Santa Claus rally
Sometimes, stocks see a rally in the last week of December. The phenomenon is known as a Santa Claus rally. However, while Christmas is almost here, the Santa Claus rally has been conspicuous in its absence. On the contrary, the markets have continued to slide this month, and major broader market indexes, including the S&P 500 Index (SPY), are in the negative for the year.
In the FAANG space, Apple (AAPL) and Alphabet (GOOG) are also in the red, and Facebook’s (FB) troubles have only been magnified on reports that it has given “far greater access to people’s data than it has disclosed.” As for Apple, even Warren Buffett’s (BRK-B) faith in the stock can’t prevent its slide.
Trade war truce
December started on a positive note as US President Donald Trump and Chinese President Xi Jinping agreed on a 90-day trade war truce. However, the truce’s hopes were dashed with President Trump’s “Tariff Man” tweet. Jinping’s underwhelming speech at the 40th anniversary of China’s opening of its market did little to placate markets. The markets were then relying on Fed Chair Jerome Powell for some dovish comments on future rate hikes, but even those hopes were dashed on December 19.
Adding to the economic gloom is political drama: Secretary of Defense Jim Mattis has quit his position following differences with President Trump. The tit-for-tat arrests made by China in response to Canada’s arrest of Huawei’s CFO hasn’t helped lower geopolitical tensions either. The blame game related to China’s alleged spying has also been adding to tensions.
As things stand, the possibility of a Santa Claus rally has started to look extremely dim, as the bears look to be in full control of the markets. Read Analyzing Market Risks as the Bull Market Ages for a look at the various risks facing financial markets.
You can also read Why China Might Need a New Economic Model Now to explore why it isn’t all that easy to address China’s slowdown.