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The major indices finished last week on a recovery note, benefiting from some mechanical buy-the-dip interest. That interest did not go unchallenged, however. The indices all finished with gains Friday that had been pared back from session highs by a decent margin.
A better-than-feared PCE inflation report and some supportive rate cut commentary from Chicago Fed President Goolsbee (a 2025 FOMC voter) provided fuel for the recovery drive along with a feeling that the market had gotten short-term oversold.
This week is expected by many to be a rebound week. That expectation is rooted in the understanding that the last five trading days of the year and the first two trading days of the new year are typically accented with a positive bias.
That period is known euphemistically as the "Santa Claus rally." To be clear, today doesn't fall within that tidy calendar script. Tuesday will mark the start of that closely-followed period, but that doesn't mean today's participants aren't thinking about it.
They can do so without focusing on a government shutdown. Congress managed to pass a continuing resolution that will fund the government through March 14, 2025, which only means the budget negotiation can has been kicked down the road a bit further.
In any case, a government shutdown is off the table (for now). What is on the table this morning is a smattering of M&A announcements, highlighted by a plan for Nissan Motor (NSANY) and Honda Motor (HMC) to merge in 2026 and Liverpool taking Nordstrom (JWN) private for $24.25 per share in cash, a nice showing by Qualcomm (QCOM) following a positive jury verdict in its legal case with Arm Holdings (ARM), and some gains among the mega-cap stocks that are mitigating some underlying weakness.
Currently, the S&P 500 futures are down 15 points and are trading 0.2% below fair value, the Nasdaq 100 futures are down six points and are trading fractionally above fair value, and the Dow Jones Industrial Average futures are down 221 points and are trading 0.4% below fair value.
Trading conditions are on the thinner side with the Christmas holiday approaching. The stock market will close at 1:00 p.m. ET tomorrow and will be closed on Christmas Day. The thinner conditions can exacerbate market swings.
The behavior of the Treasury market can do the same. Rising yields have interfered with the post-election momentum drive. They are up modestly this morning. The 2-yr note yield is up one basis point to 4.32% in front of today's $69 billion 2-yr note auction (results at 1:00 p.m. ET) and the 10-yr note yield is up three basis points to 4.55%.
It is the 10-yr note yield that is being watched closely. It has the potential to be the Grinch that stole the Santa Claus rally if it keeps rising.
