Will There Be A Santa Claus Rally? That An Other Key Themes To Watch This Week

It was an exciting week in the broad market last week with it culminating in the CPI news midweek and then just a waterfall in the S&P 500 ($SPX) (SPY). The index closed down over 2% on the week but down over 250 points from the high midweek. Tech also had some problems this week with Tesla (TSLA) leading the charge down over 15% on the week. 

The news last week was fairly mixed with a better-than-expected inflation report in the US but a collapse in PMI numbers signaling recessionary levels. This upcoming week has the potential to be quiet going into the Christmas Holiday. News wise there is very little to be on the lookout for, but there is still some market-moving events.

Here are the themes to watch this week:

Volume

Volume can be tricky when used as an indicator, but it is important to watch it as a whole. This time of year usually sees lower-than-expected volumes, to begin with and this theme seems to be compounded by the poor market return this year. Average traded volume is off across the board and equities/options are no different. While this should not influence a trading decision, it is something to keep an eye on.

 Seasonality

Again not a hard news event, but this time of year is known for its “Santa Claus Rally” but that has yet to arrive, and may not arrive at all. It is important to note though because it is possible that the week going into Christmas will be a positive one. The volume will mostly likely be lighter than expected which means it is possible to push prices around easier. Much like the volume above, this is not something that is tradable in a classic sense, just something to be aware of. 

Housing Starts/Building Permits

Both numbers are important, but building permits are slightly more important because a house isn’t considered under construction until the permits are issued. With PMI last Friday signaling recessionary readings, it is possible that all eyes will be on the permits/housing starts to see if these are also slower than expected. The theory is that housing construction requires a wide range of services so a strong set of housing numbers means a stronger economy as a whole. If these are weaker than expected it is possible the market could get volatile as it tries to figure out what the Fed’s next steps could be. Especially with the lighter than expected volume.

Consumer Confidence

Coming out Thursday a half hour after the market opens, is the consumer confidence number. Just like last month, this has the potential to be a real market mover, especially given that it is the Holiday season and it is usually a time of higher-than-usual spending on goods and services. If this comes out this weak it could cause some significant volatility and could also signal the beginning of a recession. With interest rates on the rise, job number revisions, and wage growth slowing this has the potential to be a very important report going into Christmas.

Final GDP Q/Q 

Last up this week is the GDP revision that comes out Thursday morning in the US. While typically this is not a real market mover, it has the potential to with all of the talk about the weakening o economic activity. It still may not have any real effect on the market at the time of release, but it will be good to keep an eye on it to see if there is a negative revision from the preliminary number. This would signal a confirmation of a weakening economy and potentially have a ripple effect after the new year.

Best of luck this week and don’t forget to check out my daily options article.

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