts both about 0.8% respectively.

The moves were nuts…of the 11 S&P sectors – Consumer Discretionary surged by 2.3% - Amazon and TSLA make up 40% of this ETF and both surged – AMZN + 1.7% while TSLA zoomed ahead, rising 7.4%, Financials were next – the XLF + 1.2%, Berkshire +0.8%, JPM +1.6% and Visa +1.1% make up the top 3 holdings equal to 30% of the total,

Tech – XLK + 1%, AAPL +1.1%, NVDA +0.4% and MSFT + 1.3%, are the top holdings there measuring 40% of the ETF, Communications – XLC + 0.95%, META +1.3%, GOOG A shares and GOOG C shares both +0.8% along with NFLX 2.3% make up 40% of that ETF, Energy – XLE +0.85% is led by XOM +0.15%, CVX + 0.6% and COP + 0.8% make up 43% of the total.

Industrials – XLI + 0.8% - but unlike the others is much better balanced with no name being more than 4.5% of the total – the top 5 names are GE, CAT, RTX, HON, UNP and that is only 18% of the ETF, Real Estate XLRE +0.7% – PLG, EQIX and AMT make up 25% of the total while Consumer Staples – XLP also gained 0.7% with COST, WMT, PG & KO making up 33% of the total.

Basic Materials XLB added 0.55%, LIN is 21% of that group while Utilities XLU added 0.55% with NEE, SO, DUK & CEG making up 33% of the ETF while HealthCare XLV was up 0.4% - top holding there include LLY, UNH, JNJ ABBV – adding up to 32% of the total.

Now I say this because you have to understand your exposure….if you own say APPL individually and then you own the TECH ETF – then you duplicate you exposure to AAPL – taking on more risk than you may realize….or if you own META and also the XLC – you have the same issue…and if you own both the XLK and XLC you are also doubling up on a handful of names…..So, you need to understand what you own, how it interacts with the rest of your portfolio and the risk you are taking on. And you do that by doing a risk assessment, something your advisor will do. (And if he/she doesn’t – then consider another advisor).

Further down the chain – we saw Retail XRT gain 0.7%, Airlines – JETS +1%, Disruptive TECH – ARKK + 3%, the Growth Trade – SPYG + 1.3% while the Value Trade – SPYV gained 0.8%. If you look under the sheets of the SPYG – what do you find??? NVDA, AAPL, MSFT, META, TSLA, AMZN, GOOG etc.…Capisce?

Bonds advanced just a bit – The TLT and TLH up 0.4% and 0.25% respectively (think oversold) but are still down 11.5% and 8% ytd….All while bond yields explode higher….The 2 yr is now yielding 4.35% while the 10 yr is yielding 4.62% - exactly what we have been discussing for weeks now… The question is are we about to kiss 5% 10 yr yields and if we do – what happens to stocks? Well that’s a complicated question…because if rates are rising because the economy is strong that’s one argument (and that’s a positive, stocks can perform well), but if rates are rising because investors are fearful of rising inflation, that’s another argument. (and that’s a negative, stocks will suffer).

The VIX – fear index – retreated on all the excitement…. falling 14% on Tuesday as stocks advanced…taking it right down and thru both the short term and long term trendlines…. leaving it once again in that ‘complacent’ territory ending the day at 14.27…. This morning though, the VIX is up 7% at 15.31…still below resistance at 16, 16.5 and 17.40…. But again, all that means is to keep your eyes on those levels. A breach of one, will most likely mean a breach of the next and then if investors get anxious that will cause a breach of the 3rd one and that will send the VIX surging again…. causing stocks to decline….

Oil is trading at $70.52 – up 3.25% in the last 5 trading days….It has now pierced 2 trendline resistance levels and is now in the $69/$72.75 trading range….The latest API reported that US crude stockpiles FELL by 3.2 million bpd and there is talk of more Chinese stimulus measures coming….and that is giving oil traders a reason to ‘go long’. But remember – Trump wants to ‘drill baby drill’ bringing more supply to the markets all while OPEC+ is calling for weaker demand in 2025…. something I do not subscribe to. I think demand is strong, it’s just that supply is stronger…so it’s not a demand issue in my mind, it’s an oversupply issue which I think is going to leave us in the $66.50/$72.75 trading range.

Gold which traded down to $2600 on the 19th found plenty of support and is now up $40 since…. leaving it just below the intermediate term trendline at $2650. Remember – gold is sensitive to inflation and interest rates….so investors have to decide which side of the fence they are on…. Holding gold is not an issue at all, but let’s see how this whole inflation/economy thing plays out. If inflation rears its ugly head, then investors will flock to gold as a hedge, but if inflation remains in control, but rates advance because of a strong economy, then gold will underperform…. So, sit tight.

US futures are down….…Dow futures are down 160 pts, S&P’s down 24, the Nasdaq down 65, while the Russell is off 10 pts. It is still a holiday shortened week – Christmas is behind us, but the New Year is ahead of us…. Volumes will remain muted, so moves will be exaggerated (think Tuesday’s strong advance). Next week is a holiday week as well…so enjoy yourself – enjoy your family…. Take a break – your portfolio – if well diversified – will be fine.

European markets are closed today for Boxing Day.

Eco data is a non-event until we move into the new year….

The S&P ended the day up 66 pts at 6040. My sense is that this is the top for the rest of the year. And if it is – it ain’t so bad…. The Dow is up 15% ytd, the S&P + 26% ytd, the Nasdaq + 34% ytd and the Russell is + 11.5% ytd.

The Official ‘Santa Claus’ rally period has begun….and ends on January 3rd. And then we get to dissect the ‘January effect’…. or as my friend Sam Stovall of CFRA says – the ‘January Barometer’. In effect – when the year starts with a January gain – then the broader market has advanced by about 18% for the year…. However, if January ends negative – then the broader market ends the year in the red. Not huge, but negative. So, sit tight…. while this chapter is coming to an end, the new chapter is just days away….

Shrimp oreganata

For this you need: the Shrimp – cleaned and deveined. Olive oil, white wine, butter, breadcrumbs, s&p, oregano, crushed red pepper, chicken stock, parsley, 6 cloves of minced garlic, fresh lemon juice and parmigiana cheese.

Preheat your oven to 425 degrees.

Now In a large sauté pan, heat up (medium heat) some olive oil and the minced garlic – sauté for 3 mins…Next add in a handful of breadcrumbs, 1 tblsp of fresh lemon juice, chopped parsley, 2 tsps of Oregano, a bit of crushed red pepper and a handful of the cheese. Mix well, remove from heat and set aside.

Now, rinse the shrimp and pat dry. Season with s&p and arrange nicely in an oven proof baking dish. Top the shrimp with the breadcrumb mixture. Add ¾ c of chicken stock and ¼ c of white wine. Top the shrimp with butter and a drizzle of olive oil.

Place it in the oven and cook for 10 mins. Then turn the oven to broil and let them brown up – it happens quick – like 2 mins…so don’t move. Remove from the oven and serve with ‘crusty warm’ Italian bread to soak up the sauce. YUM!