Stocks Maintain Record Streak as Durable Goods Surge, Inflation Eases and Mixed Stock Reactions Follow

Exuberance continues in the markets, but the rising tide isn’t lifting all boats

• Persistent gains in the market re attracting broad participation. Momentum is also driven by shifting interest rate expectations.
• Stock reactions are mixed, with Nike (NKE) slumping while the Bristol Myers (BMY) cquisitions are boosting Karuna Therapeutics (KRTX).
• Here’s the year-End Outlook: Anticipate subdued trading as holidays approach but be aware of impactful market shifts amid quieter times.

The stock market has been experiencing an impressive streak, heading toward an eighth consecutive week of gains, a feat not seen since 2017. As the week progressed, the S&P 500 rose by 0.58%, boosted by a 1% surge on yesterday that lifted all 11 sectors. Similarly, the Nasdaq Composite saw a 1% increase this week, following a 1.3% jump yesterday. Market enthusiasts eagerly anticipated the impact of today's durable goods report and the personal consumption expenditures price index (PCE) on this ongoing market momentum.

The core PCE index was expected to increase 0.2% month-over-month. However, the actual number showed a rise of only 0.1%. Year-over-year forecasts were for a 3.3% increase but settled at 3.2%. These figures indicated a continued downturn in inflation, even though attention might shift to the durable goods report's influence on the market narrative.

Durable Goods surged significantly by 5.4% month-over-month, surpassing estimates of 1.7%. The core number also exceeded expectations, rising by 0.5% against the forecasted 0.2%. However, the 5.4% increase should be considered alongside the previous month's 5.1% decline, suggesting a delay in larger purchases that manifested in this month’s figures.

Christmas present

Investors, optimistic for a traditional Santa Claus rally, found their expectations met. Historical data from the Stock Trader's Almanac suggested positive stock performance during the final five trading days of the year and the first two days of the new year, a trend observed over the last several years according to The Wall Street Journal. Notably, this year's rally affected a broader spectrum of stocks, with the Russell 2000 index surging over 20% since October, highlighting wider market involvement.

The prospect of interest rate adjustments has been a pivotal factor driving this end-of-year surge. Market speculation regarding multiple interest rate cuts in 2024 have bolstered rate-sensitive sectors, particularly in technology, leading to significant rallies. The Nasdaq Composite surged by almost 20% in the past two months, fueled by the shift in Federal Reseerve dialogue from maintaining higher rates to potential rate cuts, possibly as early as March. Consequently, interest rates have declined, with the 10-year rate dropping below 3.9% from its previous mark above 5% in October.

Mixed in the face of exuberance

Even amid the current market exuberance, individual stock movements demonstrated mixed fortunes. Nike witnessed an 11% premarket dip following a bearish earnings report and a softened sales outlook. Correspondingly, Footlocker (FL) shares dropped by 10% premarket, reflecting the uncertain retail sales landscape. Derivatives of retail sales, such as FedEx (FDX) and United Parcel service (UPS) also saw tastytrade taking bearish positions.

Moreover, United States Steel (X) experienced a slight pullback of nearly 5% since Monday, partly becaiuse of concerns arising from the proposed Nippon Steel (NPSCY) acquisition of the company for $55 per share. This acquisition is under scrutiny by the Biden Administration and a group of lawmakers. Conversely, Bristol Myers (BMY) announced the acquisition of Karuna Therapeutics for $14 billion, representing a premium of over 45% from yeserday’s closing pricefor Karuna.

Today’s economic reports

As trading begins today, the morning's PCE and durable goods reports are expected to trigger initial market activity, although trading volume might dwindle approaching Christmas. The subdued volume is likely to persist into the following week. Despite the quietude, market fluctuations may still occur, emphasizing the significance of seemingly inconsequential news during these periods.

Lastly, I extend warm wishes for a merry Christmas and a Happy New Year to all. I'll be taking a break for the next week but will return after the start of the new year. Use this time to cherish moments with loved ones and family.

JJ Kinahan is CEO of IG North America—which includes tastylive, tastytrade and IG's FX Business. Kinahan traded for 21 years at the Chicago Board Options Exchange. He serves on the CBOE Advisory Board and the SIFMA Options Committee. @thejjkinahan 

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